SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement, as amended
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
DAKOTA MINING CORPORATION
(Name of Registrant as Specified In Its Charter)
DAKOTA MINING CORPORATION
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A [ ] $500 per each party to the controversy
pursuant to Exchange Act Rule 14a-6(i)(3) [X] Fee computed on table below per
Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies
Common Shares, no par value per share, of Dakota Mining Corporation ("Dakota
Common Shares") Common Stock, par value $.001 per share, of USMX, Inc. ("USMX
Common Stock")
------------------------------------------------
2) Aggregate number of securities to which transaction applies:
.15,828,121 shares of Dakota Common Shares (including shares of Dakota Common
Shares .issuable (i) in the merger assuming the maximum number of shares of USMX
Common Stock to .be exchanged and (ii) upon the exercise of options to purchase
shares of USMX Common Shares .which, following the merger, will constitute
options to purchase USMX Common Stock)
------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11
.$1.375 (based on the average of the high and low prices on March 14, 1997 as
reported on the .American Stock Exchange of the Dakota Common Shares to be
cancelled in the merger and the .applicable exchange ratio)
------------------------------------------------
<PAGE>
4) Proposed maximum aggregate value of transaction:
.$21,763,666.37
------------------------------------------------
5) Total fee paid:
.$6,595.05
------------------------------------------------
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration . statement number, or
the Form or Schedule and the date of its filing.
. 1) Amount previously paid: $6,595.05
------------------------------------------------
. 2) Form, Schedule or Registration State No.: Registration Statement
S-4 filed concurrently
------------------------------------------------
. 3) Filing Party: Dakota Mining Corporation
------------------------------------------------
. 4) Date Filed: March 17, 1997
------------------------------------------------
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement, as amended
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
USMX,INC.
(Name of Registrant as Specified In Its Charter)
USMX,INC.
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A [ ] $500 per each party to the controversy
pursuant to Exchange Act Rule 14a-6(i)(3) [X] Fee computed on table below per
Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies
Common Shares, no par value per share, of Dakota Mining Corporation ("Dakota
Common Shares") Common Stock, par value $.001 per share, of USMX, Inc. ("USMX
Common Stock")
------------------------------------------------
2) Aggregate number of securities to which transaction applies:
.15,828,121 shares of Dakota Common Shares (including shares of Dakota Common
Shares .issuable (i) in the merger assuming the maximum number of shares of
Dakota Common Stock to .be exchanged and (ii) upon the exercise of options to
purchase shares of Dakota Common Shares .which, following the merger, will
constitute options to purchase Dakota Common Stock)
------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11
.$1.375 (based on the average of the high and low prices on March 14, 1997 as
reported on the .American Stock Exchange of the Dakota Common Shares to be
cancelled in the merger and the .applicable exchange ratio)
------------------------------------------------
<PAGE>
4) Proposed maximum aggregate value of transaction:
.$21,763,666.37
------------------------------------------------
5) Total fee paid:
.$6,595.05
------------------------------------------------
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration . statement number, or
the Form or Schedule and the date of its filing.
. 1) Amount previously paid: $6,595.05
------------------------------------------------
. 2) Form, Schedule or Registration State No.: Registration Statement
S-4 filed concurrently
------------------------------------------------
. 3) Filing Party: Dakota Mining Corporation
------------------------------------------------
. 4) Date Filed: March 17, 1997
------------------------------------------------
<PAGE>
As filed with the Securities and Exchange Commission on March 17,
1997. Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------------------------
Dakota Mining Corporation
(Exact name of Registrant as specified in its charter)
Canada 1040 84-1094683
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Code Number) Identification number)
of incorporation
Classification
or organization)
Robert R. Gilmore, Chief Financial Officer
410 Seventeenth Street, Suite 2450 410 Seventeenth Street, Suite 2450
Denver, Colorado 80202 Denver, Colorado 80202
(303) 573-0221 (303) 573-0221
(Address, including zip code, (Name, address,including zip code, and
and telephone number, including telephone number,including area
area code, of Registrant's principal code, of agent for service of
executive office) process)
Copies to:
Richard F. Mauro, Esq. Robert M. Bearman, Esq.
Parcel, Mauro, Hultin & Spaanstra, P.C. Bearman Talesnick & Clowdus
1801 California Street, Suite 3600 Professional Corporation
Denver, Colorado 80202 1200 17th Street, Suite 2600
(303) 292-6400 Denver, Colorado 80202
(303) 572-6500
Approximate date of commencement of proposed sale to the public: Upon
consummation of the transactions contemplated under the Agreement and Plan of
Merger (the "Merger Agreement") described in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement.
- -----------------------------------
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed maximum Proposed
Titles of each class of Amount to be offering price per maximum Amount of
securities to be registered registered share (1) aggregate registration fee(2)
offering
price
- --------------------------------- -------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Common Shares, no nominal
or par value (3)............ 15,828,121 $1.375 6.37 $21,763,66 $6,595.05
</TABLE>
(See footnotes on the following page)
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
(1) Pursuant to Rule 457(c) of the rules and regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), the proposed
maximum offering price per share is the average of the high and low prices
as quoted on The American Stock Exchange on March 14, 1997.
(2) Calculated pursuant to Section 457(c) of the Securities Act.
(3) Upon consummation of the transactions contemplated under the Merger
Agreement, approximately 14,712,893 of these shares will be issued to
holders of Common Stock, par value $.001 per share, of USMX, Inc. ("USMX
Common Stock") as of April 16, 1997. The remaining 1,115,228 shares will be
issuable upon exercise of options, warrants, or other rights to acquire
USMX Common Stock that will be converted into options, warrants, or rights
to acquire Common Shares of the Registrant as of consummation of the
transactions contemplated under the Merger Agreement.
<PAGE>
<TABLE>
<CAPTION>
DAKOTA MINING CORPORATION
Cross-Reference Sheet Between Items in
Form S-4 and the Joint Proxy/Prospectus Pursuant to
Item 501(b) of Regulation S-K
<S> <C> <C>
Item No. Form S-4 Caption Heading in Joint Proxy Statement/Prospectus
Item 1 Forepart of Registration Statement and Outside Cover Page
Outside Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Inside Front Cover Page; Available Information;
Pages of Prospectus Enforceability of Certain Civil Liabilities; Table
of Contents
Item 3 Risk Factors, Ratio of Earnings to Summary; Risk Factors; Capitalization and
Fixed Charges and Other Information Description of Dakota Securities; Description of
USMX Capital Stock
Item 4 Terms of the Transaction Summary; The Merger; Terms of the Merger; United
States Federal Income Tax Considerations of the
Merger; Anticipated Accounting Treatment; Resale
Restrictions; Regulatory Matters; Management and
Operations after the Merger
Item 5 Pro Forma Financial Information Selected Pro Form Consolidated Financial
Information of Dakota Corporation
Item 6 Material Contacts with the Company The Merger
Being Acquired
Item 7 Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to Be Underwriters
Item 8 Interests of Named Experts and Counsel Legal Matters; Experts
Item 9 Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
Item 10 Information with Respect to S-3 Not Applicable
Registrants
Item 11 Incorporation of Certain Information by Not Applicable
Reference
Item 12 Information with Respect to S-2 or S-3 Not Applicable
Registrants
Item 13 Incorporation of Certain Information by Not Applicable
Reference
Item 14 Information with Respect to Registrants Summary; Business and Properties of Dakota; Dakota
Other Than S-3 or S-2 Registrants Management's Discussion and Analysis of Financial
Condition and Results of Operations;
Capitalization and Description of Dakota
Securities; Dakota Financial Statements; Dakota
Selected Consolidated Financial Information
Item 15 Information with Respect to S-3 Not Applicable
Companies
Item 16 Information with Respect to S-2 or S-3 Not Applicable
Companies
Item 17 Information with Respect to Companies Summary; USMX Security Ownership of Certain
Other Than S-3 or S-2 Companies Beneficial Owners; USMX Summary Consolidated
Financial Information; USMX Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business and Properties of
USMX; Description of USMX Capital Stock
Item 18 Information if Proxies, Consents or Dakota Annual and Special Meeting; Dakota
Authorizations are to be Solicited Management; Dakota Security Ownership of Certain
Beneficial
Owners; Dakota
Certain
Relationships
and Related
Transactions;
Capitalization
and Description
of Dakota
Securities; The
USMX Annual
Meeting; USMX
Security
Ownership of
Certain
Beneficial
Owners; USMX
Certain
Relationships
and Related
Transactions;
Description of
USMX Capital
Stock
Item 19 Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited
or in an Exchange Offer
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS OF DAKOTA MINING CORPORATION
April o, 1997
Dear Shareholder:
An annual and special Meeting of shareholders of Dakota Mining
Corporation ("Dakota") will be held on May 22 1997, at 4:00 p.m., local time, in
o, Toronto, Ontario for the purpose of voting on the approval and adoption of an
agreement and plan of merger (the "Merger Agreement") dated February 5, 1997
among Dakota, Dakota Merger Corporation ("Merger Corp."), a wholly-owned
subsidiary of Dakota, and USMX, Inc. ("USMX"), including the issuance of common
shares of Dakota to effect the merger, and all other matters properly coming
before an annual general meeting. If the merger contemplated by the Merger
Agreement is consummated, Merger Corp. will be merged with and into USMX and
USMX, as the surviving corporation, will become a wholly-owned subsidiary of
Dakota. Each 1.1 outstanding shares of common stock of USMX will be converted
into one Dakota Common Share.
Details of the merger and other important information are set forth in
the accompanying Joint Proxy Statement/Prospectus, which you are urged to read
carefully. A copy of the Merger Agreement is attached as Appendix A to the
accompanying Joint Proxy Statement/Prospectus.
Your Board of Directors has carefully reviewed and considered the terms
and conditions of the Merger Agreement. In addition, the Board of Directors has
received the opinion of its financial adviser, Canaccord Capital Corporation,
that the Merger is fair to the shareholders of Dakota from a financial point of
view.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER.
Only holders of Dakota Common Shares of record as of the close of
business on April 14, 1997, have the right to receive notice of and to vote at
the meeting.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED AS SOON AS POSSIBLE. IF YOU ATTEND THE MEETING IN PERSON, YOU
MAY WITHDRAW YOUR PROXY AND VOTE YOUR SHARES. THE BOARD OF DIRECTORS OF DAKOTA
RECOMMENDS THAT YOU MARK YOUR PROXY IN FAVOR OF APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND MERGER.
Sincerely,
DAKOTA MINING CORPORATION
ALAN R. BELL
President and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
OF DAKOTA MINING CORPORATION
To Be Held May 22, 1997
To the Shareholders of Dakota Mining Corporation:
NOTICE IS HEREBY GIVEN that an annual and special meeting (the "Dakota
Meeting") of the shareholders of Dakota Mining Corporation ("Dakota") will be
held on May 22, 1997, in o, Toronto, Ontario commencing at 4:00 p.m., local
time, for the following purposes:
1. To consider and to approve and adopt the agreement and plan of
merger dated February 5, 1997 (the "Merger Agreement") among
Dakota, Dakota Merger Corporation and USMX, Inc. ("USMX"), and to
approve the transactions contemplated thereby, including the
issuance of additional common shares in the capital of Dakota
("Dakota Common Shares"). A copy of the Merger Agreement is
attached as Appendix A to the accompanying Joint Proxy
Statement/Prospectus.
2. To consider and to approve a resolution to ratify an amendment to
Dakota's Share Incentive Plan increasing the number of Dakota
Common Shares issuable thereunder from 3,000,000 to 6,000,000.
3. To approve the issuance of up to 4,884,550 Dakota Common Shares
issuable upon conversion of Debentures issuable upon the exercise
of outstanding Series B Special Warrants of Dakota.
4. To elect directors to the Board of Directors of Dakota.
5. To appoint, and approve the remuneration of, auditors for Dakota.
6. To transact such other business as may properly come before the
Dakota Meeting or any adjournment thereof.
Only those shareholders of record at the close of business on April 14,
1997 will be entitled to notice of, and to vote at, the Dakota Meeting or any
adjournment thereof, except to the extent that a person has transferred Dakota
Common Shares after that date and the new holder of such shares establishes
proper ownership and requests, not later than 10 days before the Dakota Meeting,
to be included in the list of shareholders eligible to vote at the Dakota
Meeting.
THE BOARD OF DIRECTORS OF DAKOTA UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE
DAKOTA MEETING. Proxies are revocable at any time prior to the time they are
voted and shareholders who are present at the Dakota Meeting may withdraw their
proxies and vote in person if they so desire.
Denver, Colorado.
DATED April __, 1997.
By Order of the Board of Directors
DAKOTA MINING CORPORATION
ROBERT R. GILMORE
Vice President, Finance, Chief Financial
Officer and Secretary
<PAGE>
LETTER TO STOCKHOLDERS OF USMX, INC.
April o, 1997
Dear Stockholder:
An annual meeting of stockholders of USMX, Inc. ("USMX") will be held
on May 20, 1997, at 10:00 a.m., local time, in Lakewood, Colorado (the "USMX
Meeting").
At the USMX Meeting, you will be asked to approve certain matters
related to an agreement and plan of merger (the "Merger Agreement") dated
February 5, 1997 among Dakota Mining Corporation ("Dakota"), Dakota Merger
Corporation ("Merger Corp."), a wholly-owned subsidiary of Dakota, and USMX.
Upon completion of the merger of Merger Corp. with and into USMX, USMX, as the
surviving corporation, will become a wholly-owned subsidiary of Dakota. Pursuant
to the terms of the Merger Agreement, each 1.1 outstanding shares of USMX common
stock will be converted into one common share of Dakota. You will also be asked
to approve an agreement regarding the sale of USMX's royalty interest in the
Montana Tunnels Mine to Pegasus Gold Corporation (the "Montana Tunnels Royalty
Agreement").
The Board of Directors of USMX negotiated the terms of the Merger
Agreement by taking into consideration a number of factors, including USMX's and
Dakota's recent financial results, current financial conditions, future
prospects and synergies. Newcrest Capital Inc., USMX's financial advisor, has
provided the Board of Directors with its opinion that the consideration to be
received by USMX stockholders in the Merger is fair from a financial point of
view.
A Notice of Meeting and a Joint Proxy Statement/Prospectus containing
detailed information accompany this letter. The Merger Agreement and Montana
Tunnels Property Agreement are attached as Appendix A and Appendix F,
respectively, to the Joint Proxy Statement/Prospectus. We urge you to read this
material carefully.
THE BOARD OF DIRECTORS OF USMX HAS DETERMINED THAT THE MERGER AND SALE
OF THE MONTANA TUNNELS ROYALTY INTEREST ARE FAIR TO AND IN THE BEST INTERESTS OF
THE HOLDERS OF SHARES OF USMX COMMON STOCK. ACCORDINGLY, THE BOARD RECOMMENDS
THAT YOU VOTE FOR BOTH PROPOSALS.
If the Merger Agreement is approved and the merger is consummated, you will
be sent a letter of transmittal with instructions for surrendering your
certificates representing shares of USMX common stock. Please do not send your
share certificates until you receive these materials.
Your vote is very important, regardless of the number of shares you
own. In order for the merger to proceed, the Merger Agreement must be approved
by the holders of at least a majority of the outstanding shares of common stock
of USMX entitled to vote. Consequently, a failure to vote or an abstention will
have the same effect as a vote against the Merger Agreement. On behalf of the
Board of Directors, I urge you to mark, date, sign and return the enclosed Proxy
as soon as possible, regardless of whether you plan to attend the meeting.
Sincerely,
USMX, INC.
Donald P. Bellum
President and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS OF USMX, INC.
To Be Held May 20, 1997
To the Stockholders of USMX, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting (the "USMX Meeting") of
the stockholders of USMX, Inc. ("USMX") will be held on May 20, 1997, at the
Sheraton Denver West Hotel, 360 Union Boulevard, Lakewood, Colorado, commencing
at 10:00 a.m. local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
agreement and plan of merger dated February 5, 1997 (the "Merger
Agreement") among Dakota Mining Corporation, Dakota Merger Corporation
and USMX and to approve the transactions contemplated thereby. A copy
of the Merger Agreement is attached as Appendix A to the accompanying
Joint Proxy Statement/Prospectus.
2. To consider and vote upon a proposal to approve and adopt the
agreement dated March 17, 1997 (the "Montana Tunnels Royalty
Agreement") among USMX, USMX of Montana, Inc. and Pegasus Gold
Corporation and to approve the sale of the royalty interest in the
Montana Tunnels Mine contemplated thereby. A copy of the Montana
Tunnels Royalty Agreement is attached as Appendix F to the
accompanying Joint Proxy Statement/Prospectus.
3. To elect two directors to Group III of the Board of Directors of USMX.
4. To transact such other business as may properly come before the USMX
Meeting or any adjournment thereof.
Only those stockholders of record at the close of business on April 16,
1997 will be entitled to notice of and to vote at the USMX Meeting or any
adjournments thereof.
THE BOARD OF DIRECTORS OF USMX UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MONTANA TUNNELS
ROYALTY AGREEMENT.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF USMX, AS
SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE USMX MEETING.
Proxies are revocable at any time prior to the time they are voted and
stockholders who are present at the meeting may withdraw their proxies and vote
in person if they so desire.
DATED April __, 1997.
By Order of the Board of Directors USMX, INC.
Donald P. Bellum
President and Chief Executive Officer
<PAGE>
- 1 -
SUBJECT TO COMPLETION, DATED MARCH 17, 1997
DAKOTA MINING CORPORATION
AND
USMX, INC.
MANAGEMENT INFORMATION CIRCULAR AND JOINT PROXY STATEMENT
----------------------------
DAKOTA MINING CORPORATION
PROSPECTUS
----------------------------
This Joint Proxy Statement/Prospectus and Management Information
Circular ("Joint Proxy Statement/Prospectus") is being furnished to shareholders
of Dakota Mining Corporation, a corporation organized pursuant to the laws of
Canada ("Dakota"), and to stockholders of USMX, Inc., a Delaware corporation
("USMX"), in connection with the solicitation of proxies by the Board of
Directors of each corporation for use at the Annual and Special Meeting of
Shareholders of Dakota (the "Dakota Meeting") and the Annual Meeting of
Stockholders of USMX (the "USMX Meeting"), in each case including any
adjournments or postponements thereof. The USMX Meeting is scheduled for May 20,
1997. The Dakota Meeting is scheduled for May 22, 1997. This Joint Proxy
Statement/Prospectus relates primarily to the proposed merger (the "Merger") of
Dakota Merger Corporation, a Delaware corporation and a wholly owned subsidiary
of Dakota ("Merger Corp."), with and into USMX pursuant to the Agreement and
Plan of Merger, dated February 5, 1997 (the "Merger Agreement"), among Dakota,
Merger Corp. and USMX, with USMX, as the surviving corporation in the Merger, to
become a wholly owned subsidiary of Dakota.
If the Merger Agreement is approved by the shareholders of Dakota and
USMX, and the other conditions specified in the Merger Agreement are satisfied
or waived, each 1.1 outstanding shares of USMX Common Stock will be converted
into one Dakota Common Share. This Joint Proxy Statement/Prospectus constitutes
a prospectus of Dakota with respect to up to 15,828,121 Dakota Common Shares
issuable to USMX stockholders in the Merger pursuant to the Merger Agreement or
upon exercise of certain stock options of USMX which, pursuant to the Merger
Agreement and the terms of the related stock option plans, following the Merger,
will constitute options to purchase Dakota Common Shares.
The Dakota Common Shares are traded on the Toronto Stock Exchange
("TSE"), the American Stock Exchange ("AMEX") and the Berlin Stock Exchange
("BSE"). USMX Common Stock is traded on The Nasdaq Stock Market ("Nasdaq") and
the TSE.
For a description of certain factors that should be considered by
shareholders of Dakota and USMX, see "Risk Factors on page __."
All information in this Joint Proxy Statement/Prospectus concerning
Dakota has been furnished by Dakota, and all information in this Joint Proxy
Statement/Prospectus concerning USMX has been furnished by USMX.
Certain capitalized terms used herein have the meanings ascribed to
such terms under the heading "General Glossary on page __." Unless otherwise
noted, all references to currency herein are to United States dollars.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON
THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is April __, 1997,
and it is first being mailed to the shareholders of Dakota and USMX on or about
April __, 1997.
<PAGE>
<TABLE>
<CAPTION>
- iii -
TABLE OF CONTENTS
Page No.
<S> <C>
AVAILABLE INFORMATION......................................................................................- 1 -
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES................................................................- 1 -
SUMMARY - 2 -
The Corporations..................................................................................- 2 -
Meetings of Dakota and USMX.......................................................................- 2 -
Proposed Merger...................................................................................- 4 -
Summary of Pro Forma Financial Data...............................................................- 9 -
Comparative Per Share Financial Information......................................................- 10 -
RISK FACTORS..............................................................................................- 11 -
General Risks Related to the Mining Industry.....................................................- 11 -
Specific Risks Related to Dakota.................................................................- 14 -
Specific Risks Related to USMX...................................................................- 15 -
Risks Related to the Merger......................................................................- 19 -
CURRENCY AND GOLD PRICES..................................................................................- 20 -
THE MERGER................................................................................................- 21 -
General - 21 -
Background to the Merger.........................................................................- 21 -
Dakota's Reasons for the Merger and Board of Directors' Recommendation...........................- 24 -
Fairness Opinion of Canaccord Capital Corporation................................................- 26 -
USMX's Reasons for the Merger and Board of Directors' Recommendation.............................- 30 -
Fairness Opinion of Newcrest Capital, Inc........................................................- 32 -
TERMS OF THE MERGER.......................................................................................- 34 -
Consequences and Effective Time of Merger........................................................- 34 -
Conversion of USMX Common Stock..................................................................- 35 -
Conversion of USMX Options.......................................................................- 35 -
Exchange of Certificates.........................................................................- 35 -
Conditions to the Merger.........................................................................- 35 -
Termination of the Merger Agreement..............................................................- 36 -
Shareholder Approvals............................................................................- 37 -
Representations, Warranties and Covenants under the Merger Agreement.............................- 37 -
Other Agreements.................................................................................- 38 -
Interests of Certain Persons in the Merger.......................................................- 40 -
Comparison of Rights of Holders of Shares of USMX Common Stock Under Delaware and
Canadian Law...........................................................................- 41 -
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER.............................................- 46 -
Tax Free Merger..................................................................................- 46 -
Certain United States Federal Income Tax Consequences of USMX's U.S. Stockholders Becoming
Holders of Dakota Common Shares.........................................................- 47 -
U.S. Holders.....................................................................................- 47 -
<PAGE>
Certain U.S. Shareholder Filing Requirements.....................................................- 47 -
Distributions on Dakota Common Shares ..........................................................- 47 -
Foreign Tax Credit...............................................................................- 48 -
Disposition of Dakota Common Shares..............................................................- 48 -
Other Considerations.............................................................................- 49 -
Certain Limitations on Net Operating Losses......................................................- 49 -
Certain Non-US Shareholders......................................................................- 50 -
ANTICIPATED ACCOUNTING TREATMENT..........................................................................- 50 -
RESALE RESTRICTIONS.......................................................................................- 50 -
REGULATORY MATTERS........................................................................................- 51 -
MANAGEMENT AND OPERATIONS AFTER THE MERGER................................................................- 51 -
SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATIONOF DAKOTA MINING CORPORATION.........................- 51 -
DAKOTA ANNUAL AND SPECIAL MEETING.........................................................................- 60 -
Solicitation of Proxies..........................................................................- 60 -
Appointment and Revocation of Proxies............................................................- 60 -
Voting of Proxies and Discretionary Authority....................................................- 60 -
Voting Securities................................................................................- 61 -
Approval Required................................................................................- 61 -
Matters to be Addressed at the Dakota Meeting....................................................- 62 -
Corporate Governance.............................................................................- 68 -
Executive Officers...............................................................................- 69 -
Voting Commitments, Agreements or Understandings.................................................- 70 -
DAKOTA MANAGEMENT.........................................................................................- 70 -
Executive Compensation...........................................................................- 70 -
Report on Executive Compensation.................................................................- 72 -
Directors' and Officers' Liability Insurance.....................................................- 75 -
DAKOTA SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS....................................................- 75 -
DAKOTA SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............................................- 77 -
DAKOTA CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................- 77 -
Interests Of Management And Others In Material Transactions......................................- 77 -
Certain Transactions Relating To Principal Shareholders..........................................- 77 -
Indebtedness of Directors and Senior Officers....................................................- 77 -
DAKOTA SELECTED CONSOLIDATED FINANCIAL INFORMATION........................................................- 78 -
DAKOTA MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............- 79 -
Liquidity and Capital Resources..................................................................- 79 -
Results of Operations............................................................................- 85 -
BUSINESS AND PROPERTIES OF DAKOTA.........................................................................- 89 -
<PAGE>
Corporate Structure..............................................................................- 89 -
Business of Dakota...............................................................................- 90 -
Properties.......................................................................................- 91 -
Gilt Edge Mine..........................................................................- 91 -
Golden Reward Mine......................................................................- 93 -
Stibnite Mine...........................................................................- 96 -
CAPITALIZATION AND DESCRIPTION OF DAKOTA SECURITIES.......................................................- 99 -
Description of Dakota Share Capital and Debentures..............................................- 100 -
Common Shares..........................................................................- 100 -
Preference Shares......................................................................- 100 -
Debentures.............................................................................- 100 -
Trading History.................................................................................- 101 -
Dividend Policy.................................................................................- 101 -
THE USMX ANNUAL MEETING..................................................................................- 102 -
Time, Date and Place of USMX Meeting............................................................- 102 -
Record Date.....................................................................................- 102 -
Business to be Conducted at USMX Meeting........................................................- 102 -
Vote Required...................................................................................- 102 -
Voting Commitments, Agreements or Understandings................................................- 102 -
Voting and Revocation of Proxies................................................................- 103 -
Solicitation of Proxies.........................................................................- 103 -
Election of Directors of USMX...................................................................- 103 -
Executive Compensation..........................................................................- 105 -
USMX SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.....................................................- 109 -
USMX SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.............................................- 110 -
USMX CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................- 110 -
USMX SUMMARY CONSOLIDATED FINANCIAL INFORMATION..........................................................- 112 -
USMX MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................- 114 -
Going Concern Uncertainty.......................................................................- 114 -
Liquidity and Capital Resources.................................................................- 114 -
Results of Operations...........................................................................- 116 -
Change in the Volume of Gold Sold and Selling Price of Gold.....................................- 116 -
Change in Costs Applicable to Sales.............................................................- 117 -
Cost of Mineral Properties Abandoned and Provisions for Impairments of Investments in Mineral
Properties.............................................................................- 117 -
Asset Dispositions and Gain on Sale of Common Stock.............................................- 118 -
Other Costs and Expenses........................................................................- 118 -
BUSINESS AND PROPERTIES OF USMX..........................................................................- 120 -
Introduction....................................................................................- 120 -
History of Operations...........................................................................- 120 -
The Illinois Creek Project......................................................................- 121 -
The Thunder Mountain Project....................................................................- 126 -
Montana Tunnels.................................................................................- 128 -
<PAGE>
Exploration.....................................................................................- 128 -
Mexico - 130 -
Ecuador - 131 -
DESCRIPTION OF USMX CAPITAL STOCK........................................................................- 132 -
Certain Potential Anti-Takeover Effects.........................................................- 132 -
Trading History.................................................................................- 132 -
Dividend Policy.................................................................................- 133 -
LEGAL MATTERS............................................................................................- 133 -
EXPERTS - 133 -
SHAREHOLDERS PROPOSALS...................................................................................- 134 -
ANNUAL REPORT ON FORM 10-K...............................................................................- 134 -
</TABLE>
<PAGE>
- 98 -
AVAILABLE INFORMATION
Dakota and USMX are both subject to the informational requirements of
the Exchange Act, and, in accordance therewith, they each file reports and other
information with the SEC. Reports, proxy and information statements and other
information filed by Dakota or USMX may be inspected without charge at, and
copies of which may be obtained at prescribed rates from, the public reference
facilities of the SEC's principle office at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the SEC's regional offices at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. The SEC maintains a Web site (http://www.sec.gov) that contains
such materials that have been or will be filed by Dakota and USMX.
Dakota Common Shares are listed on the TSE, AMEX and the BSE. Reports,
proxy statements and other information concerning Dakota can be inspected at the
offices of the TSE at 2 First Canadian Place, Toronto, Ontario, Canada, MSX 1J2
and at the offices of AMEX at 86 Trinity Place, New York, New York 10006.
USMX Common Stock is traded on the TSE and quoted through Nasdaq.
Reports, proxy statements and other information concerning USMX can be inspected
at the offices of the TSE at the address given above and at the offices of the
National Association of Securities Dealers, 1735 K Street, N.W., Washington,
D.C. 2006.
Dakota has filed a Registration Statement on Form S-4 under the
Securities Act with the SEC covering the Dakota Common Shares to be issued
pursuant to the Merger Agreement. This Joint Proxy Statement/Prospectus, which
constitutes a part of the Registration Statement, does not contain all
information set forth in the Registration Statement, certain items of which are
contained as schedules and exhibits to the Registration Statement, as permitted
by the rules and regulations of the SEC. For further information, please refer
to the Registration Statement, including the exhibits thereto which may be
obtained from the SEC at its principle office in Washington, D.C. Statements
contained in this Joint Proxy Statement/Prospectus relating to the contents of
any contract or other document referred to herein are not necessarily complete,
and reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY DAKOTA OR USMX. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, NOR DOES IT CONSTITUTE THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF DAKOTA OR USMX SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
Dakota is a corporation continued under the Canada Business
Corporations Act. Certain of Dakota's directors and officers and certain experts
named herein are residents of Canada, and all or a substantial portion of the
assets of such persons and some of the assets of Dakota are located outside the
United States. Consequently, it may be difficult for United States investors to
effect service of process within the United States upon such persons, or to
realize in the United States upon judgments rendered against Dakota or such
persons by courts of the United States predicated upon civil liabilities under
United States federal securities laws. There is doubt as to the enforceability
in Canada against Dakota or any of its directors and officers or experts named
herein who are not residents of the United States, in original actions or in
actions for enforcement of judgments rendered by courts of the United States, of
liabilities predicated solely on the United States federal securities laws.
<PAGE>
SUMMARY
This Joint Proxy Statement/Prospectus contains forward-looking
statements that involve risks and uncertainties. Dakota's and USMX's actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in the section entitled "Risk Factors" and elsewhere in this Joint
Proxy Statement/Prospectus. The following is a summary of certain information
contained elsewhere in this Joint Proxy Statement/Prospectus. Reference is made
to, and this summary is qualified in its entirety by, the more detailed
information contained in this Joint Proxy Statement/Prospectus and the
Appendices hereto. Unless otherwise defined herein, capitalized terms used in
this summary have the respective meanings ascribed to such terms under the
heading "General Glossary." In this Joint Proxy Statement/Prospectus, all dollar
amounts are expressed in United States dollars unless otherwise indicated.
SHAREHOLDERS ARE URGED TO READ THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE
APPENDICES HERETO IN THEIR ENTIRETY.
The Corporations
Dakota Mining Corporation Dakota is engaged in the
business of investing in and operating precious
metals mining projects, producing gold and silver
and exploring for, acquiring and developing
precious metals properties. Its principal executive
offices are located at 410 Seventeenth Street,
Suite 2450, Denver, Colorado 80202, (303) 573-0221.
USMX, Inc. USMX is engaged in the exploration for and
development of precious metals properties and the
production of gold. Its principal executive offices
are located at 141 Union Boulevard, Suite 100,
Lakewood, Colorado 80228, (303) 985-4665.
Meetings of Dakota and USMX
Dakota Meeting The Dakota Meeting is scheduled to be held
on May 22, 1997 at 4:00 p.m., local time, in o,
Toronto, Ontario.
Purpose of Dakota Meeting The purpose of the Dakota Meeting is to consider
and vote on: (i) the approval and adoption of the
Merger Agreement providing for the merger of Merger
Corp. with and into USMX and the issuance of Dakota
Common Shares in connection therewith; (ii) a
resolution to ratify an amendment to Dakota's Share
Incentive Plan increasing the number of Dakota
Common Shares issuable thereunder from
3,000,000 to 6,000,000; (iii) a resolution to
approve the issuance of up to 4,884,550 Dakota
Common Shares upon conversion of certain Debentures
issuable upon exercise of outstanding Series B
Special Warrants of Dakota; (iv) the election of
directors; (v) the appointment and remuneration of
auditors of Dakota; and (vi) the transaction of
any other business as may properly be brought
before the Dakota Meeting or any adjournment
thereof.
Merger Vote Required at The affirmative vote of a majority of the Dakota
Dakota Meeting Common Shares voting by proxy or in person at the
Dakota Meeting is required to approve and adopt the
Merger Agreement and the issuance of Dakota Common
Shares in connection with the Merger.
As of the Dakota Record Date, directors and
officers of Dakota and its affiliates had the right
to vote approximately 3.16% of the issued and
outstanding Dakota Common Shares entitled to vote
at the Dakota Meeting. There are no agreements,
commitments or understandings between Dakota and
its directors, officers or shareholders with
respect to voting at the Dakota Meeting.
<PAGE>
Dakota Record Date; The Board of Directors of Dakota has fixed the
Shares Entitled to Vote closing of business on April 14, 1997 as the
record date for determining holders of Dakota
Common Shares entitled to notice of and to vote at
the Dakota Meeting. As of the Dakota Record Date,
35,479,742 Dakota Common Shares were issued and
outstanding. Dakota Common Shares are the only
class of capital stock of Dakota issued and
outstanding. Each Dakota Shareholder of record as
of the close of business on the Dakota Record Date
is entitled at the Dakota Meeting to one vote for
each Dakota Common Share held.
USMX Meeting The USMX Meeting is scheduled to be held on
May 20, 1997 at 10:00 a.m., local time, in
Lakewood, Colorado.
Purpose of USMX Meeting At the USMX Meeting, USMX
Stockholders will be asked to consider and vote on
(i) the approval and adoption of the Merger
Agreement and the transactions contemplated
thereby; (ii) the approval and adoption of the
Montana Tunnels Royalty Agreement and the
transactions contemplated thereby; (iii) the
election of directors, and (iv) the transaction of
any other business as may properly be brought
before the USMX Meeting or any adjournments
thereof.
Merger Vote Required at The affirmative vote of a majority of the issued USMX
Meeting and outstanding shares of USMX Common Stock is
required to approve and adopt the Merger Agreement.
As a result, abstentions, failures to vote and
broker non-votes will have the same effect as votes
against the Merger Agreement.
As of the USMX Record Date, directors and officers
of USMX and its affiliates had the right to vote
approximately 35.1% of the outstanding shares of
USMX Common Stock entitled to vote at the USMX
Meeting. Such voting rights include approximately
29.8% of the outstanding shares of USMX which are
held by Pegasus Gold and can be considered to be
held beneficially by two directors of USMX. There
are no agreements, commitments or understandings
between USMX and its directors, officers or, except
as set forth below, stockholders with respect to
voting at the USMX Meeting.
Pegasus Gold Support Pegasus Gold, the owner of approximately 29.8%
Agreement of the outstanding shares of USMX Common Stock,
has entered into an agreement with Dakota and USMX
pursuant to which Pegasus Gold has agreed to vote
in favor of the Merger, subject to the conditions
set forth therein.
USMX Record Date; Shares The Board of Directors of USMX has fixed the close
Entitled to Vote of business on April 16, 1997 for the
determination of USMX Stockholders entitled to
notice of and to vote at the USMX Meeting. As of
the USMX Record Date there were 16,184,182 shares
of USMX Common Stock issued and outstanding.
Transfer and Exchange Montreal Trust Company of Canada is the transfer
Agents agent and registrar in respect of the Dakota
Common Shares. Montreal Trust Company of
Canada will also act as the Exchange Agent with
respect to exchange of shares of USMX Common
Stock for Dakota Common Shares in connection with
the Merger. American Securities Transfer Inc.
will act as the transfer agent with respect to the
USMX Meeting.
<PAGE>
Proposed Merger
Terms of the Merger At the Effective Time, Merger Corp. will merge
with and into USMX, and USMX will survive the
Merger as a wholly-owned subsidiary of Dakota. At
the Effective Time each 1.1 outstanding shares of
USMX Common Stock will be converted into one
Dakota Common Share. With respect to outstanding
shares of USMX Common Stock at the Effective Time,
no fractional Dakota Common Shares will be issued;
if the conversion of USMX Common Stock would
result in any USMX Stockholder being entitled to
a fractional Dakota Common Share, each USMX
Stockholder will receive a single whole Dakota
Common Share in lieu thereof. All shares of USMX
Common Stock owned at the Effective Time by USMX
as treasury stock or by any member of the USMX
Group or the Dakota Group will be canceled
pursuant to the terms of the Merger Agreement.
Each outstanding option to purchase USMX Common
Stock will be converted into an option to acquire
Dakota Common Shares on the basis of one Dakota
Common Share for each 1.1 shares of USMX Common
Stock underlying each option.
Interests of Certain In considering the recommendation of the USMX
Persons in the Merger Board ofDirectors with respect to the Merger
Agreement, USMX Stockholders should be aware that
certain members of USMX management and the USMX
Board of Directors have certain interests in the
Merger that are in addition to the interests of
USMX Stockholders generally. See "Terms of the
Merger - Interests of Certain Persons in the
Merger."
Closing and Effective Time The Closing of the Merger will
take place as soon as possible after the later of
the USMX Meeting and Dakota Meeting has been held,
provided that certain conditions to the Merger set
forth in the Merger Agreement are satisfied or,
where permissible, waived. The Merger will become
effective upon the filing of a certificate of
merger with the Secretary of State of the State of
Delaware in accordance with the DGCL. Such filing
will be made as soon as practicable after the
approval of the Merger at the Dakota Meeting and
the USMX Meeting.
Conditions of the Merger The respective obligations of USMX, Dakota, and
and Termination Merger Corp. to consummate the Merger are subject
to the fulfilment or waiver (where permissible) of
certain conditions set forth in the Merger
Agreement. See "Terms of the Merger-Conditions
to the Merger."
The Merger Agreement is subject to termination at
the option of either USMX or Dakota if the
Effective Time has not occurred at or before June
30, 1997, and prior to such time upon the
occurrence of certain events. See "Terms of the
Merger-Termination of the Merger Agreement."
<PAGE>
Recommendations of the The respective Boards of Directors of Dakota and
Boards of Directors USMX believe the terms of the Merger are fair and
reasonable to, and in the best interests of, their
respective shareholders and have unanimously
approved the Merger Agreement and the transactions
contemplated thereby. The Board of Directors of
Dakota unanimously recommends that Dakota
Shareholders vote FOR approval and adoption of the
Merger Agreement and the issuance of Dakota Common
Shares as contemplated therein. The Board of
Directors of USMX unanimously recommends that USMX
Stockholders vote FOR approval and adoption of the
Merger Agreement and the transactions contemplated
thereby. The Dakota and USMX Boards of Directors'
recommendations are based upon a number of factors
described in this Joint Proxy
Statement/Prospectus. In particular, see "The
Merger - Dakota's Reasons for the Merger and Board
of Directors' Recommendation" and "The Merger
USMX's Reasons for the Merger and Board of
Directors' Recommendation".
Fairness Opinions Among other factors considered by the Dakota Board
of Directors in approving the Merger was the
opinion of Canaccord. Canaccord delivered a
written opinion on March 14, 1997 to the Dakota
Board of Directors to the effect that the Merger
is fair, from a financial point of view, to Dakota
shareholders. A copy of the Canaccord opinion is
attached to this Joint Proxy Statement/Prospectus
as Appendix C. The attached opinion sets forth the
assumptions made, matters considered, the scope of
limitations of the review undertaken and
procedures followed by Canaccord and should be
read in its entirety.
USMX engaged Newcrest to deliver a written opinion
to the USMX Board of Directors on the fairness of
the Merger from a financial point of view.
Newcrest delivered a written opinion on March 14,
1997 to the USMX Board of Directors to the effect
that the consideration to be paid to holders of
shares of USMX Common Stock in connection with the
Merger is fair to USMX stockholders from a
financial point of view, based upon and subject to
the matters set forth in its opinion. The full
text of the Newcrest opinion, which sets forth the
assumptions made, matters considered and
limitations on the review undertaken, is attached
as Appendix D to this Joint Proxy
Statement/Prospectus. USMX stockholders are urged
to read the Newcrest opinion in its entirety.
Exchange of Share Following the Effective Date of the Merger,
Certificates holders of sharesof USMX Common Stock will
receive a transmittal letter from the Exchange
Agent instructing them on the submission of their
USMX Common Stock certificates in exchange for
certificates representing Dakota Common Shares.
USMX Stockholders should not surrender their
certificates for new certificates representing
Dakota Common Shares until such time.
<PAGE>
United States Federal Dakota and USMX have received an opinion from
Income Tax Considerations Coopers &Lybrand L.L.P. that the Merger will,
under current law, be treated as a tax-free
reorganization under the Code for United States
federal income tax purposes. Accordingly, although
not entirely free from doubt, U.S. Stockholders of
USMX who exchange all of their shares of USMX
Common Stock solely for Dakota Common Shares
should not recognize any gain or loss, provided
that USMX Stockholders who are U.S. Persons and
who will own or be deemed to own 5% or more of
Dakota after the Merger will be required to enter
into a gain recognition agreement with the IRS in
order to further satisfy the requirements for
their own tax-free treatment in the Merger. In
addition, USMX Stockholders who are U.S. Persons
will be required to file certain notices with the
IRS in order to avoid incurring adverse tax
consequences including penalties. Neither Dakota
nor USMX will recognize gain or loss as a result
of the Merger. In rendering such opinion, Coopers
& Lybrand LLP has relied upon certain assumptions,
conditions, and qualifications as set forth in
their opinion to Dakota and USMX. Each USMX
Stockholder should consult his or her tax advisor
as to the specific tax consequences of the Merger
to him or her, including the application of
federal, state, local and other tax laws and
possible effects of changes in federal or other
tax laws. See "United States Federal Income Tax
Considerations of the Merger-Tax Free Merger" and
"Risk Factors-Risks Related to the Merger-United
States Federal Income Tax Treatment of the
Merger."
Stock Exchange Listings Dakota will apply to list the
Dakota Common Shares issued in connection with the
Merger on the TSE, AMEX and the BSE.
Resale Restrictions All Dakota Common Shares received in connection
with the Merger by USMX Stockholders
will be freely transferable under United States
law, except that Dakota Common Shares received by
persons who are deemed to be "affiliates" (as such
term is defined for purposes of Rule 145 under the
Securities Act) of USMX may be resold by
such persons only in certain permitted
circumstances. To the extent necessary, Dakota
will apply for rulings or orders of securities
regulatory authorities of Canada to permit resale
of such shares in Canada without restriction by a
shareholder other than a "control person" (as such
term is defined under applicable Canadian
securities legislation), provided that no unusual
effort is made to prepare the market for any such
resale or to create demand for the securities and
no extraordinary commission or consideration is
paid in respect thereof. See "Terms of
the Merger- Interests of Certain Persons in the
Merger-Resale of Dakota Common Shares."
Comparison of Rights of See "Terms of the Merger - Comparison of
Holders Rights of Holders of Shares of USMX Common Stock
under Delaware and Canadian Law" for a summary of
the material differences between the rights of
holders of shares of USMX Common Stock and Dakota
Common Shares.
No Dissenters' Rights Holders of Dakota Common Shares
and holders of USMX Common Stock will not be
entitled to any dissenters' or appraisal rights
under Canadian law or Delaware law, as the case
may be, as a result of the matters to be voted
upon at the Dakota Meeting or the USMX Meeting.
<PAGE>
Market Price and Share The Dakota Common Shares are listed for trading
Exchange Ratio on the TSE and AMEX under the symbol "DKT" and
the BSE under the symbol "DMC." On January 2,
1997, the day preceding the date of the public
announcement of the Merger, the closing sale price
on the TSE of Dakota Common Shares was Cdn.$1.96
per share and on AMEX was US$1.63 per share. USMX
Common Stock is listed for trading on the TSE
under the symbol "USM" and is quoted through
Nasdaq under the symbol "USMX." On January 2,
1997, the day preceding the date of the public
announcement of the Merger, the closing sale price
on Nasdaq was US$1.75 per share. No TSE quote is
furnished as the trading on that exchange of USMX
Common Stock has been limited and sporadic in
nature. In determining whether to approve the
transactions pursuant to the Merger Agreement,
Dakota Shareholders and USMX Stockholders should
consider that the price of the Dakota Common
Shares at the Effective Time, as well as the
prices at the date of this Joint Proxy
Statement/Prospectus and at the date of the Dakota
Meeting or USMX Meeting, may vary as a result of
changes in the business, operations or prospects
of Dakota or USMX, market assessments of the
likelihood that the Merger will be consummated and
the timing thereof, general market and economic
conditions and other factors. As the Effective
Time will occur after the Dakota Meeting and USMX
Meeting, there can be no assurance that the sale
price of Dakota Common Shares on the date of the
Dakota Meeting or USMX Meeting will be indicative
of the sale price of Dakota Common Shares at the
Effective Time. The Effective Time will occur as
soon as practicable following the Dakota Meeting
and the USMX Meeting and the satisfaction or
waiver of the other conditions set forth in the
Merger Agreement. See "Terms of the Merger
Conditions to the Merger", "Capitalization and
Description of Dakota Securities-Trading History"
and "Description of USMX Capital Stock-Trading
History."
Dakota Shareholders and USMX Stockholders should
also consider that the Share Exchange Ratio is a
fixed ratio in the Merger Agreement. As a result,
the Share Exchange Ratio will not be adjusted in
the event of an increase or decrease in the market
price of either the Dakota Common Shares or the
USMX Common Stock, or both. The share exchange
ratio is one Dakota Common Share for each 1.1
outstanding shares of USMX Common Stock.
Capitalization of Dakota Based on the number of Dakota Common Shares
After the Merger outstanding on March 14, 1997 and the Share
Exchange Ratio, on consummation of the Merger
there will be approximately 50.2 million Dakota
Common Shares outstanding. The Dakota Common
Shares issued to stockholders of USMX pursuant to
the Merger Agreement will comprise approximately
29.3% of the total number of Dakota Common Shares
outstanding assuming all vested options and
conversion rights (other than "out of the money"
options and conversion rights and assuming no
conversion of the Debentures) are exercised (and
approximately 22.5% on a fully diluted basis).See
"Dakota-Capitalization and Description of Dakota
Securities."
<PAGE>
Financing Pursuant to an Agency Agreement dated as of
February 5, 1997, Dakota sold by way of private
placement 25,000 Special Warrants, comprised of
16,119 Series A Special Warrants and 8,881 Series
B Special Warrants, for net proceeds of Cdn.
$23.5 million. Such proceeds, less U.S. $5 million
which has been released to Dakota and provided to
USMX in the form of a line of credit (See "Terms
of the Merger-Other Agreements-$5,000,000 Loan
Agreement") are currently held in escrow pending
completion of the Merger, Dakota Shareholder
approval of the issue of the Dakota Common Shares
ultimately underlying the Series B Special
Warrants and the filing of a prospectus in Canada
in respect of the Special Warrants and underlying
securities. The Special Warrants are exercisable
for Cdn.$25 million aggregate principal amount of
7.5% unsecured convertible debentures
("Debentures") of Dakota. Each Cdn.$1,000
principal amount of Debentures is convertible to
500 Dakota Common Shares, subject to adjustment
in certain circumstances. The net proceeds
realized by Dakota from the sale of the Special
Warrants will be principally used to complete
construction and commence startup of USMX's
Illinois Creek Mine, for development drilling,
repayment of $1.5 million of USMX's bank debt and
for general working capital purposes. At the
Dakota Meeting, Dakota Shareholders will be asked
to approve the issuance of the Series B Special
Warrants.
Risk Factors For information concerning certain risk
factors that should be considered by prospective
investors, see "Risk Factors" commencing on page
o.
<PAGE>
Summary of Pro Forma Financial Data
The following summary of unaudited pro forma consolidated financial
information of Dakota has been prepared in accordance with Canadian GAAP to
illustrate the estimated effect of the transactions contemplated by the Merger
Agreement and certain related transactions as if the transactions had been
completed on December 31, 1996 with respect to the balance sheet data and on
January 1, 1996 with respect to the statement of operations data. The Merger has
been accounted for using the purchase method of accounting. See "Pro Forma
Consolidated Financial Information of Dakota Mining Corporation" for the pro
forma financial statements and the assumptions related thereto in their
entirety.
<TABLE>
<CAPTION>
Summary of Dakota Pro Forma Consolidated Financial Information
($000's, except per share amounts)
(unaudited)
Balance Sheet Data: As at December 31, 1996
-------------------- -----------------------
Historical Pro forma
Dakota USMX (1) Consolidated
<S> <C> <C> <C>
Assets
Current assets................................ $ 9,361 $ 2,261 $ 27,253
Noncurrent assets............................. 22,208 47,894 74,107
------ ------ ------
31,569 50,155 101,360
====== ====== =======
Liabilities
Current liabilities........................... $ 8,355 $29,393 $ 23,338
Long-term liabilities......................... 9,755 4,221 30,792
Shareholders' equity
Share capital and other....................... 52,593 19,597 86,364
Accumulated deficit........................... (39,134) (3,056) (39,134)
------- ------ -------
$31,569 $50,155 $101,360
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations Data: Year Ended December 31, 1996
--------------------------------------------
Historical Pro forma
Dakota USMX (1) Combined
<S> <C> <C> <C>
Revenue....................................... $24,556 $ -- $ 24,556
Loss.......................................... (23,070) (3,302) (27,485)
Loss per common share......................... (0.73) (0.22) (0.61)
Weighted average number of common shares
outstanding (in thousands)................. 31,405 15,285 46,118
<FN>
(1) The historical consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles. There are no material
differences between U.S. GAAP and Canadian GAAP with respect to USMX
financial information used to prepare the pro forma consolidated financial
information.
</FN>
</TABLE>
<PAGE>
Comparative Per Share Financial Information
The following tables present selected historical per common share data
for Dakota and USMX and pro forma data per share of Dakota Common Shares and
equivalent shares of USMX Common Stock. Based upon the terms of the Merger
Agreement and resulting attributes of the Merger, the pro forma data has been
prepared using the purchase method of accounting in accordance with Canadian
GAAP. This data should be read in conjunction with the financial statements and
other financial and pro forma financial information with respect to Dakota and
USMX included elsewhere herein.
Year Ended
December 31, 1996
Dakota
Historical
Net loss per Common Share......................................... $ (0.73)
Book value per Common Share (at period end)....................... $ 0.38
Pro Forma Combined:(1)
Net loss per Common Share............................................$ (0.61)
Book value of Common Share (at period end)........................ $ 0.97
USMX
Historical
Net loss per share of Common Stock................................ $ (0.22)
Book value per share of Common Stock (at period end).............. $ 1.02
Pro-Forma Equivalent:(2)
Net loss per share of Common Share...................................$ (0.55)
Book value per share of Common Share (at end of period)............. $ 0.88
(1)Based on pro forma combined data for Dakota and USMX after giving effect to
the Merger and related transactions at the beginning of the year for
purposes of determining net loss per common share and at the end of the
year for purposes of determining book value per share of Common Stock.
(2)The equivalent pro forma data for USMX was calculated by dividing the pro
forma combined Dakota per common share data by the Share Exchange Ratio of
1.1 shares of USMX Common Stock for one Dakota Common Share.
<PAGE>
RISK FACTORS
In evaluating the securities qualified hereunder, prospective investors
should consider the following factors among others which relate to Dakota and
USMX upon completion of the Merger. The following cautionary statements are made
pursuant to the United States Private Securities Litigation Reform Act of 1995
in order for Dakota and USMX to avail themselves of the "safe harbor" provisions
of the Act. The discussions and information in this Joint Proxy
Statement/Prospectus may contain both historical and forward-looking statements.
To the extent that this Joint Proxy Statement /Prospectus contains
forward-looking statements regarding the financial condition, operating results,
business prospects or any other aspect of Dakota or USMX, please be advised that
Dakota's and USMX's actual financial conditions, operating results and business
performance may differ materially from that projected or estimated in
forward-looking statements. Dakota and USMX have attempted to identify, in
context, certain of the factors that they currently believe may cause actual
future results to differ from their current expectations. The differences may be
caused by a variety of factors, including but not limited to fluctuations in the
price of gold, adverse economic conditions, adverse government regulation, both
foreign and domestic, inadequate capital, unexpected costs, the imposition of
new, or the increase of existing, tariffs, lower revenues and net income than
forecasted, higher than anticipated labor costs, the possible acquisition of new
businesses that do not perform as anticipated, the possible fluctuation and
volatility of operating results and financial condition, inability to carry out
exploration and production plans, loss of key executives, changes in interest
rates, inflationary factors, and other specific risks that may be alluded to in
this Joint Proxy Statement/Prospectus or in other reports issued by Dakota or
USMX. Dakota and USMX caution the reader that this list of factors may not be
exhaustive.
General Risks Related to the Mining Industry
Nature of Mineral Exploration and Production. Exploration for and, if
warranted, production of minerals is highly speculative and involves greater
risks than many other businesses. Many exploration programs do not result in the
discovery of mineralization and any mineralization discovered may not be of
sufficient quantity or quality to be profitably mined. Uncertainties as to the
metallurgical amenability of any minerals discovered may not warrant the mining
of these minerals on the basis of available technology. Moreover, short-term
factors relating to the ore reserves, such as the need for orderly development
of ore bodies or the processing of new or different grades, may impair the
profitability of a mine in any particular accounting period. Mining operations
are also subject to a number of other hazards and risks such as encountering
unusual or unexpected formations, environmental pollution, industrial accidents,
rock movements and flooding, many of which cannot be insured against.
Project Development Risks. USMX and Dakota from time to time engage in
the development of new ore bodies. The ability of USMX and Dakota to sustain or
increase the 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 on, among other things, estimates of
reserves, metallurgical 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 operating costs are
to a large extent based on the interpretation of geologic data obtained from
drill holes and other sampling techniques and feasibility studies which derive
estimates of cash operating costs based on 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.
<PAGE>
Exploration. Mineral exploration, particularly for gold, is highly
speculative in nature, involves many risks and frequently is unsuccessful.
Dakota and USMX are seeking to expand reserves through exploration and
development at the Illinois Creek, Alaska and Thunder Mountain, Idaho properties
as well as through exploration in other parts of North America and in Latin
America. There can be no assurance that exploration efforts will result in the
discovery of gold mineralization. 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 exploration programs
of Dakota and USMX will result in reserves.
Competition and Scarcity of Mineral Lands. Although many companies and
individuals are engaged in the mining business, including large established
mining companies, there is a limited supply of desirable mineral lands available
for claim staking, lease or other acquisition in the United States and other
areas where USMX and Dakota contemplate conducting exploration and/or production
activities. USMX and Dakota may be at a competitive disadvantage in acquiring
suitable mining properties as they must compete with other individuals and
companies, many of which have greater financial resources and larger technical
staffs than USMX or Dakota. As a result there can be no assurance USMX or Dakota
will be able to acquire attractive properties.
Government Regulation. Dakota's and USMX's mining operations are
subject to various laws and regulations concerning prospecting, developing,
production, exports, taxes, labor standards, occupational health, waste
disposal, toxic substances, environmental protection, mine safety and other
matters. Dakota and USMX seek to make good faith efforts to comply with all
applicable laws and regulations. Instances of non-compliance or new laws or
regulations governing operations and activities of mining companies, however,
could have a material adverse impact on the business of Dakota and USMX.
Environmental Matters. Mining is subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products occurring as a result of mineral exploration and production.
Environmental liability may result from mining activities conducted by others
prior to Dakota's or USMX's ownership of a property. 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) is
not generally available at a reasonable price to companies within the industry.
To the extent Dakota and/or USMX is subject to environmental liabilities, the
payment of such liabilities would reduce funds otherwise available to the
companies and could have a material adverse effect on the companies.
In the context of environmental compliance and permitting, including
the approval of reclamation plans, Dakota and USMX must comply with standards,
laws and regulations which may entail greater or lesser costs and delays
depending on the nature of the activity to be permitted, constructed and
operated and how stringently the regulations are implemented by the applicable
regulatory authority. It is possible that the costs and delays associated with
compliance with such laws, regulations and permits could become such that a
company would not proceed with the development of a project or the operation or
further development of a mine. Laws, regulations and regulatory policies
involving the protection and remediation of the environment are constantly
changing at all levels of government and are generally becoming more restrictive
and the costs imposed on the development and operation of mineral properties are
increasing as a result of such changes. Dakota and USMX have made, and expect to
make in the future, significant expenditures to comply with such laws and
regulations.
The 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"). Of particular concern to the
mining industry is a proposal by the EPA titled "Recommendation for a Regulatory
Program for Mining Waste and Materials Under Subtitle D of the Resource
Conservation and Recovery Act" ("Strawman II") which, if implemented, would
create a system of comprehensive federal regulation of the entire mine site.
Many of these requirements would be duplicative of existing state regulations.
Strawman II as currently proposed would regulate not only mine and mill wastes
but also numerous production facilities and processes which could limit internal
flexibility in operating a mine. To implement Strawman II as proposed, the EPA
must seek additional statutory authority, which is expected to be requested in
connection with Congress' reauthorization of RCRA.
<PAGE>
Mining companies in the United States are also subject to regulations
under (i) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") which regulates and establishes liability for the release
of hazardous substances and (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats. Revisions to CERCLA and ESA are being
considered by Congress; the impact on Dakota and USMX of these revisions is not
clear at this time. Environmental laws and regulations enacted and adopted in
the future may have a significant impact upon Dakota's and USMX's future
operations. Dakota and USMX cannot now accurately predict or estimate the impact
of any such future laws or regulations on its operations.
Mining Risks and Insurance. The business of gold mining is generally
subject to a number of risks and hazards, including environmental hazards,
industrial accidents, labor disputes, 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. USMX and Dakota maintain insurance against risks that are typical in
the gold mining industry and in amounts that USMX and Dakota believe to be
reasonable, but which may not provide adequate coverage in certain unforeseen
circumstances. Insurance against certain risks (including certain liabilities
for environmental pollution or other hazards as a result of exploration and
production) is not generally available to USMX, Dakota or to other companies
within the industry.
Proposed Changes in Mining Laws. 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, 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. 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 had 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. Recently, the Secretary of the
Interior directed the Bureau of Land Management to form a task force to prepare
and publish for public comment revisions to the hardrock mining surface
management regulations implemented in 1981. The Secretary suggested that such
revised regulations address implementation of a technology based standard in
conduct of hardrock mining, development of performance standards for hardrock
mining and reclamation, increasing regulation of operations of less than five
acres, and increasing coordination with state regulators. As of March 17, 1997,
no such bills have been passed or regulations proposed or promulgated. If
enacted or promulgated, such legislation or regulations could impair the ability
of Dakota 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
or by the Bureau of Land Management to the surface mining regulations is not
presently known and the potential impact on Dakota as a result of future
Congressional action is not presently determinable.
Need for Substantial Capital. The business of precious metals mining
requires very large capital expenditures in advance of anticipated revenues from
operations. There is no assurance that Dakota or USMX will be able to obtain all
of the financing that they require on acceptable terms and conditions.
<PAGE>
Specific Risks Related to Dakota
Fluctuation in the Price of Gold. Because Dakota's revenues are or will
be derived primarily from the sale of gold, Dakota's earnings are directly
related to gold prices. Gold prices fluctuate widely and are affected by
numerous factors beyond Dakota's control, including expectations for inflation,
the relative exchange rate of the dollar, global and regional demand, political
and economic conditions, expectations for inflation and production costs in
major gold producing regions including South Africa and Russia. In addition,
gold prices have on occasion been subject to very rapid short-term changes due
to speculative activities of investors. Gold prices are also affected by
world-wide production levels, which have increased in recent years. Market price
fluctuations of gold may render uneconomic the mining of mineral deposits
containing relatively lower grades of mineralization. If the market price of
gold falls significantly below Dakota's production costs and remains at such a
level for any sustained period, Dakota will experience substantial cash losses,
may not be able to recover its investment in its properties, and may be required
to discontinue its operations. Only a portion of Dakota's expected gold
production is hedged in forward sales contracts.
Uncertainty of Title. Certain of Dakota's mining properties are
unpatented mining claims, and Dakota has only possessory title with respect to
such properties. The validity of unpatented mining claims is often uncertain and
may be contested. Although Dakota has attempted to acquire satisfactory title to
its properties, Dakota, in accordance with mining industry practices, has not
obtained title opinions and title insurance, with the attendant risk that title,
particularly on undeveloped properties, may be defective.
Lack of Profitability. Dakota's operating history has resulted in
losses from operations in each of its last five fiscal years. No assurance can
be given that Dakota will ever operate at a profit. While certain of Dakota's
mining properties may be operated at a profit during a given fiscal year,
Dakota's operations as a whole may be unprofitable due to exploration,
development, and operating costs on other properties. Other items that may
adversely effect profitability include selling expenses, general and
administrative costs, allowances for depreciation, depletion and amortization of
assets, and interest expense.
Working Capital and Financing Requirements. Dakota has a limited
working capital. If Dakota's continuing exploration activities indicate
economically minable properties now owned or hereafter acquired by Dakota,
Dakota will be required to expend potentially large sums to put such properties
into production. There can be no assurance that Dakota will be able to obtain
such additional funding.
Market Price of Dakota Shares. Assuming that all of the Dakota Common
Shares to be issued in respect to the Merger (including Common Shares issuable
upon the exercise of USMX stock options) are issued, a total of 15.8 million
additional Common Shares will be available for trading in the public market. The
increase in the number of Dakota Common Shares in the market and the possibility
of sales of such shares may have a depressive effect on the price of Dakota's
Common Shares. See "Capitalization and Description of Dakota Securities."
Dividend Policy. No dividends have been paid by Dakota to date. For the
foreseeable future, it is anticipated that Dakota will use earnings to finance
its growth and that dividends will not be paid to shareholders. See "Business of
Dakota Mining Corporation-Dividend Policy."
Joint Ventures. Some of the mines in which Dakota owns an interest are
operated through joint ventures with other mining companies. Any failure of such
other companies to meet their obligations to Dakota or to third parties could
have a material adverse effect on the joint ventures.
Environmental Matters. Reclamation plans which are approved by various
environmental regulatory authorities are subject to on-going review and
modification. Although Dakota believes that the reclamation plans developed and
implemented for its mine sites are reasonable under current conditions, any
future re-determination of reclamation conditions or requirements could
significantly increase Dakota's costs of implementation of such plans.
<PAGE>
Permitting Matters. The ultimate Anchor Hill open pit design
contemplates that approximately 37 acres of public lands will be disturbed,
principally for pit wall layback and waste removal. Accordingly, Dakota is
required to complete an Environmental Impact Statement (the "Gilt Edge EIS").
The Gilt Edge EIS, which has been underway since January 1994, was delayed in
1995 pending receipt of the state and county operating permits. Dakota now
expects to finalize the Gilt Edge EIS by the Spring of 1997 If, however, the
Gilt Edge EIS is not completed in a timely manner, Gilt Edge Mine operations
scheduled to commence in 1998 will be delayed.
Operations at Stibnite Mine after 1997 are subject to the completion of
an Environmental Impact Statement (the "Stibnite EIS"). Completion of the
Stibnite EIS was delayed during 1996 as a result of prioritizing completion of
the development of the Meadow Creek Plan. Dakota now expects the EIS to be
completed in the fall of 1997. If, however, the Stibnite EIS is not completed in
a timely manner, Stibnite Mine operations scheduled to commence in 1998 will be
delayed.
Royalties. Dakota's mining properties are subject to various royalty
and land payment agreements. Failure by Dakota to meet its payment obligations
under these agreements could result in the loss of Dakota's related property
interests.
Matters Affecting Golden Reward Mine. A significant portion of proven
and probable reserves located at Golden Reward Mine, are encumbered by surface
rights and facilities some of which are owned by third parties. In order to
access these reserves and mineral resources, Golden Reward Mine will be required
to relocate its existing crushing facility and to possibly reduce its existing
leach pad capacity by 25% or to require or otherwise compensate the third
parties for their facilities. No assurance can be given that Golden Reward Mine
will be successful in its efforts to remove these encumbrances.
No operations at Golden Reward Mine are planned for 1997. Before
operations can recommence, Golden Reward Mine will be required to obtain new
operating permits in order to mine certain of these encumbered reserves. Dakota
estimates that it will take between nine to 15 months from commencement of the
application process to obtain said permits. There can be no assurance that such
permits will be obtained within such time periods, if at all. The owners have
disagreed regarding certain operational and financial matters for the Golden
Reward Mine, including planned future operations and related funding
requirements. The resolution of these matters is not presently determinable.
Specific Risks Related to USMX
Going Concern Uncertainty of USMX; Illinois Creek Project Commitments.
At December 31, 1996, USMX had a working capital deficiency of $27.1 million.
During 1996 USMX devoted or committed substantially all of its liquid resources
to development of the Illinois Creek Project. During 1996, the estimated
development costs for the Illinois Creek Project increased substantially,
principally due to weather-related delays and other problems arising from the
complexities of developing a mine in Alaska using only air transport. At
December 31, 1996, USMX had unpaid commitments to suppliers and contractors of
approximately $5.7 million for work completed in 1996. It is estimated that an
additional $8.8 million, including $4.9 million of working capital, will be
required to bring the mine to production. USMX's lending arrangements with
Rothschild, its principal lender, require it to maintain minimum balances in a
Proceeds Account for use only in connection with the Illinois Creek Project and
to maintain certain financial ratios related to such Project and to USMX. USMX
was required to deposit $1.5 million to the Proceeds Account by September 30,
1996, which requirement was not satisfied. USMX is also not in compliance with
other covenants of the Rothschild Credit Agreements. USMX's auditors have
included an explanatory paragraph in their report that states that these
matters, among others, raise substantial doubt about USMX's ability to continue
as a going concern and that the financial statements of USMX do not include any
adjustments that might result from the outcome of this uncertainty.
In connection with the Merger, USMX obtained a $5 million line of
credit from Dakota. In addition, Rothschild has agreed with Dakota to forbear
from exercising its rights to declare and enforce defaults (except payment or
<PAGE>
bankruptcy defaults) of USMX until the latest of consummation of the Merger,
termination of the $5 million line of credit from Dakota or June 30, 1997.
See"Terms of the Merger-Other Agreements - $5,000,000 Loan Agreement."
If USMX is unable to maintain compliance with its credit obligations to
Rothschild, it risks a possible foreclosure of Rothschild's security interest in
the Illinois Project and legal action for monetary damages against USMX. USMX
does not presently have capital resources available to satisfy its obligations
to Rothschild. Accordingly, if the Merger is not consummated, USMX will need to
obtain other financing or attempt to merge or engage in another form of business
combination with an entity with available cash resources. USMX has made no such
arrangements and there can be no assurance that USMX would be successful in
obtaining any such arrangements.
USMX commenced mining operations at the Illinois Project in late 1996,
but postponed gold production due to the onset of Winter. If the Merger is
completed by May 1997, USMX forecasts achieving gold production in early Summer
1997. Any revenues from gold sales as well as any other funds deposited to the
Proceeds Account by USMX may not be withdrawn for USMX's general corporate
purposes until "Completion" has occurred. As defined in the Rothschild Credit
Agreements, the requirements for Completion include the construction of the
Project facilities, which facilities and equipment thereon must be mechanically
complete and electrically operable ("Mechanical Completion"), the achievement of
production amounts and grades, costs and reserves similar to the development
plan, and the absence of any default in the credit agreements. Completion has
not occurred, and there can be no assurance that the conditions for Completion
will be satisfied. Moreover, USMX projects that the earliest date the conditions
could be satisfied would be in the Fall of 1997. Accordingly, USMX could be
severely constrained in its ability to conduct operations and to pursue other
mining opportunities pending "Completion." There can be no assurance that
"Completion" will be achieved or that there will not be a significant delay in
achieving "Completion."
Profitability. Although USMX reported net income for each of the six
years ended December 31, 1994, USMX reported a net loss of $3.3 million for the
year ended December 31, 1996 and a net loss of $6.9 million for the year ended
December 31, 1995 and at December 31, 1996 had an accumulated deficit of $3.1
million. USMX does not anticipate obtaining operating revenues in 1997 from any
mine other than Illinois Creek. If USMX fails to put the mine in operation or
the operations do not achieve expected levels of production, USMX's ability to
generate revenues will be materially adversely affected. Future profitability is
also dependent upon USMX successfully locating, acquiring, financing,
constructing, and operating additional mines at a cost that is sufficiently less
than the prevailing price of the commodity being mined, of which there can be no
assurance.
Certain Illinois Creek Project Risks. Completion and operation of the
Illinois Creek Project involve numerous risks, including the following:
Pre-Production Work and Testing. The development of the mine
and construction of the related facilities were substantially completed in
October 1996. In the Fall of 1996, the mining contractor placed approximately
115,000 tons of overliner material and run-of-mine ore on the leach pad. USMX is
required to successfully complete a test to demonstrate that the synthetic pad
liner does not leak. After completion of this test to the satisfaction of
appropriate regulatory authorities, which is expected to occur in May of 1997,
USMX would begin placing cyanide solutions to the heap with gold production
anticipated shortly thereafter. However, there are numerous risks associated
with the start-up of a new mine and there can be no assurance that gold
production will be achieved as forecasted.
Reserves. Ore reserves for the Illinois Creek Project which
are presented in this Joint Proxy Statement/Prospectus are estimates made by
USMX which have been reviewed by Roscoe Postle Associates Inc. ("RPA"), an
independent mining consulting firm. USMX has not commenced production at the
Illinois Creek Project, and there can be no assurance that the indicated amount
of gold will be recovered. The reserves have been calculated from drill-hole
assay results. Several programs of trenching, diamond drilling and
reverse-circulation drilling have been carried out on the Illinois Creek
Project. Assay results have been analyzed and several checks of the assay data
have been conducted as a quality control procedure. Modeling is used to yield
estimates in reserves determined by optimum economic mining limits. In the
opinion of RPA, the Illinois Creek Project reserves are estimated in accordance
with standard engineering methods and the estimation approach and procedures
<PAGE>
used are in keeping with standard industry practice. However, RPA has noted that
there are some issues which can impact on the estimate of the average grade,
including the handling of high-gold assays, which may result in the
overestimation of the average grade of the deposit in the order of 10%. RPA has
noted that differences of this magnitude in gold grades are not unusual. RPA
also has stated its belief that most of the reserves should be classified as
probable. Reserve estimates may require revisions based on actual production
experience. Fluctuations in the market price of gold, as well as increased
production costs or reduced recovery rates, may render reserves containing
relatively lower grades of mineralization uneconomical to recover and may
ultimately result in a restatement of reserves. The reserves for the Illinois
Creek Project have been calculated assuming a realizable price for gold of $400
per ounce. The price of $400 per ounce was selected based on trading on the gold
spot market and the gold forward market. USMX has entered into certain hedging
arrangements. See "Risk Factors-Specific Risks Related to USMX-Hedging
Activities." However, there can be no assurance with respect to the future price
of gold and its effect on USMX's reserves and operations.
Transportation. The Illinois Creek Project site is located in
the southern Kaiyuh Mountains in the western interior of Alaska. The Illinois
Creek Project is located approximately 57 miles southwest of Galena and 23 miles
east of the Yukon River. It is equidistant from Fairbanks and Anchorage which
lie approximately 320 miles to the east and southeast of such Project,
respectively.
Access to the site is by air. Equipment and supplies are transported to
the site by land, sea and air. The most economical way to transport freight to
the site is from Seattle, Washington to Anchorage, Alaska by barge. From
Anchorage, freight moves by truck or rail to Nenana. From Nenana, it is moved
down river on barge to Galena. From Galena, it is flown to the site. When it is
not possible to use the Yukon River, freight must be flown to the site from
Anchorage at a higher cost. The mine site is connected to the personnel camp and
the airstrip by a 6.5 mile road.
Weather. The climate is subarctic and characterized by large
seasonal extremes in temperature and daylight. Significant periods of inclement
weather could adversely affect future construction and operations at the
Illinois Creek Project which would, in turn, delay production and related cash
flow from such Project. Based on expected weather conditions, USMX presently
intends to conduct mining during May through October.
Environment. Mining is subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products occurring as a result of mineral exploration and production. The
Illinois Creek Project is permitted as a "zero discharge facility". As such,
operation will require strict control of the water balance to ensure that no
discharge occurs. Upon closure, reclamation activities will be closely monitored
and effluent from the decommissioned facility will be required to meet strict
water quality standards.
Community Relations. USMX has established good relations with
residents of the local area. If USMX were unable to continue this rapport, the
Illinois Creek Project could be negatively impacted.
Thunder Mountain Project, Uncertainty of Future Financing. USMX has
filed a Notice of Intent to Operate with the Idaho Department of Lands
describing USMX's proposed gold and silver mining activities in the Thunder
Mountain Project. Depending upon USMX's progress in obtaining the necessary
permits, the market price of gold, feasibility study and other factors, USMX may
determine to seek to develop the Thunder Mountain Project. Management estimates
that substantial capital will be required for construction of facilities and
other development activities at Thunder Mountain. USMX has no commitments for
outside financing for the Thunder Mountain Project and there can be no assurance
such financing would be available, or, if available, that the terms would be
beneficial to USMX.
USMX's ability to obtain outside financing for the Thunder Mountain
Project or other future projects will depend, among other things, upon the price
of gold and perceptions of future prices. Therefore, availability of funding is
dependent largely upon factors outside USMX's control, and cannot be predicted.
USMX does not know from what specific sources it will be able to derive any
required funding. Any such financing, if available, could increase the
indebtedness of USMX or dilute current stockholders' positions. If USMX acquires
such funding through debt a substantial portion of USMX's cash flow may need to
be devoted to the payment of principal and interest on such debt which could
<PAGE>
render USMX more vulnerable to competitive pressure or economic downturns. If
USMX is not able to raise additional funds (and there can be no assurance that
it can, or that if it can, such funds will be on terms acceptable to USMX) it
will not be able to fund certain exploration and development activities on its
own.
Hedging Activities. Although USMX has historically used, and plans to
use in the future, spot deferred contracts in its hedging program to protect
earnings and cash flows from the impact of gold price fluctuations. USMX was
required pursuant to its lending arrangements with Rothschild to enter into
hedging transactions. In 1996 USMX hedged approximately 140,900 ounces of the
expected gold production from the Illinois Creek Project at an average selling
price of $409 per ounce. Spot deferred contracts that are designated as hedges
of the price of future production are accounted for as such. Spot deferred
contracts that are not identified as hedges of specific anticipated future
production are marked to market with unrealized gains or losses recognized in
earnings as they occur.
Spot deferred contracts are agreements between a seller and a
counterparty whereby the seller commits to deliver a set quantity of gold, at an
established date in the future and at agreed prices. The established price is
equal to the spot price for gold plus "contango." Contango is equal to the
difference between the prevailing market rate for dollar deposits less the gold
lease rate, for comparable periods, and represents compensation to the seller
for holding gold until a future date. Contango rates ranged from approximately
0% to 5 1/2% during 1996.
At the scheduled future delivery date, the seller may, at the option of
the counterparty, deliver into the contract or defer the delivery to a future
date. This option allows the seller to maximize the price realized by selling at
the spot market price if such price at that time were to be higher than the
forward contract price. Each time the seller defers delivery, the forward sales
price is increased by the then prevailing contango for the next period.
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.
Risk of loss with these spot deferred contracts arises from the
possible inability of a counterparty to honor contracts and from changes in
USMX's anticipated production of gold. However, nonperformance by any party to
such financial instruments is not anticipated.
USMX is typically required by the counterparties to maintain a margin
account. Should the cumulative liquidation cost of USMX's spot deferred
positions exceed the cumulative value of such positions by an amount in excess
of the margin account, USMX could be subject to margin call. The liquidation
cost is what USMX would have to pay on the liquidation date to purchase fixed
forward delivery contracts to meet its spot deferred deliveries. The cost of
fixed forward delivery contracts is based on the spot price on the liquidation
date plus contango through the delivery date. As of December 31, 1996, the
liquidation cost of USMX's existing hedge position was not material. The
aggregate unrealized excess of the net market value of USMX's forward sales
contracts over the spot gold price of $368 per ounce as of December 31, 1996, is
approximately $5,875,000. The aggregate unrealized gain of USMX's forward sales
contracts accounted for as hedges of future production were approximately
$5,033,000 at December 31, 1996.
USMX has also written silver call options expiring at various dates
over the next forty months, which if exercised, would become spot deferred
contracts with delivery deferred as previously described. At December 31, 1996
USMX had sold 825,300 ounces of silver call option contracts all at a strike
price of $5.50 per ounce expiring on dates ranging from September 28, 1997
through December 29, 1999. Call options premiums received amounted to
approximately $424,000. These contracts are marked to market with unrealized
gains or losses recognized in earnings as they occur.
Title to Properties. Certain of USMX'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 the 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.
<PAGE>
Threatened Litigation. One of the construction contractors on the
Illinois Creek Property in Alaska working under an approximately $3 million
contract with USMX has submitted invoices and claims totaling approximately $7
million for work completed in 1996. At December 31, 1996, USMX had paid the
contractor $1,772,000 and has recorded an additional liability to the
contractor, based on USMX's estimate of its obligation under the contract of
$2,414,000. The unpaid invoices and claims are currently being reviewed, and it
is likely that a significant portion of the invoices and claims will be disputed
by USMX. The contractor has threatened legal proceedings if the dispute is not
informally resolved. USMX and its representatives are currently reviewing the
relevant facts and until that review is complete USMX cannot estimate the
magnitude of any potential liability, possible counterclaims by USMX or the
outcome of arbitration or litigation if the dispute cannot be resolved by
negotiation. On November 8, 1996, the construction contractor also filed a lien
on the Illinois Creek property. The lien is related to certain invoices and
claims submitted through that date.
No Dividends. USMX anticipates that it will use its earnings, if any,
to finance its operations and growth. USMX does not anticipate paying dividends
and, because of certain debt covenants, is restricted from paying any dividends
to its stockholders.
Volatility of Price for Common Stock. The market prices for shares of
the USMX Common Stock have been highly volatile in recent years. See
"Description of USMX Capital Stock-Trading History." The market price may be
highly volatile in the future depending on news announcements of USMX, gold
price volatility and changes in general market conditions.
Risks Related to the Merger
Operations of the Combined Company. Although the initial members of the
Board of Directors and the senior management of the combined company resulting
from the Merger have been identified, most operational and strategic decisions
with respect to the combined company have not yet been made and no formal
business plan for the combined company exists at this time. The timing and
manner of the implementation of decisions made with respect to the ongoing
business of the combined company following the Merger will materially affect the
operations of the combined company. Given the range of potential outcomes
arising from such decisions and the interrelationships among decisions to be
made, in many cases, it is not possible to quantify the impact of such decisions
on the results of operations and financial condition of the combined company.
Any integration, consolidation, reconfiguration or other modification of Dakota
and USMX would involve several significant risks, including, but not limited to,
the following:
Management. Restructuring or integration of the operations of
Dakota and USMX will require the dedication of management resources, which could
distract attention from the day-to-day operations of the separate businesses of
each company. If the management of the combined company is unable to effectively
manage any such restructuring or integration, the operating results and
financial condition of the combined company could be materially adversely
affected. In the event that the operations of Dakota and USMX are restructured
or integrated, there can be no assurance that the combined company will be able
to retain the key personnel currently employed in the separate operations of
each company.
Expenses. The integration, consolidation or restructuring of
the business operations of Dakota and USMX could result in the incurrence of
significant expenses by the combined company following the Merger, which could
have a material adverse effect on the operating results of the combined company.
No Dissenters Rights. Under the DGCL and CBCA, neither USMX
Stockholders nor Dakota Shareholders will have any appraisal or dissenters
rights in connection with the Merger.
United States Federal Income Tax Treatment of the Merger. Dakota and
USMX have received an opinion from Coopers & Lybrand L.L.P., that the Merger
will, under current law, be treated as a tax-free reorganization under the Code
for United States federal income tax purposes, provided that all of the
assumptions and conditions set forth in the opinion are met. The opinions
expressed by Coopers & Lybrand L.L.P. regarding the United States federal income
<PAGE>
tax consequences for USMX Stockholders are not entirely free from doubt. Neither
USMX nor Dakota will seek a private letter ruling to this effect from the IRS
and there can be no assurance that the IRS will not challenge such
reorganization or tax-free treatment to USMX Shareholders and ultimately prevail
in such challenge. A successful challenge by the IRS would result in the holders
of shares of USMX Common Stock recognizing a taxable gain or loss in an amount
equal to the difference between the fair market value of the Dakota Common
Shares received in the Merger and the shareholder's tax basis in the shares of
USMX Common Stock surrendered in exchange therefor. Any USMX Stockholder who is
a U.S. Person and who will own or be deemed to own at least 5% of Dakota
following the Merger will not be entitled to tax-free receipt of the Dakota
Common Shares in exchange for shares of USMX Common Stock unless such
shareholder executes a "gain recognition agreement" to be filed with the IRS.
All USMX Stockholders who are U.S. Persons will be required to file certain
notices with the IRS regarding the Merger in order to avoid incurring adverse
tax consequences including penalties. IF THE SHARES OF USMX ARE DETERMINED TO
CONSTITUTE A USRPI, FOREIGN PERSONS EXCHANGING THEIR SHARES OF USMX FOR SHARES
IN DAKOTA MAY BE SUBJECT TO TAX, ABSENT AN EXCEPTION. STOCKHOLDERS OF USMX ARE
URGED TO CONSULT THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES TO THEM OF THE
MERGER AND OF ACQUIRING, OWNING AND DISPOSING OF DAKOTA COMMON SHARES. See
"United States Federal Income Tax Considerations of the Merger."
CURRENCY AND GOLD PRICES
The exchange rates of the Canadian dollar to the United States dollar
reported by the Bank of Canada and gold prices reported on the afternoon fixing
on the London Bullion Market at the end of the calendar years 1992 through 1996
and the period from January 1, 1997 to March 10, 1997 were as follows:
<TABLE>
<CAPTION>
Currency
January 1 to Year Ended December 31,
March 10, -------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- ---- ---- ---- ---- ----
(Cdn. $ per U.S. $1.)
<S> <C> <C> <C> <C> <C> <C>
High $1.3738 $1.3860 $1.4070 $1.4028 $1.3449 $1.2938
Low $1.3368 $1.3306 $1.3415 $1.3240 $1.2423 $1.1401
End of Period $1.3710 $1.3636 $1.3645 $1.4028 $1.3240 $1.2709
</TABLE>
<TABLE>
<CAPTION>
Gold Prices
January 1 to Year Ended December 31,
March 10, -------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- ---- ---- ---- ---- ----
($ per ounce)
<S> <C> <C> <C> <C> <C> <C>
High $367 $415 $397 $396 $398 $360
Low $338 $367 $372 $370 $327 $330
End of Period $350 $369 $387 $383 $386 $333
</TABLE>
<PAGE>
THE MERGER
General
The Merger provides for the business combination of USMX and Dakota
through the merger of Merger Corp., a wholly-owned subsidiary of Dakota, with
and into USMX, provided that all conditions to consummation of the Merger as
provided in the Merger Agreement are satisfied or waived. Upon completion of the
Merger, USMX will be the Surviving Corporation and, as a consequence thereof,
will become a wholly-owned Subsidiary of Dakota. It is contemplated that the
Effective Time for the Merger will occur as soon as practicable after the Dakota
Meeting and the USMX Meeting and on satisfaction or waiver of all of the other
conditions set forth in the Merger Agreement. The Effective Time is presently
anticipated to occur on or about May 23, 1997. See "Terms of the Merger --
Conditions to the Merger."
Background to the Merger
In late 1995, Dakota was nearing completion of a two year process to
permit and expand mining operations at its Gilt Edge Mine located in South
Dakota. The mine had been substantially shut-down for over two years prior to
that time. Recommencing mining activities at Gilt Edge Mine, was preceded by the
recommencement of mining operations at Dakota's Stibnite Mine in the summer of
1995. Stibnite Mine had also been shut down for approximately two years prior to
that time while awaiting new permits. With the reactivating of both of Dakota's
100% owned mining operations imminent, the Company began to implement a new
growth strategy.
As a part of its strategic long-term business plan, Dakota determined
that it would seek a merger, acquisition, amalgamation or other business
combination with a company having comparable gold producing properties in or
nearing production in order to increase the ounces of gold under production
thereby improving operating cash flows. Management of Dakota believes that the
development of a larger gold production base will establish a critical mass of
operations that will facilitate future financings and enhance the opportunity to
acquire additional gold properties thereby increasing shareholder value.
In 1996, USMX devoted a substantial portion of its capital resources
and management focus on the development of its Illinois Creek Project in Alaska.
Although USMX believes that it has several promising exploration projects in the
U.S., Mexico and Ecuador, and is presently engaged in a feasibility study of its
Thunder Mountain Project in Idaho, management of USMX determined in early 1996
that it would be beneficial to USMX to consider merger and acquisition
opportunities to provide an immediate diversified base of gold producing and
revenue generating properties. Management believes that a larger combined
company would be in a better position to command a higher market valuation and
to obtain additional funding for USMX's existing and future projects. Moreover,
USMX's liquidity concerns intensified during 1996 which provided greater impetus
to explore merger opportunities and other strategic alternatives.
The following chronology summarizes the events leading to the Merger
proposal:
<PAGE>
(a) In October 1995, representatives of Dakota met with
representatives of Canaccord in Vancouver, Canada to investigate
utilizing the services of Canaccord to initiate Dakota's
strategic business plan.
(b) On November 13, 1995, Dakota engaged Canaccord to act as its
exclusive financial advisor for a possible business combination
with certain identified candidates located in Australia. The
scope of the services included identification of business
opportunities, assistance in evaluating candidates and providing
advice on possible business combinations.
(c) During a two week period in December 1995, representatives of
Dakota and Canaccord visited Australia and met with several
Australian gold mining companies identified by Canaccord as
possible candidates.
<PAGE>
(d) As a result of the visit to Australia, Dakota evaluated and held
preliminary discussions with a short list of merger or
acquisition candidates. However, no reasonable possibility of a
business combination emerged.
(e) In February 1996, the USMX Board approved development of the
Illinois Creek Project, and USMX received a commitment for a $22
million financing facility for this Project from Rothschild.
(f) On March 21, 1996, Dakota held a strategic planning session with
Canaccord at Dakota's offices to review past and future
strategies in maximizing value for Dakota's shareholders and to
focus Dakota's efforts to locate a suitable candidate for a
possible business combination. Dakota commenced a new assessment
of merger or acquisition candidates. Due to its cash position and
limited number of key management personnel, Dakota also
determined that its primary focus would initially be on companies
with mining operations located either in North or Central
America.
(g) On April 9, 1996, Alan R. Bell, President and Chief Executive
Officer of Dakota, met with James Knox, then President and Chief
Executive Officer of USMX and commenced preliminary discussions
regarding a possible business combination. The two companies
thereafter exchanged public information concerning their
businesses.
(h) On April 30, 1996, Dakota and USMX signed a Confidentially
Agreement. Technical due diligence was then conducted over a
period of several months whereby the management of and
consultants representing each company visited each other's
mineral properties and mining operations. Detailed business
plans, budgets, ore reserve calculations, production plans,
reclamation liability assessments and other pertinent information
were reviewed and evaluated.
(i) On May 23, 1996, USMX engaged Newcrest to act as its exclusive
financial advisor in connection with potential transactions with
other mining companies.
(j) In May and June of 1996, officers and other employees of USMX
made site visits to Dakota's Gilt Edge, Golden Reward and
Stibnite properties and representatives of Dakota visited USMX's
Illinois Creek property.
(k) In June 1996, both parties completed their due diligence
investigations.
(l) On July 11, 1996, USMX entered into the Rothschild Credit
Agreements, a $22 million credit facility to finance the
construction and development of the Illinois Creek Project.
(m) Dakota and USMX suspended their merger discussions on July 24,
1996. Dakota was concerned about the delays in construction of
the Illinois Creek Project and the consequential financing
requirements that would be required. Dakota determined that it
would not be prudent to embark upon a business combination with
USMX at that time. USMX was concerned about the definition of the
ore reserves at Dakota's Gilt Edge and Stibnite mines and the
extent of the reclamation liabilities at Stibnite.
(n) Between August and October, 1996, USMX and Newcrest identified
several potential merger candidates. USMX entered into a
confidentiality agreement with one candidate, conducted extensive
due diligence and discussed exchange ratios. However, due to the
deterioration in the gold equity market, USMX was advised by
Newcrest that it would be difficult to obtain sufficient funds to
provide for the expected needs of both companies. Merger
discussions were terminated with that candidate in October, 1996.
(o) On October 31, 1996, USMX announced that it had modified the
Rothschild Credit Agreements whereby Rothschild agreed to waive
<PAGE>
certain covenants under the credit agreements provided that USMX
raised new equity of not less than $9 million by way of a sale of
USMX Common Stock. USMX also announced that it intended to make
filings with regulatory authorities for a public offering of USMX
Common Stock to raise proceeds of $10.0 to $11.5 million.
(p) From October to mid-December of 1996, USMX engaged in discussions
with several investment banking firms in the United States and
Canada concerning participation as underwriters or dealers in the
then contemplated public offering of USMX Common Stock.
(q) On November 7, 1996, USMX announced that it had made filings with
regulatory agencies in Canada and the United States for a
proposed public offering of USMX Common Stock.
(r) On November 14, 1996, USMX announced that it had decided to defer
commencement of gold production at its Illinois Creek Mine from
1996 until Spring of 1997. As a result USMX received no revenues
from production in 1996.
(s) During November and December, 1996, USMX contacted approximately
15 mining companies that either were well funded or had potential
to provide additional funding. USMX also held discussions with
several companies regarding the possible sale of royalties on, or
the purchase of, certain USMX properties. No merger proposals
were received. A royalty sale proposal was received, but it was
not adequate to meet USMX's financing needs.
(t) On November 19, 1996, Robert R. Gilmore, Vice-President, Finance
and Chief Financial Officer of Dakota, met with Donald Bellum,
President and Chief Executive Officer of USMX, to discuss USMX's
financing needs and to revisit the general concepts relating to a
merger or business combination. It was agreed to have a
subsequent meeting.
(u) On December 6, 1996, the executive management of Dakota and USMX
met to update one another on each respective company's business
affairs since July 1996 when previous discussions had been
suspended. It was agreed to proceed with further evaluations.
(v) From December 9, 1996 to December 20, 1996, Dakota and USMX
updated their previously completed technical due diligence. USMX
concluded that Dakota's environmental problems at Stibnite had
been mitigated to USMX's satisfaction and that, although Dakota
had experienced gold production problems during 1996, these
problems should not recur in 1997. During this same time period,
Canaccord prepared a pro forma analysis of a merger transaction
based upon a combination of public information together with
current mine production forecasts. A combined company business
plan was then developed which outlined the financing needs to
complete the construction and startup of USMX's Illinois Creek
Mine, including quantifying the moneys that would be necessary to
fund construction costs that had been incurred by USMX but
remained unpaid.
(w) Following the completion of due diligence, and development of the
combined company business plan with plans for additional
financing, the parties were of the view that there was a basis to
continue merger discussions. Accordingly, the executive
management of both companies met several times from December 16,
1996 to January 6, 1997 to negotiate the Merger and the Share
Exchange Ratio. Each company developed and made reference to its
own views with respect to the net asset value of each company
together with the per share equivalents for each company. Dakota
and USMX specifically considered using the net asset value and
relative net market value approaches, current and expected future
operations of each company, the potential for improving
operational efficiencies, development and exploration potential
of each company's developed property holdings, the extensive
exploration land holdings of USMX in Alaska, Mexico, and
elsewhere, and the ability of the combined company to
<PAGE>
successfully complete a financing to provide the combined
enterprise with greater cash resources to meet its obligations
including completion of capital improvements. USMX determined
that there was a greater prospect for success in completing a
financing in connection with the Merger than a public offering of
USMX Common Stock.
(x) An agreement in principle was executed on January 3, 1997 by
Dakota and USMX and the terms of the Merger were publicly
announced the same day. At the same time, Dakota engaged
Canaccord, ScotiaMcLeod Inc. and Newcrest to market in January
1997, on a best efforts basis, a private placement of Special
Warrants representing gross proceeds to Dakota of up to Cdn $40
million. The offering was subject to the completion of the
Merger.
(y) On January 29, 1997, the Board of Directors of Dakota met with
Canaccord and Canaccord provided an oral opinion that the Merger
had merit according to its terms and could be financed. Dakota's
Board of Directors unanimously approved the terms of the Merger
and the terms of the private placement of Special Warrants
representing gross proceeds to Dakota of Cdn $25 million.
(z) On February 2,1997 the USMX Board discussed the Merger, including
the oral fairness opinion of Newcrest, and approved the Merger
Agreement.
(aa) On February 6, 1997, the Special Warrant financing closed for
gross proceeds of Cdn. $25 million.
(bb) On February 6, 1997, the Merger Agreement was executed. A public
announcement on the signing of the Merger Agreement was released
the same day.
(cc) On February 10, 1997, Dakota engaged Canaccord to act as its
exclusive financial advisor in connection with the proposed USMX
business combination. The scope of Canaccord's engagement
included evaluation of USMX's assets, providing advice as to
financial and market perspectives of the proposed transaction
and, if so requested, to render an opinion to Dakota's Board of
Directors as to whether the proposed transaction would be fair to
the Dakota Shareholders from a financial point of view.
(dd) On March 11, 1997, Rothschild provided its consent to the Merger.
(ee) On the date of this Joint Proxy Statement/Prospectus, Canaccord
confirmed that the terms of the merger remained fair from a
financial point of view to Dakota Shareholders and Newcrest
confirmed that the terms of the merger remained fair from a
financial point of view to USMX Stockholders.
Dakota's Reasons for the Merger and Board of Directors' Recommendation
The Board of Directors of Dakota believes that the Merger is fair and
reasonable to and in the best interests of Dakota and the Dakota Shareholders
and unanimously recommends that the Dakota Shareholders vote FOR the approval
and adoption of the Merger Agreement and the issuance of Dakota Common Shares
contemplated as part of the Merger.
In evaluating the Merger, the Dakota Board of Directors considered a
variety of factors, including the following:
(a) The view that the addition of the Illinois Creek Mine to Dakota's
100% owned Gilt Edge and the Stibnite Mines would dramatically
increase Dakota's annual gold production and reserve life and
would give Dakota a more diversified asset base, all of which
were objectives in Dakota's strategic planning;
(b) Technical expertise and management capabilities of the USMX
organization which would bring complementary executive, and
<PAGE>
technical skills to the merged company;
(c) The opportunity to participate in USMX's exploration property
portfolio in Alaska, Idaho and Mexico which would add a new
grass-roots exploration potential to Dakota and could advance
future growth;
(d) The belief that the combination of the two corporations would
allow them to combine their individual resources, assets and
expertise to enhance their ability to compete within and profit
from, the global mining industry and, through greater size and
increased financial strength, be able to be more effective in
competing internationally for exploration, development and
acquisition opportunities than either corporation would be
independently;
(e) The potential financial flexibility afforded by a strengthened
balance sheet resulting from an increase in cash and cash
equivalents and a relatively lower debt level and the
availability of future increased cash flow from operations, to
provide Dakota with the financial ability to move forward with
exploration and acquisition programs;
(f) The merged corporation would be expected to have a stronger
credit standing, which should allow it to access credit markets
on more favorable terms;
(g) Larger stock market float and potential enhancement of trading
liquidity for Dakota Shareholders;
(h) The view that operational efficiencies could be achieved in the
merged entity through the combination of the technical and
executive expertise of Dakota and USMX and the distribution of
the costs over the three producing mining operations;
(i) The belief that the potential for future reserve growth would be
strengthened by combining the complementary exploration programs
of Dakota and USMX and the belief that the respective technical
and executive expertise in the two corporations should result in
a broader skill base from which to access and seek to capitalize
on international exploration and development opportunities;
(j) Potential cost savings and synergies that might result from the
combination of the two corporations, including potential cost
savings at the corporate level and potential synergies in
exploration efforts;
(k) The consideration would be Dakota Common Shares which would allow
Dakota to use its cash resources to continue exploration and
acquisition programs;
(l) The consideration and relative assessment of other alternatives
available to Dakota to achieve its strategic objectives including
the assessment by Dakota's management of other potential parties
to effect a merger, the preliminary view of the merits of those
mergers, the timing relative thereto and analysis and discussion
regarding potential partners with Canaccord; and
(m) The fairness opinion provided to the Board of Directors by
Canaccord together with their support of the analysis of the net
asset values of each corporation and per share equivalents which
were developed by management.
In reaching its determination, the Dakota Board of Directors also
considered and evaluated information discussed with the Board by the management
of Dakota with respect to the Merger. In this regard, the Dakota Board of
Directors considered, among other things, (i) information concerning the results
of operations, performance, financial condition and prospects of Dakota and USMX
on a company-by-company basis and on a combined basis, (ii) the reserve levels,
asset quality and cost structure of Dakota's and USMX's businesses, (iii) the
results and scope of the due diligence review conducted by members of Dakota's
management with respect to USMX's business and operations, (iv) information with
respect to recent and historical trading prices and trading multiples of USMX
<PAGE>
Common Stock and Dakota Common Shares, (v) information with respect to recent
and historical prices and price trends of gold and the potential impact thereof
on each of Dakota and the combined entity, and (vi) current economic, industry,
market and world political conditions affecting USMX and Dakota.
The Dakota Board of Directors also considered (i) the terms of the
Merger Agreement and the other agreements contemplated thereby, (ii) the
structure of the Merger including the expectation that the Merger would be
accounted for as a purchase of USMX, (iii) the tax consequences of the Merger,
(iv) the presentation by, and the opinion of Canaccord as described below, (vi)
the fact that the Dakota Shareholders would, based on the Share Exchange Ratio
of 1.1, retain approximately 70.7% of the equity of the combined company (and
approximately 77.5% of the combined company on a fully diluted basis), (vii) the
fact that current directors of Dakota would constitute five of the nine
directors of Dakota after the Merger, (ix) the fact that the headquarters of the
combined company would be in Denver, Colorado, and (x) the potential impact of
the Merger on the employees, customers and suppliers of Dakota and on the
communities in which Dakota operates.
Based on all of these matters, and such other matters as the Dakota
Board of Directors deemed relevant, the Dakota Board of Directors unanimously
approved the Merger Agreement and the transactions contemplated thereby.
The foregoing discussion of the information and factors considered and
given weight by the Dakota Board of Directors is not intended to be exhaustive
but is believed to include all material factors considered by the Dakota Board.
In view of the wide variety of information and factors considered by the Dakota
Board of Directors, the Board found it impracticable to, and therefore did not,
quantify or otherwise assign any relative weight to the specific information or
factors which were considered, and individual directors may have given differing
weights to different factors. The Dakota Board of Directors is, however,
unanimous in its recommendation to the Dakota Shareholders that the Merger
Agreement and the transactions contemplated thereby, including the issuance of
Dakota Common Shares, be approved.
The Dakota Board of Directors realized that there are certain risks
associated with the Merger, including that some of the potential benefits set
forth above may not be realized or that there may be high costs associated with
realizing such benefits and also the factors set forth in this Joint Proxy
Statement/Prospectus under "Risk Factors." However, the Dakota Board of
Directors believes that the positive factors should outweigh any negative
factors, although there can be no assurances in this regard.
THE BOARD OF DIRECTORS OF DAKOTA UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
DAKOTA APPROVE THE MERGER PROPOSAL.
Fairness Opinion of Canaccord Capital Corporation
The Board of Directors of Dakota retained Canaccord on February 10,
1997 to render an opinion to the Board of Directors of Dakota as to the fairness
of the Merger, from a financial point of view, to the shareholders of Dakota. On
January 29, 1997 at the request of Dakota, Canaccord rendered a preliminary
opinion to the Board of Directors of Dakota that the Merger had merit according
to its terms and could be financed. Canaccord subsequently delivered a written
opinion dated March 14, 1997 confirming its previous opinion. Canaccord has
provided their written consent to the inclusion of their opinion in this Joint
Proxy Statement/Prospectus and the wording of their opinion is not intended to
limit reliance by shareholders on the opinion or any limitation of their rights
with respect to the opinion.
Canaccord is an independent Canadian investment firm specializing in
corporate finance services for, and the sale and trading of equity securities
of, resource and industrial companies. Canaccord also provides investment
research and trading services to financial institutions. Canaccord and its
principals have prepared numerous valuations and fairness opinions and have
participated in a significant number and variety of transactions involving
private and publicly traded companies.
The complete text of the written opinion dated March 14, 1997 is
attached to this Joint Proxy Statement as Appendix C and the summary of the
opinions set forth in this Joint Proxy Statement/Prospective is qualified in its
<PAGE>
entirety by reference to such opinion. Dakota shareholders are urged to read the
opinion carefully and in its entirety for a description of the procedures
followed and the factors considered by Canaccord with particular regard to the
limitations and qualifications discussed therein.
Under the agreement between Dakota and Canaccord pursuant to which
Canaccord was engaged to provide its fairness opinion, Dakota agreed to pay
Canaccord a fee of $200,000 upon delivery of the fairness opinion. In addition,
Dakota agreed to reimburse Canaccord for its reasonable out-of-pocket expenses
and agreed to indemnify Canaccord against certain liabilities arising out of its
advisory services and the rendering of its opinion. Canaccord has provided other
investment banking services to Dakota in the last 24 months by acting as lead
underwriter in connection with the issue by Dakota on February 14, 1996 of
certain special warrants and on February 5, 1997 of the currently outstanding
special warrants of Dakota. For these services, Canaccord received a share of
the 6% underwriting fee approximately proportionate to the amount which was
underwritten by them. Canaccord has not provided any of these services to USMX.
Canaccord is a full service securities firm, and in the course of its normal
trading activities may from time to time effect transactions and hold positions
in securities of Dakota or USMX.
In arriving at its opinion, Canaccord reviewed and relied upon certain
financial and operational information provided by the respective managements of
Dakota and USMX, reports prepared on behalf of Dakota and USMX, discussions and
investigations and certain publicly available information concerning Dakota and
USMX. The opinion sets forth the assumptions made, matters considered, the scope
of the limitations of the review undertaken and procedures followed by Canaccord
and should be read carefully by Dakota Shareholders in its entirety as the
discussion of that opinion herein is a summary only.
In addition Canaccord had (i) discussions with senior management and
members of the Board of Directors of both Dakota and USMX with respect to the
information presented to Canaccord and those Boards' assessment of the
historical, current and prospective operations, assets, investments and
financial position of the respective companies and the merged company; (ii) a
draft copy of the Joint Proxy Statement; (iii) a copy of the Merger Agreement;
(iv) current and historical stock market trading information relating to Dakota
and USMX; and (v) other industry, corporate, economic and market data, as well
as such other investigations, site visits and financial analysis considered
necessary or appropriate by Canaccord in the circumstances. Dakota and USMX have
each represented to Canaccord, in certificates dated as of March 14, 1997,
amongst other things, that the information, data and other material provided to
Canaccord was at the date provided, complete, true and correct in all material
respects and did not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements therein not misleading
in light of the circumstances in which such statements were made. Each of Dakota
and USMX has represented to Canaccord that since the date that any information,
data or other material were provided to Canaccord, except as disclosed in
writing to Canaccord, to the best of their knowledge, information and belief
after reasonable inquiry there has been no material change, financial or
otherwise, in the business, operations or prospects of either Dakota or USMX
respectively, or any of their subsidiaries not disclosed to Canaccord which
would reasonably be expected to have a material affect on the Fairness Opinion.
In connection with its opinion, Canaccord relied upon and assumed the
completeness, accuracy and fair presentation of all the financial and other
information, data, advice, opinions and representations obtained by it from
public sources, or provided to it by Dakota or USMX or their or affiliates.
Canaccord assumed that the business plans, financial estimates and projections
provided to it by the management of Dakota and USMX represent their best
estimates of the most probable results for their respective companies for the
periods therein. Subject to the exercise of professional judgment and except as
expressly described herein, Canaccord did not attempt to verify independently
the accuracy or completeness of any of such information, data, advice, opinions,
representations, business plans, forecasts and projections. Dakota and USMX each
represented to Canaccord, in certificates, that the information, data, advice,
opinions and representations provided to Canaccord were complete, true and
correct in all material respects and did not contain any untrue material fact or
omit to state any material fact and that since the date the relevant information
was provided, there had been no material changes in Dakota or USMX or any of
their subsidiaries and no material change had occurred in the information or any
part thereof which would have a material effect on the opinion of Canaccord; and
with respect to any portions of the information that constituted forecasts,
projections or estimates, such forecasts, projections or estimates were prepared
<PAGE>
using the assumptions identified therein, which in the reasonable belief of
Dakota and USMX are reasonable in the circumstances, and are not misleading in
any material respect in light of the assumptions used therefor. Canaccord also
assumed the disclosure provided in the Joint Proxy Statement is accurate in all
material respects. The opinions are rendered on the basis of securities markets,
economic and general business and financial conditions prevailing as of the date
the opinions are given and the condition and prospects, financial and otherwise,
of Dakota and USMX as they were reflected in the information and documents
reviewed by Canaccord and as they were represented to Canaccord in its
discussions with management of Dakota and USMX.
Canaccord believes that its analyses must be considered as a whole and
that considering any portions of such analyses and the factors considered,
without considering all analyses and factors, could create a misleading view of
the process underlying its opinions. Any attempt to consider portions of the
opinions only could lead to undue emphasis on any particular factor or analysis.
Canaccord has made numerous assumptions which Dakota Shareholders must carefully
consider with respect to performance, general business and economic conditions
and other matters, many of which factors are beyond the control of Dakota or
USMX. The Fairness Opinion is not intended to be and does not constitute a
recommendation to any shareholder of Dakota as to whether or not such
shareholder should vote in favor of the Merger, but rather represents
Canaccord's assessment of the fairness, from a financial point of view, of the
Merger to the Dakota Shareholders.
Methodology. Canaccord reviewed and considered different methodologies
and approaches to assess the fairness from a financial point of view of the
Merger to shareholders of Dakota. Canaccord was of the view that of particular
importance was a comparison of the Share Exchange Ratio with their assessment of
the relative values of Dakota and USMX using consistent assumptions and
techniques for both corporations. No formal valuation of either Dakota or USMX
was requested or prepared by Canaccord.
In the preparation of the opinions, Canaccord reviewed stock market
trading prices whereby the relative stock market trading prices of Dakota Common
Shares and shares of USMX Common Stock were considered. Canaccord also
considered the net asset value approach whereby estimates of value for the
assets and liabilities for each of Dakota and USMX are determined in the
aggregate and on a per share basis using assumptions which are consistent and
appropriate for both companies. The relative values determined using these
approaches were then considered with reference to the Share Exchange Ratio as
part of its analysis.
Canaccord also considered other approaches commonly used to compare
publicly traded gold companies in the development and/or production stage such
as adjusted stock market capitalization per ounce of recoverable reserves.
Canaccord further considered certain qualitative aspects of the Merger
including a comparison of the attributes of Dakota on a stand alone basis with
those of Dakota subsequent to the Merger.
Stock Market Trading Approach. Canaccord reviewed the relative
stock market performance of Dakota and USMX, for the periods prior to and after
the announcement of the execution of the agreement in principle on January 6,
1997. Based on a comparison of the weighted average stock market trading prices
of shares of USMX Common Stock to the imputed prices for USMX Common Stock using
the Share Exchange Ratio, Canaccord concluded that the imputed prices of the
USMX Common Stock were at slight discounts for twelve month period prior to the
announcement date and at a slight discount for the 60 day period prior to the
announcement date. With respect to share trading volume, Dakota had trading
volume of approximately $100,000 to $250,000 per day for the twelve month period
prior to the announcement date. This compares to approximately o for USMX Common
Stock during the same period.
Net Asset Value Approach. The Net Asset Value approach allows
for the separate valuation of each of the individual assets and liabilities
using the most appropriate valuation methodology for the individual asset.
Sufficient information existed to utilize a discounted cash
flow approach ("DCF") in conjunction with current balance sheets, and review of
exploration properties to determine the net asset value for both Dakota and
USMX. For the purposes of the net asset value approach, Canaccord made the
following assumptions:
<PAGE>
(a) The balance sheets for Dakota and USMX were dated December 31,
1996;
(b) The price of unhedged gold would remain constant at US $370/oz;
(c) The price of silver would remain constant at US $5/oz;
(d) Net present values for the operating mines were calculated based
on after-tax discounted cashflows;
(e) Further exploration programs and assumptions to increase the gold
reserves were not factored into the DCF model;
(f) The applied discount rates ranged from 0% to 5%. In addition, no
premium to the NAV was assigned;
(g) USMX would require additional equity financing amounting to US$10
million at US$1.00 per common share should the Merger not be
completed.
With respect to the discounted cash flow analysis, Canaccord
employed a number of assumptions including the following: (i) discount rates
ranging from 0% to 5%; (ii) constant 1996 dollars; and (iii) for unhedged gold
production, an unhedged gold price of U.S.$370 per ounce of gold was used.
Based on the net asset value approach, Canaccord derived a
range of relative values for Dakota Common Shares and USMX Common Shares which
were essentially consistent with the Share Exchange Ratio.
Comparable Companies Approach. Dakota and USMX were analyzed
in comparison to similar publicly traded companies, based on several criteria
including property locations, relative reserve development of those properties,
and the timing and magnitude of future gold production for each of the
companies. Canaccord reviewed the market capitalization per ounce of gold
equivalent production and per ounce of gold reserve for each of the selected
comparable companies. The results of the analysis indicate that Dakota and USMX
are trading in reasonable ranges relative to the selected comparable companies.
Comparable Transactions Approach. Canaccord analyzed recent
comparable publicly disclosed transactions of both gold companies and individual
properties. This approach was not a material determinant of value due to, among
other things, the difficulty in identifying companies that had properties in
similar geographic locations and that were in equivalent stages of production
and reserve development, and the different forms of consideration paid.
Other Considerations. In reaching its conclusions in this
Fairness Opinion, Canaccord reviewed and considered other qualitative factors
that would be relevant to the Dakota Shareholders including, but not limited to
market presence, market liquidity, geographic diversity, financing leverage,
financial strength and management depth. These considerations included the
following:
(a) Increased Market Liquidity. On a pro forma basis, after taking
into consideration the Merger, Dakota Shareholders will benefit
from increased market presence and liquidity inherent in the
merged company. Specifically, the combined company will benefit
from the following attributes: (i) have a market capitalization
exceeding $150 million; (ii) be a multiple listed company and
(iii) have an increased shareholder base.
(b) Increased Access to Capital. The merged company will have greater
access to capital in North American given its larger size and
market liquidity. In addition, there are opportunities to
increase financial leverage as the larger merged company will be
better able to secure debt, especially when certain projects are
brought into operation.
<PAGE>
(c) Increased Production and Reserve Profile. The merged company will
have approximate annual production in excess of 200,000 ounces of
gold in 1998 and 1.7 million ounces of proven and probable
reserves. This should result in the merged company receiving a
higher market capitalization per ounce of production and
reserves.
(d) Complementary Management Teams. Dakota and USMX have
complementary management teams possessing operating expertise,
both open pit and underground. Dakota will provide additional
experience and expertise in operating cold whether heap leach
operations.
(e) Enhanced Exploration Potential. Dakota and USMX in particular
have exciting exploration potential which should contribute to
increased reserves upon undertaking a comprehensive exploration
program.
(f) Gold Hedging Program. Dakota and USMX in particular have employed
an excellent gold hedging program of approximately 10,300 ounces
and 145,000 ounces of gold hedged at an average price of US $389
and US $410 respectively.
(g) Cost Rationalization. The merged company will be able to reduce
general, administrative and overhead costs resulting from
overlapping responsibilities and redundant costs.
USMX's Reasons for the Merger and Board of Directors' Recommendation
The USMX Board of Directors has determined that the terms of the Merger
Agreement and the transactions contemplated thereby, which were established
through arm's-length negotiation with Dakota, are fair to, and in the best
interests of, USMX and its stockholders. Accordingly, the USMX Board of
Directors has unanimously approved the Merger Agreement and unanimously
recommends that the stockholders of USMX vote FOR approval and adoption of the
Merger Agreement. In reaching its determination, the USMX Board of Directors
considered a number of factors including the following:
<PAGE>
(a) The belief that the Merger will result in a combined entity
stronger than the sum of Dakota and USMX as separate entities
with an enhanced ability to provide financing to resolve USMX's
liquidity problems;
(b) The belief that the Merger would result in a combined entity with
greater financial resources to compete and pursue growth
opportunities in the capital intensive mining industry;
(c) An assessment of USMX's strategic alternatives, including
acquisitions and other arrangements with third parties. In this
regard, the USMX Board believes that the terms of the Merger
Agreement provide the highest immediate value for holders of
shares of USMX Common Stock among the alternatives known and
anticipated to be available to USMX and the Merger will provide
holders of shares of USMX Common Stock with the opportunity to
continue to participate in the equity ownership of an entity with
complementary business operations;
(d) The structure of the Merger as a transaction intended to be
non-taxable to USMX Stockholders for United States federal income
tax purposes;
(e) An assessment of information relating to the financial
performance, prospects and business operations of each of Dakota
and USMX (which information included the historical financial
information contained in the periodic public reports of USMX and
Dakota and the descriptions of their lines of business contained
in such reports, all of which provided background information and
support for the belief of the USMX Board of Directors described
in (a) above);
(f) The presentation by Newcrest of its opinion to the effect that,
as of March 14, 1997 based upon the assumptions made, matters
considered and limits of review as set forth in such opinion, the
<PAGE>
consideration to be received by the holders of shares of USMX
Common Stock pursuant to the Merger Agreement is fair to such
holders from a financial point of view; for a summary of Newcrest
opinion, including the assumptions made, matters considered and
limits of review, see "The Merger -- Fairness Opinion of Newcrest
Capital, Inc.;
(g) The larger stock market float and potential enhancement of
trading liquidity for USMX Stockholders;
(h) The belief that each of Dakota and USMX has very capable
management teams that have an established track record, and that,
by combining the expertise of these managements, the combined
company should be well positioned to take advantage of
opportunities created by the Merger and the evolving mining
industry;
(i) The belief that the "No-Solicitation" provisions in the Merger
Agreement provide appropriate protection to USMX because of the
time and effort expended in considering other potential
combinations, and in conducting due diligence on and evaluating
Dakota prior to entering the Merger Agreement;
(j) The view that the combined corporation should be able to compete
more effectively for exploration and development activities;
(k) The belief that the combined corporation will have greater
geographic diversification in its operating and exploration
properties than either corporation now has by itself;
(l) The fact that holders of USMX Common Shares will own
approximately 29.3% of the equity of the combined company (and
approximately 22.5% on a fully diluted basis); and
(m) The belief that USMX and Dakota have complementary capabilities
and characteristics.
In reaching its determination, the USMX Board of Directors also
considered and evaluated, among other things, (i) information concerning the
results of operations, performance, financial condition and prospects of Dakota
and USMX on a company-by-company basis, and on a combined basis, (ii) the
reserve levels, asset quality and cost structure of USMX's and Dakota's
businesses, (iii) the results and scope of the due diligence review conducted by
members of USMX's management with respect to Dakota's business and operations,
(iv) information with respect to recent and historical trading prices and
trading multiples of USMX Common Stock and Dakota Common Shares, (v) information
with respect to recent and historical prices and price trends of gold and the
potential impact thereof on each of USMX, Dakota and the combined entity, and
(vi) current economic industry, market and world political conditions affecting
USMX and Dakota.
The USMX Board of Directors also considered (i) the terms of the Merger
Agreement, (ii) the structure of the Merger, (iii) the fact that directors
nominated by USMX would constitute three of the directors of Dakota after the
Merger, and (iv) the potential impact of the Merger on the employees, customers
and suppliers of USMX and on the communities in which USMX operates.
Based on all of these matters, and such other matters as the members of
the USMX Board deemed relevant, the USMX Board unanimously approved the Merger
Agreement and the transactions contemplated thereby.
This discussion of the information and factors considered and given
weight by the USMX Board of Directors is not intended to be exhaustive but is
believed to include all material factors considered by the USMX Board. In
addition, in reaching the determination to approve and recommend the Merger
Agreement, the USMX Board of Directors did not assign any relative or specific
weights to the foregoing factors which were considered, and individual directors
may have given differing weights to different factors. The USMX Board of
Directors is, however, unanimous in its recommendation to the holders of USMX
Common Stock that the Merger Agreement and the transactions contemplated thereby
<PAGE>
be approved.
The USMX Board of Directors realized that there are certain risks
associated with the Merger including that some of the potential benefits set
forth above may not be realized or that there may be high costs associated with
realizing such benefits and also the factors set forth in this Joint Proxy
Statement/Prospectus under "Risk Factors." However, the USMX Board of Directors
believes that the positive factors should outweigh any negative factors,
although there can be no assurances in this regard.
In connection with its deliberations at its February 2, 1997 meeting,
the USMX Board of Directors was aware of the potential benefits to be received
in the Merger by USMX's directors and officers, as detailed in the Merger
Agreement and specifically described under "Terms of The Merger -- Interests of
Certain Persons in the Merger."
The USMX Board of Directors believes that USMX and its stockholders
will receive reasonable protection from a change in circumstances between the
date of this Joint Proxy Statement/Prospectus and the Effective Time through the
inclusion in the Merger Agreement of a representation, required to be true in
all material respects at the Effective Time, to the effect that since December
31, 1996, there has been no material adverse change in the results of operations
or financial condition of the Dakota Group (taken as a whole).
In reaching its conclusion that the terms of the Merger Agreement are
fair to, and in the best interests of USMX and its stockholders, the USMX Board
of Directors considered Newcrest's opinion that the consideration to be received
by the holders of shares of USMX Common Stock pursuant to the Merger Agreement
is fair to such stockholders, from a financial point of view, as well as the
numerous other factors including those outlined above.
THE USMX BOARD UNANIMOUSLY RECOMMENDS THAT USMX STOCKHOLDERS VOTE TO APPROVE AND
ADOPT THE MERGER AGREEMENT.
Fairness Opinion of Newcrest Capital, Inc.
Newcrest was retained at the request of USMX's Board of Directors to
render a fairness opinion with regard to the fairness of the Merger, from a
financial viewpoint, to the USMX Stockholders.
Newcrest is an independent investment dealer headquartered in Toronto,
Ontario, which specializes in equity investments in publicly traded Canadian
companies. Newcrest does specialized and comprehensive research on a variety of
different industries and is an active underwriter and financial advisor to
Canadian companies. In particular, Newcrest has participated in a significant
number of transactions involving financings, fairness opinions and valuations of
mining companies.
Newcrest is independent of both USMX and Dakota and does not have any
understandings, commitments or agreements with USMX or Dakota with respect to
future business dealings. However, Newcrest acts as a trader and dealer, both as
principal and agent, in major Canadian financial markets and as such has had and
may in the future have positions in the securities of USMX or Dakota and, from
time to time, has executed or may execute transactions on behalf of clients or
on behalf of USMX or Dakota or affiliated entities or related persons for which
it receives compensation. In addition, as an investment dealer, Newcrest
conducts research on securities and may, in the ordinary course of its business,
be expected to provide research and investment advice to its clients on
investment matters, including the Merger, and may in the future, from time to
time, provide investment banking services to Dakota.
No limitations were placed on the scope of Newcrest's investigation
with regard to its fairness opinion. USMX agreed to pay, in the aggregate,
Cdn.$200,000 for the fairness opinion and Newcrest's advisory services. USMX has
also agreed to reimburse Newcrest for reasonable out-of-pocket expenses not to
exceed Cdn.$25,000 and to indemnify Newcrest against certain liabilities
relating to or arising out of services performed by Newcrest in rendering its
fairness opinion. During the last 24 months Newcrest was paid U.S.$34,500 by
USMX for providing financial advisory services to USMX in connection with
evaluation of merger candidates and potential equity offerings by USMX.
<PAGE>
On February 2, 1997 the USMX Board received the verbal opinion of
Newcrest with respect to the proposed Merger. In the opinion of Newcrest, based
upon and subject to certain matters stated therein, as of the date of such
opinion, the proposed transaction is fair, from a financial point of view, to
the USMX Stockholders. Such conclusion was confirmed in a written opinion dated
March 14, 1997. The full text of such opinion, which sets out the assumptions
made, matters considered and limitations on the review undertaken by Newcrest,
is reproduced in full as Appendix D hereto.
In preparing its opinion, Newcrest has, among other things, reviewed
and, where it considered appropriate, relied upon certain financial and
operational information in respect of USMX and Dakota, reports prepared on
behalf of USMX and Dakota, discussions and investigations and certain publicly
available information concerning USMX and Dakota. Newcrest obtained background
information from public sources and from USMX and Dakota.
Newcrest also reviewed and, where it considered appropriate, relied
upon: (a) certain publicly available stock market, financial and other
information concerning each of USMX and Dakota and other mining companies
selected by Newcrest for purposes of comparison; (b) letters of representation
from each of USMX and Dakota; and (c) such other financial, stock market,
corporate and industry information, investigations and analyses as Newcrest
considered necessary or appropriate in the circumstances to complete the
opinion.
As provided in their engagement, and subject to the exercise of
professional judgment in preparing the opinion, Newcrest relied upon and assumed
the completeness, accuracy and fair presentation of the information and the
representations Newcrest received from USMX, Dakota and their advisors, and the
information obtained from public sources. USMX and Dakota each represented to
Newcrest that there has been no material change or change in a material fact
relating to any of the information or representations provided to Newcrest by or
on behalf of their respective corporations that had not been disclosed to
Newcrest, and that no material change has occurred in the facts set out or
referred to in any such information subsequent to the date such information was
supplied which is of a nature as to render the information untrue or misleading
in any material respect. Newcrest did not verify independently the accuracy or
completeness of any of such information, representations or warranties.
Newcrest was not engaged to, and did not prepare, a formal valuation of
the shares of USMX or Dakota or any of their material assets and their opinion
should not be construed as such. Newcrest was not asked to solicit alternative
offers for USMX and did not do so.
The opinion was prepared on the basis of economic and general and
financial conditions prevailing as at the date of the opinion and the condition
and prospects, financial and otherwise, of USMX and Dakota as they were
represented in the information and documents reviewed by Newcrest and as they
were represented to Newcrest by the management of each of USMX and Dakota. In
addition, in its analyses in connection with the preparation of the opinion,
Newcrest made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of USMX or Dakota.
Fairness Considerations. In providing the opinion to the USMX Board,
Newcrest performed a variety of financial and comparative analyses, including
those described below. In Newcrest's view, the preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant
assumptions and methods of financial analysis and the application of these
methods to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Furthermore, in arriving at the
opinion, Newcrest did not attribute any particular weight to any analysis or
factor considered by them, but rather made qualitative judgments based on their
experience in rendering such opinions and on circumstances then prevailing as to
the significance and relevance of each analysis and factor.
Net Asset Value Approach. For purposes of the net asset value
approach, Newcrest made the following assumptions: (i) balance sheet items were
stated at the carrying values as at December 31, 1996, (ii) if the Merger were
not to be completed, USMX would need to complete an equity issue to raise $10
million at $1 per share of USMX Common Stock in 1997, (iii) operating mines were
evaluated on an after-tax discounted cash flow basis, and (iv) USMX's
<PAGE>
exploration properties in the United States, Mexico and Ecuador were reviewed
with USMX management and estimates of value were determined with reference to
several factors such as the size of the properties, the ownership interest of
USMX, the stage of the exploration program and historic exploration
expenditures.
With respect to the discounted cash flow analysis, Newcrest
employed a number of assumptions including the following: (i) discount rates
ranging from 0% to 8%, (ii) gold prices ranging from $350 to $390 per ounce of
gold, and (iii) silver price of $5 per ounce.
As a result of the range of relative company valuations
implied by the net asset value approach, Newcrest is of the opinion that the
Share Exchange Ratio is fair from a financial point of view to the holders of
shares of USMX Common Stock.
Market Trading Analysis. Newcrest reviewed the relative stock
market performance of USMX and Dakota for the periods prior to and after the
announcement of the execution of the agreement in principle on January 6, 1997.
Based on a comparison of the weighted average trading prices of shares of USMX
Common Stock and the Dakota Common Stock with the resulting share-to-share
ratio, Newcrest concluded that the implied prices of the USMX Common Stock were
a modest discount of 6.9% for the 30 days prior to the announcement date and a
slight premium of 2% for the 60-day period prior to the announcement date. With
respect to share trading volume, the USMX Common Stock had an average day
trading volume of approximately 31,767 shares for the 60-day period prior to the
announcement date. This compares to approximately 60,180 shares for the Dakota
Common Shares during the same period.
Comparable Valuation Approach. Newcrest compared the range of
equity valuations of the USMX and Dakota properties, based on adjusted stock
market capitalization multiples (reserves, resources and production) of
comparable publicly traded mining companies. The resulting relative valuations
of USMX and Dakota supported its conclusion that the Share Exchange Ratio
appears fair to holders of the USMX Common Stock. However, given the difficulty
in identifying truly comparable companies which are at the same stage of
production and reserve development, Newcrest placed less emphasis on the
Comparable Valuation Approach.
Other Considerations. Newcrest considered other factors
relevant to a USMX Stockholder before and after giving effect to the Merger
including the following: (i) reduced administrative costs on a consolidated
basis largely through elimination of costs associated with operating USMX as a
publicly-held company, (ii) direct access to cash flows generated through
Dakota's financial and operating activities, representing diversification from
USMX's Illinois Creek Project and resulting in enhanced financing opportunities,
and (iii) the significantly larger market capitalization of the merged company
which should result in enhanced market valuation multiples and better access to
the capital markets.
TERMS OF THE MERGER
The descriptions in this Joint Proxy Statement/Prospectus of the terms
and conditions of the Merger and the Merger Agreement are qualified in their
entirety by reference to the copy of the Merger Agreement attached as Appendix A
hereto (which is incorporated herein by reference in its entirety) and to each
of the other Appendices hereto. SHAREHOLDERS ARE ENCOURAGED TO READ THE MERGER
AGREEMENT IN ITS ENTIRETY.
The Merger Agreement was entered into by and among Dakota, Merger Corp.
and USMX on February 5, 1997, following approval by Dakota's, Merger Corp.'s and
USMX's respective Boards of Directors. Pursuant to the terms of the Merger
Agreement, Merger Corp. will be merged with and into USMX, with USMX being the
Surviving Corporation and, as a consequence thereof, USMX will become a
wholly-owned Subsidiary of Dakota.
Consequences and Effective Time of Merger
If approved and adopted by the requisite USMX and Dakota shareholder
votes, and if all other conditions to the consummation of the Merger are
<PAGE>
satisfied or waived, unless the Merger Agreement is terminated as provided
therein, a certificate of Merger will be filed with the Secretary of State of
the State of Delaware and the Merger will become effective upon such filing at
the Effective Time. At the Effective Time, Merger Corp. will be merged with and
into USMX and USMX will be the Surviving Corporation.
Conversion of USMX Common Stock
At the Effective Time, each share of USMX Common Stock outstanding
immediately prior to the Effective Time (other than USMX Common Stock held by
USMX as treasury stock or held by any other member of the USMX Group or the
Dakota Group) will be converted into Dakota Common Shares in the ratio of 1.1
shares of USMX Common Stock to one Dakota Common Share. All shares of USMX
Common Stock owned at the Effective Time by USMX as treasury stock or by any
member of the USMX Group or the Dakota Group will be canceled pursuant to the
terms of the Merger Agreement. No fractional Dakota Common Shares will be issued
in connection with the exchange of outstanding shares of USMX Common Stock at
the Effective Time. If the conversion of USMX Common Stock would result in any
USMX Stockholder being entitled to a fractional Dakota Common Share, such USMX
Stockholder will receive a single whole Dakota Common Share in lieu thereof.
At the Effective Time, each share of Merger Corp. outstanding immediately
prior to the Effective Time will be converted into one share of the Surviving
Corporation.
Conversion of USMX Options
Pursuant to the Merger Agreement, each outstanding USMX Option shall be
converted into a warrant, option or other right to acquire Dakota Common Shares
based on the Share Exchange Ratio, with the exercise price associated therewith,
if any, being adjusted proportionately.
Exchange of Certificates
At the Effective Time, certificates representing shares of USMX Common
Stock converted into Dakota Common Shares in the Merger will be deemed to
represent solely the right to receive the number of Dakota Common Shares
determined as described above. Promptly after the Effective Time, a letter of
transmittal will be furnished by the Exchange Agent to former USMX Stockholders
for use in exchanging their certificates. Each holder of a share of USMX Common
Stock as converted, upon surrender to the Exchange Agent of one or more
certificates for cancellation with such letter of transmittal, will be entitled
to receive certificates representing the number of whole Dakota Common Shares to
be issued in respect of such USMX Common Stock. See "Terms of the
Merger--Conversion of USMX Common Stock."
Until they have surrendered their certificates for exchange, former
USMX Stockholders whose shares of USMX Common Stock have been converted into the
right to receive Dakota Common Shares in the Merger will not be entitled to
receive any dividends which may be declared payable to holders of record of
Dakota Common Shares as of any date on or after the Effective Time. Any such
dividends to which the former USMX Stockholders are entitled following such
surrender will be remitted to the former USMX Stockholders entitled thereto,
without interest, at the time that such USMX certificates are surrendered for
exchange, subject to any applicable abandoned property, escheat or similar laws.
The Exchange Agent for the Merger will be Montreal Trust Company of Canada
at 510 Burrard Street, Vancouver, British Columbia, V6C 3B9. USMX STOCKHOLDERS
SHOULD NOT FORWARD USMX STOCK CERTIFICATES UNTIL THEY HAVE RECEIVED THE LETTER
OF TRANSMITTAL FROM THE EXCHANGE AGENT.
Conditions to the Merger
The Merger Agreement provides that the consummation of the Merger is
subject to certain conditions. In addition to the approval of the Merger and
<PAGE>
related matters by the USMX Stockholders and the Dakota Shareholders, the
obligations of USMX, Dakota, and Merger Corp. to consummate the Merger are each
subject to: (i) no action or proceeding, injunction, order or other decree
preventing the consummation of the Merger or to receive damages or obtain other
relief as a result of the Merger having been issued; (ii) compliance with all
requirements of AMEX, the TSE, the BSE and Nasdaq; (iii) the effectiveness of
the Registration Statement of which this Joint Proxy Statement/Prospectus is a
part and obtaining all required approvals of state securities administrators and
making all appropriate filings relating thereto, and no stop order or similar
restraining order having been entered by the SEC or any state securities
administrator; (iv) receipt by Dakota, Merger Corp. and USMX of an opinion from
Coopers & Lybrand L.L.P. to the effect that no gain or loss should be recognized
by Dakota, Merger Corp. or USMX as a result of the Merger or, provided that a
gain recognition agreement is entered into with the IRS, where appropriate, by
the U.S. holders of USMX Common Stock as a result of receipt of Dakota Common
Shares in exchange for their USMX Common Stock pursuant to the Merger; (v) the
written consent of Rothschild required pursuant to the Rothschild Credit
Agreements; (vi) the aggregate proceeds from the offering by Dakota of special
warrants described under "Capitalization and Description of
Securities--Description of Dakota Share Capital and Debentures" shall have been
released from escrow to Dakota or be held in escrow subject only to consummation
of the Merger; and (vii) the Merger Agreement not having been terminated in
accordance with its terms. See "Terms of the Merger - Termination of the Merger
Agreement."
The obligations of Dakota and Merger Corp. to consummate the Merger are
subject to the satisfaction of several additional conditions including: (i) all
of the representations and warranties of USMX being true in all material
respects on the Closing Date; (ii) the performance by USMX in all material
respects of all of its obligations required under the Merger Agreement to be
performed prior to the Effective Time; (iii) no material adverse change having
occurred since December 31, 1996 in the results of operations or financial
condition of the USMX Group (taken as a whole); (iv) Dakota and Merger Corp.
having received an opinion of legal counsel to USMX and such certificates and
other evidence as they may have reasonably requested as to the satisfaction of
the conditions in their favor and as to such other matters as they may
reasonably request; (v) receipt of an up-dated letter of KPMG Peat Marwick
L.L.P. with respect to USMX's financial statements; (vi) USMX and Pegasus Gold
having entered into an agreement in form and substance satisfactory to Dakota
with respect to the disposition of USMX's royalty interest in the Montana
Tunnels properties; and (vii) USMX and Dakota having received all consents
required to be obtained as a condition of completion of the Merger. These
additional conditions may be waived by Dakota and Merger Corp., but it is not
the present intention of management of Dakota and Merger Corp. to waive such
conditions to consummate the Merger. However, management of Dakota and Merger
Corp. reserve the right to waive any condition at any time prior to consummation
of the Merger.
The obligation of USMX to consummate the Merger is subject to the
satisfaction of several additional conditions, including: (i) all of the
representations and warranties of Dakota and Merger Corp. being true in all
material respects on the Closing Date; (ii) performance by Dakota and Merger
Corp. in all material respects of all of their respective obligations required
under the Merger Agreement to be performed prior to the Effective Time including
providing a $5 million line of credit for USMX; (iii) no material adverse change
having occurred since December 31, 1996 in the results of operations or
financial condition of the Dakota Group (taken as a whole); (iv) USMX having
received an opinion of legal counsel to Dakota and such certificates and other
evidence as it may have reasonably requested as to the satisfaction of the
conditions in its favor and as to such other matters as it may reasonably
request; (v) receipt of an up-dated letter of KPMG Peat Marwick L.L.P. with
respect to Dakota's financial statements; and (vi) Dakota and USMX having
received all consents required to be obtained as a condition of completion of
the Merger. These additional conditions may be waived by USMX, but it is not the
present intention of management of USMX to waive such conditions to consummate
the Merger. However management of USMX reserves the right to waive any condition
at any time prior to consummation of the Merger.
Termination of the Merger Agreement
The Merger Agreement may be terminated prior to the Effective Time on
certain occurrences: (i) by either Dakota and Merger Corp. or USMX if the Merger
has not been consummated on or before the Termination Date, provided the party
exercising this right is not in material breach of its obligations under the
<PAGE>
Merger Agreement; or (ii) by the non-breaching party if the other party is in
material breach of its obligations under the Merger Agreement, which cannot
reasonably be expected to be cured prior to the Termination Date or the party in
breach is not taking reasonable efforts to cure such breach, and such breach is
not waived.
In the event the Merger Agreement is terminated (a) by Dakota because
the USMX's Board of Directors has made a recommendation to the USMX Stockholders
against the Merger or in support of a Competing Transaction, or if USMX shall
have entered into a Competing Transaction, or (b) by USMX if USMX's Board of
Directors determines in good faith, after consultation with its outside legal
counsel, that it is required by its fiduciary duties to recommend to the USMX
Stockholders than they vote against the Merger and approve instead a Competing
Transaction that (i) the USMX Board of Directors has determined in good faith,
after consultation with its outside financial advisors, is financially more
favorable to the USMX Stockholders than the Merger (including any adjustment to
the terms and conditions of the Merger proposed by Dakota in response to such
Competing Transaction), (ii) is the subject to a firm written offer from a third
party that is capable of consummating such Competing Transaction and (iii) is
likely to be successful, taking into account any amendments proposed by Dakota
and the conditions and valid and binding character thereof, then USMX may pay to
Dakota a fee of $500,000 (the "Termination Fee") within 30 days after delivery
of the notice of termination of the Merger Agreement in exchange for
cancellation of the option described above, provided that USMX shall not be
permitted to cancel the option if at any time prior to the making of such
payment Dakota shall have exercised such option and USMX shall have issued to
Dakota the USMX Common Stock issuable upon such exercise.
Shareholder Approvals
Dakota Shareholder Approval. The TSE, as a condition to the listing of
the Dakota Common Shares issuable under the Merger, requires the approval of the
issuance of Dakota Common Shares under the Merger Agreement by holders of a
majority of the outstanding Dakota Common Shares voting at the Dakota Meeting in
person or by proxy.
Merger Corp. Stockholder Approval. The DGCL requires the affirmative vote
of a majority of the issued and outstanding shares of common stock of Merger
Corp. for approval of the Merger Agreement. Dakota owns all the issued and
outstanding shares of common stock of Merger Corp., and such shares have been
voted to approve the Merger Agreement.
USMX Stockholder Approval. The DGCL requires the affirmative vote of a
majority of the issued and outstanding shares of USMX Common Stock for approval
of the Merger Agreement.
Representations, Warranties and Covenants under the Merger Agreement
The Merger Agreement contains certain customary representations and
warranties of each of Dakota and Merger Corp. and USMX relating to, among other
things, their respective organization, good standing, qualification, capital
structure, accuracy of securities filings, operations, taxes, restrictions on
business activities, material contracts, insurance, financial condition,
reserves, title to assets, litigation, environmental matters, compliance with
necessary regulatory or governmental authorities and other matters, including
their authority to enter into the Merger Agreement and to consummate the Merger.
Pursuant to the Merger Agreement, each party has covenanted, among other things,
that, until the Effective Time, it will: maintain its business; not take certain
actions outside the ordinary course without the other's consent; not undertake
certain matters respecting changes to its capital structure or dividends; not
allow certain dispositions of its or its subsidiaries' securities; not authorize
capital expenditures or make any material investments or acquisitions, other
than in the ordinary course; not enter into certain employee arrangements; not
change its accounting principles; and use its best efforts to satisfy the
conditions precedent to the Merger. Each party has also agreed to advise the
other of material changes and to allow the other access to its information and
properties. Further, the parties have agreed to apply for and use their best
efforts to obtain all regulatory and other consents and approvals and to hold
the Dakota Meeting and the USMX Meeting and recommend the approval of the Merger
Agreement, the Merger and related matters to their respective shareholders.
Dakota additionally agreed (i) that all rights to indemnification for directors
and officers of USMX will survive the Merger and remain in full force and effect
<PAGE>
for at least six years from the Effective time, (ii) to assume all of USMX's
obligations in respect of such indemnification rights and (iii) to use
commercially reasonable efforts to maintain insurance for USMX's directors and
officers that provides coverage equivalent to Dakota's current directors' and
officers' liability insurance for at least six years from the Effective Time.
See "Interests of Certain Persons in the Transaction - USMX Directors' and
Officers' Indemnification and Insurance." Dakota also agreed to list the Dakota
Common Shares to be issued in connection with the Merger on the TSE and the
AMEX. The listing of such shares on such exchanges on the effective Date is
subject to the satisfaction of the requirements of the exchanges.
The Merger Agreement also provides that until the earlier of the
Effective Time or the termination of the Merger Agreement, USMX will not (and it
will use its best efforts to ensure that no other member of the USMX Group or
their respective directors do not, and shall not permit their officers,
employees, representatives or advisors) directly or indirectly: (i) solicit,
initiate or engage in discussions or negotiations with any person, encourage
submission of any inquiries, proposals or offers by or take any other action
intended or designed to facilitate the efforts of any person, other than Dakota
or any of its Subsidiaries, relating to a possible Competing Transaction; (ii)
provide non-public information with respect to USMX or any member of the USMX
Group or afford access to the properties, books or records of the same to any
person, other than Dakota or any of its Subsidiaries relating to a possible
Competing Transaction; (iii) make or authorize any statement, recommendation or
solicitation in support of any possible Competing Transaction; or (iv) enter
into an agreement providing for a possible Competing Transaction.
Notwithstanding the foregoing, prior to the approval of the Merger at the USMX
Meeting, the USMX Board of Directors and its agents are not prohibited from
engaging in discussions or negotiations with a party concerning an unsolicited
proposal for a Competing Transaction, providing non-public information with
respect to the USMX Group that has been provided to Dakota or any of its
Subsidiaries, or making any statement or recommendation in support of a
Competing Transaction, in each case if USMX's directors determine in good faith,
after consultation with and receiving written advice from its outside legal
counsel, that such action is required by reason of the USMX Board of Directors'
fiduciary duties to USMX Stockholders under applicable law and USMX first
notifies Dakota of such discussions or negotiations with a person respecting a
Competing Transaction and keeps Dakota informed of the status of any such
discussions or negotiations. The Merger Agreement also provides that USMX will
immediately notify Dakota of any unsolicited offer or proposal to enter into
negotiations relating to a Competing Transaction. The Merger Agreement provides
that, at any time prior to the USMX Meeting, Dakota may, in its sole discretion,
increase the consideration payable to USMX Stockholders by amending the Merger
Agreement under certain conditions.
The Merger Agreement provides that, notwithstanding any other
provisions thereof, USMX will not (i) enter into a Competing Transaction until
at least 10 business days following the first notification by USMX to Dakota
that it has entered into discussions with a third party in respect of such
Competing Transaction and five business days following delivery of written
notice by USMX to Dakota of the identity and terms of the Competing Transaction;
or (ii) for a period of 10 business days following termination of the Merger
Agreement by USMX pursuant to the determination of the USMX Board of Directors
respecting the recommendation of a Competing Transaction that the USMX Board of
Directors determines that its fiduciary duties require it to recommend to the
USMX Stockholders and that, among other things, is financially more favorable to
the USMX Stockholders than the Merger (see "Termination of the Merger
Agreement"), grant or agree to grant to any third party, in connection with a
Competing Transaction, an option to purchase treasury securities or assets of
USMX or any of its subsidiaries, pay or agree to pay to any such third-party
termination, expense reimbursement, "topping" or similar fees in the event of
non-consummation of such Competing Transaction, or otherwise commit to any
inducement to any such third party.
The Merger Agreement also provides (a) that immediately following the
Effective Time, the Dakota Board will consist of nine persons, five of whom will
be members of Dakota's current Board of Directors, three of whom will be
designated by USMX (one being Donald P. Bellum as Chairman of the Board) and one
of whom will be designated by Pegasus Gold.
Other Agreements
Agreement to Support the Transaction. Pegasus Gold, as holder of
approximately 4.8 million shares of USMX Common Stock (representing
<PAGE>
approximately 29.1% of the outstanding shares of USMX Common Stock as of
February 5, 1997), has entered into a Support Agreement with Dakota pursuant to
which it has agreed (i) until the earlier of June 1, 1997 or the termination of
the Merger Agreement, to vote its USMX Common Stock in favor of the Merger and
the Merger Agreement, and against any action which would impede, interfere with
or discourage the Merger or result in any breach by USMX under the Merger
Agreement, unless the USMX Board of Directors recommends that their stockholders
vote against the Merger or the opinion of Coopers & Lybrand L.L.P. referred to
under "Conditions of the Merger" does not conclude that no gain or loss should
be recognized by U.S. holders of USMX Shares upon receipt of Dakota Shares in
exchange for their USMX Shares; and (ii) without the prior written consent of
Dakota, to refrain from selling any of its USMX Common Stock until the earlier
of consummation of the Merger or termination of the Merger Agreement. In the
Support Agreement, Dakota and USMX agree to use their best efforts, subject to
applicable law and the fiduciary obligations of the USMX Board of Directors, to
obtain the approval of the USMX Stockholders with respect to the disposition of
USMX's royalty interest in the Montana Tunnels property (see "Business and
Properties of USMX-Montana Tunnels") and it is agreed that Pegasus Gold shall
have the right to designate one director of Dakota following the Merger, subject
to shareholder approval, and shall receive the recommendation of the Dakota
Board of Directors following the Merger that such designated director can
continue to hold that seat as long as Pegasus Gold holds not less than five
percent of outstanding Dakota Common Shares.
Option Agreement. Dakota and USMX have entered into the Option
Agreement pursuant to which USMX granted to Dakota an option to purchase 810,000
shares of USMX Common Stock at a price of $1.75 per share in the event the
Merger Agreement is terminated because the USMX Board of Directors makes a
recommendation to the USMX Stockholders against the Merger or in support of a
Competing Transaction or if USMX has entered into a Competing Transaction. Such
option shall expire six months after such termination. Dakota has the right to
terminate the option at any time.
$5,000,000 Loan Agreement. As part of the Merger transactions Dakota
and USMX agreed that Dakota will provide a $5 million line of credit to USMX to
provide interim working capital to sustain USMX's operations, principally the
construction and development of the Illinois Creek Mine, until the Merger is
consummated. The line of credit bears interest at the rate of one per cent above
a quoted floating prime rate and is due August 31, 1997 or earlier if the Merger
Agreement is terminated before such date. The proceeds will be used to pay
certain ongoing operating expenses of USMX, primarily in connection with
start-up activities associated with the Illinois Creek Mine and to partially pay
trade creditors of USMX and its subsidiaries.
The line of credit is evidenced by two promissory notes with similar
terms but different amounts and different security. The $2 million promissory
note ("Note 1") is secured by a second priority position in all of the capital
stock of USMX of Alaska, Inc. owned by USMX. USMX of Alaska, Inc. holds title to
the Illinois Creek Mine. The second promissory note for $3 million ("Note 2") is
secured by a first position on all of the capital stock of MXUS S.A. de C.V.,
USMX's Mexican Subsidiary, and a first position on USMX's interest in the
Thunder Mountain property in Idaho. USMX and Dakota agreed to grant Rothschild a
second priority security position in the security for Note 2.
Funding for the $5 million line of credit was provided from a portion
of the proceeds of the Special Warrant offering described under the heading
"Dakota Management's Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources-Special Warrant Financing and
Issue of Debentures" with the consent of the Agents.
The $5,000,000 Loan Agreement contains representations, warranties,
covenants and negative covenants typical in short-term financing transactions.
USMX will use the proceeds of such loan to partly pay outstanding balances due
to trade creditors according to a plan approved by Dakota and Rothschild.
Intercreditor Agreements. In connection with the extension of the $5
million line of credit by Dakota to USMX and consummation of the Merger, the
consent of Rothschild was required. Further, Dakota, as the potential owner of
USMX, desired certain changes to the Rothschild loan facility in order to avoid
immediate defaults under such facility after closing of the Merger. Accordingly,
the parties negotiated an Intercreditor Agreement which provides, among other
<PAGE>
things, as follows:
<PAGE>
(a) The consent of Rothschild to the Merger and the extension of the
$5 million line of credit from Dakota to USMX on the terms
described above.
(b) Rothschild's agreement to share, pari passu with Dakota, in any
proceeds from foreclosure on the capital stock of USMX of Alaska,
Inc. in the ratio of the amount outstanding under Note 1 to $22
million, but with Rothschild retaining the right to deal with
such security.
(c) Dakota's agreement to fund at least $2 million of its line of
credit for costs and expenses at the Illinois Creek Mine
according to a plan prepared by USMX and approved by Rothschild
and Dakota.
(d) The agreement of Dakota to guarantee USMX's obligations under the
Rothschild Credit Agreements until "commercial completion" of the
Illinois Creek Mine.
(e) The agreement of Rothschild to forebear from exercising its
rights to declare and enforce defaults (except payment or
bankruptcy defaults) of USMX under the Rothschild Credit
Agreements until the earliest of consummation of the Merger,
termination of the $5 million line of credit or June 30, 1997.
(f) For amendment of certain terms and covenants in the Rothschild
Credit Agreements, to be effective upon closing of the Merger,
which include revisions to the definition of "commercial
completion," and amendments to certain financial covenants.
(g) Dakota's and Rothschild's rights to share in the collateral
terminate if the Merger is consummated or the $5 million line of
credit is extinguished.
(h) At the closing of the Merger, a $2.5 million convertible loan to
USMX under the Rothschild Credit Agreements will be extinguished
by payment of $1.5 million by Dakota and adding the balance to
the outstanding amounts under the project financing portion of
the such Agreements.
(i) Rothschild, Dakota and Gerald Metals, Inc. ("Gerald") have also
entered into an Intercreditor agreement in connection with the
foregoing transactions and the extension by Gerald of additional
working capital credit to Dakota. See "Dakota Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Sources and Uses of Cash." This Intercreditor
agreement provides that Rothschild shall enjoy a first priority
position on assets owned by the USMX Group and Gerald will hold a
first priority position on all Dakota assets except the USMX
Group assets, following the Merger. Gerald will receive a
collateral assignment of Dakota's rights in Note 2 to secure its
extension of additional credit under its working capital facility
to Dakota.
Interests of Certain Persons in the Merger
Options. Under the Merger Agreement, from and after the Effective Time,
each outstanding USMX Option will be converted into a warrant, option or other
right to acquire Dakota Common Shares based on the Share Exchange Ratio, with
the exercise price associated therewith, if any, being adjusted proportionally.
See "USMX, Annual Meeting-Executive Compensation" for a description of the
outstanding USMX Options owned by directors, officers and employees of USMX that
will be converted into a warrant, option or other right to acquire Dakota Common
Shares.
Ownership of Dakota Common Shares. On consummation of the Merger it is
anticipated that the directors and executive officers of USMX and their
affiliates will beneficially own approximately 9.8% of the then outstanding
Dakota Common Shares, excluding out of the money stock options.
Resale of Dakota Common Shares. The Dakota Common Shares to be issued
in the Merger will have been registered under the Securities Act by a
<PAGE>
Registration Statement on Form S-4, of which this Joint Proxy
Statement/Prospectus is a part, thereby allowing those shares to be traded in
the United States without restriction by all former holders of USMX Common Stock
who neither (a) are deemed to be affiliates of USMX at the time of the USMX
Meeting nor (b) become affiliates of Dakota after the Merger. USMX has agreed to
use its reasonable best efforts to cause each person who is an "affiliate" (as
such term is defined in Rule 145 under the Securities Act) of USMX to deliver to
Dakota at or prior to the Effective Time, a written agreement to the effect that
such person will not sell, transfer or otherwise dispose of any Dakota Common
Shares such person will acquire in connection with the Merger unless (a) such
sale, transfer or other disposition is made in conformity with the volume and
other limitations of Rule 145 promulgated by the SEC under the Securities Act,
(b) such resale, transfer or other disposition has been registered under the
Securities Act or (c) in the opinion of counsel reasonably acceptable to Dakota,
such sale, transfer or other disposition is otherwise exempt from registration
under the Securities Act. This Joint Proxy Statement/Prospectus does not cover
any resales of Dakota Common Shares received by persons who are deemed to be
affiliates of USMX.
For information regarding Canadian resale provisions, See "Resale
Restrictions."
Directors and Officers. If the Merger Agreement is approved by the
Dakota Shareholders and USMX Stockholders, Dakota's Board of Directors will
include three designees of USMX, and one designee of Pegasus Gold. Donald P.
Bellum, currently the President and Chief Executive Officer of USMX, will become
Chairman of the Board of Dakota.
USMX Directors' and Officers' Indemnification and Insurance. The Merger
Agreement provides that from and after the Effective Time Dakota will indemnify
and hold harmless all past and present officers and directors of USMX and of its
Subsidiaries to the full extent such persons may be indemnified by Dakota for
acts or omissions occurring at or prior to the Effective Time and will advance
reasonable litigation expenses incurred by such officers and directors in
connection with the defending of any action arising out of such acts or
omissions. The Merger Agreement provides that these rights to indemnification
shall continue for a period of at least six years from the Effective Time.
Dakota has also agreed to use commercially reasonable efforts to provide
directors and officers' liability insurance for six years from the Effective
Time for the persons serving as officers and directors of USMX immediately prior
to the Effective Time.
Change in Control Arrangements. Certain officers of USMX have
change-in-control agreements with USMX that will trigger certain obligations
upon completion of the Merger if such officers are terminated without "cause" or
there is a "material change" in such officer's job status as each is defined
therein. Such obligations include payment of salary and the continuation of
medical benefits for a period of time based on tenure. Dakota intends to honor
such agreements to the extent necessary.
Employment and Option Plans. Dakota and USMX have agreed to use
reasonable efforts to coordinate the conversion or merger of any employment
benefit plans of USMX into comparable Dakota plans, and Dakota has agreed to
honor in accordance with their terms, all employment, severance, stock option
and other compensation agreements and plans existing prior to the Merger
Agreement between USMX and any officer, director or employee which have been
disclosed to Dakota to the extent practicable under existing comparable
agreements and plans in effect for Dakota employees. To the extent there is a
conflict between a provision in a USMX agreement or plan and a comparable
provision in the Dakota counterpart, the Dakota agreement or plan will control.
See "USMX Annual Meeting-Executive Compensation."
Comparison of Rights of Holders of Shares of USMX Common Stock Under Delaware
and Canadian Law
The rights of holders of shares of USMX Common Stock are currently
governed by Delaware law, particularly the DGCL, USMX's Certificate of
Incorporation and USMX's Bylaws. On consummation of the Merger, holders of
shares of USMX Common Stock will become holders of Dakota Common Shares, and
their rights as holders of Dakota Common Shares will be governed by the CBCA,
Dakota's Articles of Continuance and Dakota's Bylaws. While it is not practical
to summarize all of the legal differences between the rights of holders of
<PAGE>
shares of USMX Common Stock and Dakota Common Shares, certain material
differences that could affect the rights of the holders of shares of USMX Common
Stock are set forth below. The following summary does not purport to be complete
and is qualified in its entirety by reference to the DGCL and the CBCA.
Amendments to the Governing Documents. Under the CBCA, an amendment to
a corporation's articles of continuance requires approval by special resolution,
which is a resolution passed by a majority of not less than two-thirds of the
votes cast by shareholders entitled to vote on the resolution. In a case where
the proposed amendment would affect a class or series of shares, the holders of
shares of that class or series are entitled to vote separately as a class or
series. The CBCA provides that unless the articles or bylaws otherwise provide,
the directors may, by resolution, make, amend or repeal any bylaws that regulate
the business or affairs of a corporation. Where the directors make, amend or
repeal a bylaw, they are required under the CBCA to submit the bylaw, or an
amendment or a repeal of a bylaw to the shareholders at the next meeting of
shareholders, and the shareholders may confirm, reject or amend the bylaw,
amendment or repeal by an ordinary resolution, which is a resolution passed by a
majority of the votes cast by shareholders entitled to vote on the resolution.
Generally, under the DGCL, an amendment to a corporation's certificate
of incorporation requires the affirmative vote of the holders of at least a
majority of outstanding stock entitled to vote thereon and the majority of the
outstanding stock of each class entitled to vote thereon. In a case where the
proposed amendment would increase or decrease the aggregate number of authorized
shares of a class, increase or decrease the par value of the shares of a class,
or alter or change the powers, preferences, or special rights of the shares of a
class, the amendment must also receive an affirmative vote of at least a
majority of the outstanding stock of that class whether or not otherwise
entitled to vote. If the certificate of incorporation requires a larger
proportion or number, the certificate of incorporation controls. Bylaws may be
amended by a majority vote of the shareholders of the corporation, unless
otherwise provided in the certificate of incorporation to allow amendments by
the Board of Directors. USMX's Certificate of Incorporation provides for an
affirmative vote of 66 2/3% of the outstanding stock to amend the Certificate of
Incorporation bylaws regarding removal of directors.
Disposition of Assets. Under the CBCA, a sale, lease or exchange of all
or substantially all of the property of a corporation other than in the ordinary
course of business of such corporation requires approval by special resolution.
The sale, lease or exchange shall be effective on the adoption of a special
resolution of the holders of each class or series entitled to vote on the
matter. If the sale, lease or exchange would affect the holders of a particular
class or series of shares in a manner different from the other shareholders of
the corporation, the holders of such class or series of shares are entitled to
vote separately as a class or series, whether or not they are otherwise entitled
to vote on the matter. The directors of the corporation may, if so authorized by
the shareholders approving the sale, lease or exchange, and subject to the
rights of third parties, abandon the transaction without further approval of the
shareholders.
Under the DGCL, a sale, lease, transfer or other disposition of all or
substantially all of the property of a corporation requires the approval of the
holders of a majority of the outstanding stock entitled to vote thereon.
Vote Required for Other Extraordinary Transactions. Under the CBCA,
certain other extraordinary corporate actions, such as certain amalgamations,
continuances and other extraordinary corporate actions such as liquidations,
dissolutions and (if ordered by a court) arrangements, are required to be
approved by special resolution. In certain cases, a special resolution to
approve an extraordinary corporate action is also required to be approved
separately by the holders of a class or series of shares.
Except with respect to certain mergers and consolidations between a
parent and its subsidiaries, the DGCL requires the affirmative vote of a
majority of the outstanding stock entitled to vote thereon to effect a merger or
consolidation.
Directors Qualification. Under the CBCA, a corporation having
outstanding securities which were issued as part of a distribution to the
public, must have not fewer than three directors and a majority of the directors
must be resident Canadians. The CBCA also requires that at least two of the
directors of such a corporation must not be officers or employees of the
corporation or any of its affiliates.
<PAGE>
Under the DGCL, a corporation may have one or more directors. USMX's
Certificate of Incorporation provides that the USMX board shall consist of not
less than three or more than nine directors. Directors hold office until their
successors are elected and qualified or until they resign or are removed.
Removal of Director. Under the CBCA, directors may generally be removed
before the expiration of their term in office, with or without cause, by
ordinary resolution, which is a resolution passed by a majority of the votes
cast by the shareholders who voted in respect of that resolution at a special
meeting. A replacement may be appointed by ordinary resolution at such meeting.
Generally, under the DGCL, directors may be removed with or without
cause, by the affirmative vote of a majority of the outstanding stock entitled
to vote for directors. USMX's Certificate of Incorporation provides for removal
without cause by the affirmative vote of 66 2/3% of the outstanding stock.
Indemnification. Under the CBCA, a corporation may, except in respect
of an action by or on behalf of the corporation to procure a judgment in its
favor, indemnify a director or officer, a former director or officer or a person
who acts or acted at the corporation's request as a director or officer of a
body corporate of which the corporation is or was a shareholder or creditor, and
his or her heirs and legal representatives (an "Indemnifiable Person"), against
all costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by the Indemnifiable Person in respect
of any civil, criminal or administrative action or proceeding to which the
Indemnifiable Person is made a party by reason of being or having been a
director or officer of such corporation or such body corporate, if: (a) the
Indemnifiable Person acted honestly and in good faith with a view to the best
interests of such corporation; and (b) in the case of a criminal or
administrative action or proceeding that is enforced by a monetary penalty, the
Indemnifiable Person had reasonable grounds for believing that his or her
conduct was lawful. An Indemnifiable Person is entitled to such indemnity from
the corporation if he or she was substantially successful on the merits in his
or her defense of the action or proceeding and fulfilled the conditions set out
in (a) and (b) above. A corporation may, with the approval of a court, also
indemnify an Indemnifiable Person in respect of an action by or on behalf of the
corporation or body corporate to procure a judgment in its favor, to which such
person is made a party by reason of being or having been a director or an
officer of the corporation or body corporate, if he or she fulfils the
conditions set out in (a) and (b) above.
Under the DGCL, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or was serving as a director, officer,
employee or agent of another entity at the corporation's request, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with the
action, suit or proceeding, if such person: (a) acted in good faith; (b)
reasonably believed that the conduct was in, or not opposed to, the best
interests of the corporation; and (c) with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or on a plea of nolo contendere or its equivalent does not, of
itself, create a presumption that the person did not meet the criteria for
indemnification. A corporation may not indemnify any such person with respect to
any claim, issue or matter as to which such person was adjudged liable to the
corporation unless the court deems such indemnification proper in view of the
circumstances. A corporation may purchase and maintain insurance on behalf of
any director, officer, employee or agent of the corporation or any director,
officer, agent or employee of any other entity serving at the corporation's
request, in such person's official capacity against any liability asserted
against and incurred by such person in or arising from that capacity, whether or
not the corporation has the authority to indemnify the person.
Liability of Directors. Under the CBCA, every director of a corporation
who authorizes the issue of shares of the corporation from treasury for
consideration, other than money is jointly and severally liable to the
corporation to make good any amount by which the consideration received is less
than the fair equivalent of the money that the corporation would have received
if the shares had been issued for money. Directors who vote for or consent to
resolutions authorizing, in a manner or under circumstances contrary to the
provisions of the CBCA, (i) the granting of any financial assistance, (ii) a
purchase, redemption or other acquisition of shares, (iii) a commission, or
discount on the issues of shares or securities (iv) a payment of a dividend, (v)
a payment of an indemnity, or (vi) a payment to any person, are jointly and
<PAGE>
severally liable to restore to the corporation any amounts so distributed or
paid and not otherwise recovered by the corporation.
Under the DGCL, directors of a corporation are jointly and severally
liable for the willful or negligent violation of the provisions regarding
dividends and the purchase or redemption of its stock. However, directors are
fully protected if they rely in good faith on the records of the corporation and
certain other information, reports and opinions as to the value and amount of
its assets, liabilities, net profits, surplus and other funds with respect to
the declaration and payment of dividends and the purchase and redemption of
stock.
Dissenters' Appraisal Rights. The CBCA provides that shareholders of a
CBCA corporation entitled to vote on certain matters are entitled to exercise
dissent rights and to be paid the fair value of their shares in connection
therewith. The CBCA does not distinguish for this purpose between listed and
unlisted shares. Such matters include (a) any amalgamation with another
corporation (other than with certain affiliated corporations); (b) an amendment
to the corporation's articles to add, change or remove any provisions
restricting the issue, transfer or ownership of shares; (c) an amendment to the
corporation's articles to add, change or remove any restriction upon the
business or businesses that the corporation may carry on; (d) a continuance
under the laws of another jurisdiction: (e) a sale, lease or exchange of all or
substantially all the property of the corporation other than in the ordinary
course of business; (f) a court order permitting a shareholder to dissent in
connection with an application to the court for an order approving an
arrangement proposed by the corporation; and (g) certain amendments to the
articles of a corporation which require a separate class or series vote,
provided that a shareholder is not entitled to dissent if an amendment to the
articles is effected by a court order approving a reorganization or by a court
order made in connection with an application for an oppression remedy.
Under the DGCL, a stockholder may be entitled to exercise appraisal
rights, and receive the fair value of such stockholders stock in the event of a
merger or consolidation. However, there are no appraisal rights with respect to
a merger or consolidation in favor of the holders of stock ("Listed Stock") of
any class or series which is either listed on a national securities exchange,
designated as a national market system security on an inter-dealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by at least 2,000 stockholders, unless the certificate of incorporation provides
otherwise or the holders are required to receive anything other than shares of
the surviving corporation, shares of any Listed Stock, cash in lieu of
fractional shares, or any combination thereof.
Oppression Remedy and Other Actions. The CBCA provides an oppression
remedy that enables the court to make any order, interim or final, to rectify
the matters complained of where it is satisfied upon application by a
complainant (as defined below) that: (i) any act or omission of the corporation
or an affiliate effects a result; (ii) the business or affairs of the
corporation or an affiliate are, have been or are threatened to be carried on or
conducted in a manner; or (iii) the powers of the directors of the corporation
or an affiliate are, have been exercised in a manner, that is oppressive or
unfairly prejudicial to or that unfairly disregards the interest of any security
holder, creditor, director or officer of the corporation. A complainant
includes: (a) a present or former registered holder or beneficial owner of
securities of a corporation or any of its affiliates; (b) a present or former
officer or director of the corporation or any of its affiliates; and (c) any
other person who in the discretion of the court is a proper person to make such
application.
Due to the breadth of the conduct which can be complained of and the
scope of the court's remedial powers, the oppression remedy is very flexible and
is sometimes relied upon to safeguard the interests of shareholders and other
complainants with a substantial interest in the corporation. Under the CBCA, it
is not necessary to prove that the directors of a corporation acted in bad faith
in order to seek an oppression remedy. Furthermore, the court may order the
corporation or its subsidiary to pay the interim expenses of a complainant
seeking an oppression remedy, but the complaint may be held accountable for such
interim costs on final disposition of the complaint (as in the case of a
derivative action, which is described below).
The DGCL does not provide a statutory remedy for oppression.
Stockholders may, however, have a number of legal and equitable remedies
available under the Delaware common law for the improper acts and omissions of
its directors and officers.
<PAGE>
Derivative Action. Under the CBCA, a complainant may apply to the court
for leave to bring an action in the name of and on behalf of a corporation or
any subsidiary, or to intervene in an existing action to which any such body
corporate is a party, for the purpose of prosecuting, defending or discontinuing
the action on behalf of the body corporate. Under the CBCA, no action may be
brought and no intervention in an action may be made unless the complainant has
given reasonable notice to the directors of the corporation or its subsidiary of
the complainant's intention to apply to the court if the directors of the
corporation or its subsidiary will not bring, diligently prosecute or defend or
discontinue the action and the court is satisfied that (a) the complainant is
acting in good faith and (b) it appears to be in the interest of the corporation
or its subsidiary that the action be brought, prosecuted, defended or
discontinued.
Under the CBCA, the court in a derivative action may make any order it
thinks fit, including an order requiring a corporation or its subsidiary to pay
the complainant's interim costs, including reasonable legal fees and
disbursements.
In certain instances, derivative actions may be brought in Delaware by
a stockholder on behalf of, and for the benefit of, the corporation. Under the
DGCL, a stockholder must aver in the complaint that the plaintiff was a
stockholder of the corporation at the time of the transaction of which the
plaintiff complains, or that the shares thereafter devolved on the plaintiff by
operation of law.
Access to Corporate Records and Financial Statements. Under the CBCA a
corporation is required to make available to the public certain prescribed books
and records during usual business hours of the corporation. In addition,
directors of a corporation are entitled to examine certain additional records,
documents and instruments of the corporation.
Under the DGCL, on written demand under oath, any stockholder may, for
any proper purpose, inspect during usual business hours the corporation's stock
ledger, a list of stockholders, and its other books and records, and may make
copies and extracts therefrom.
Fiduciary Duties of Directors. Directors of corporations governed by
the CBCA have fiduciary obligations to the corporation. Under the CBCA, the duty
of loyalty requires directors to act honestly and in good faith with a view to
the best interests of the corporation as a whole, and the duty of care requires
that the directors exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances. Directors and
officers who are a party to a material contact or proposed material contact with
the corporation or who are a director or an officer of, or have a material
interest in, any person who is a party to a material contact or proposed
material contact with the corporation have a duty to disclose the nature and
extent of such interest. If such interest exists, the director generally may not
vote on any resolution to approve the contract. No such contract is void or
voidable by reason only of the relationship if such interest is properly
disclosed, the contract is approved by the other directors or by the
shareholders and it was fair and reasonable to the corporation at the time it
was approved.
Directors of corporations incorporated or organized under the DGCL have
fiduciary obligations to the corporation and its stockholders. In fulfilling
these fiduciary obligations, the directors must act in accordance with the
so-called duties of "care," "disclosure" and "loyalty." The duty of care
generally requires that the directors exercise the same standard of care as an
ordinary prudent person would exercise in the same or similar situation, which
includes acting in an informed and deliberative manner and informing themselves,
prior to making any business decision, of all material information reasonably
available to them. The duty of disclosure requires that directors disclose fully
and fairly to the corporation's stockholders all material information within
their control. The duty of loyalty can be summarized as the duty to act in good
faith in a manner which the directors reasonably believe to be in the interests
of the stockholders: and generally requires that directors refrain from
self-dealing. A contract or transaction between a corporation and one or more of
its directors and any other corporation in which a director has a financial
interest is voidable unless (a) the material facts as to the director's
relationship or interest in the contract or the transaction are disclosed or are
known to the board of directors (or stockholders, if they are entitled to vote
thereon) prior to a vote regarding the transaction is taken, and the transaction
was approved by a majority of the "disinterested directors," (i.e. directors
without a financial interest in the transaction) or stockholders, if appropriate
or (b) the contract or transaction was fair to the corporation at the time it
<PAGE>
was authorized, approved or ratified by the directors or stockholders, if
applicable.
Anti-Takeover Provisions and Interested Stockholder Transactions. The
CBCA provides that, in the absence of an exemption, if any person offers to
acquire shares that, if combined with shares already beneficially owned or
controlled, directly or indirectly, by the offeror or an affiliate or associate
of the offeror on the date of the offer, would exceed 10% of any class of issued
shares of the corporation, the offeror must prepare and send a take-over bid
circular to each shareholder of the corporation. Canadian provincial securities
laws augment and clarify this requirement to in effect require a take-over bid
offeror to offer the same consideration to all shareholders unless certain
exemptions are available, which include limited private agreement purchases and
limited market purchases.
The CBCA does not impose any limitations on the rights of non-residents
or foreigners to hold or vote Dakota Common Shares.
The DGCL does not impose any limitations on the rights of non-residents
or foreigners to hold or vote their domestic corporation stock.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
The following summary discusses the material federal income tax
consequences of the Merger and of acquiring Dakota Common Shares. This
discussion, which is based on the Internal Revenue Code of 1986, as amended (the
"Code"), and the Regulations, rulings and decisions currently in effect, all of
which are subject to change, does not address all aspects of federal income
taxation that may be relevant to a particular shareholder in light of his or her
personal investment circumstances or to shareholders subject to special
treatment under the federal income tax laws such as life insurance companies,
tax-exempt organizations and certain consequences to foreign taxpayers and does
not discuss any aspects of state, local or foreign tax laws. Furthermore, this
discussion does not consider the potential effects, both adverse and beneficial,
of any recently proposed legislation which, if enacted, could be applied,
possibly on a retroactive basis, at any time. Neither USMX nor Dakota has
requested or will receive an advance ruling from the IRS as to the tax
consequences of the Merger, however, as discussed below in "Tax Free Merger,"
Coopers & Lybrand L.L.P. has provided an opinion to USMX and Dakota with respect
to some, but not all, of the federal income tax consequences of the Merger. IN
VIEW OF THE INDIVIDUAL NATURE OF EACH STOCKHOLDER'S TAX SITUATION, THE
STOCKHOLDERS OF USMX ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE TAX
CONSEQUENCES TO THEM OF THE MERGER AND OF ACQUIRING, OWNING AND DISPOSING OF
DAKOTA COMMON SHARES.
Tax Free Merger
In the opinion of Coopers & Lybrand L.L.P., the Merger will, under
current law, constitute a tax-free reorganization within the meaning of Section
368(a) of the Code and Dakota, USMX and Merger Corp. will each be a party to the
reorganization within the meaning of Section 368(b) of the Code. In rendering
such opinion, Coopers & Lybrand L.L.P. has relied upon certain assumptions,
conditions, and qualifications as set forth in their opinion to Dakota and USMX.
While not entirely free from doubt, as a tax-free reorganization, the
Merger will have the following United States federal income tax consequences for
USMX Stockholders, Dakota and USMX:
<PAGE>
(a) No gain or loss should be recognized by U.S. Stockholders of USMX
on the exchange of USMX stock for Dakota Common Shares if, by
virtue of the Merger, they become holders of less than 5% of the
shares of Dakota, measured by either voting rights or value. No
gain or loss should be recognized by U.S. Stockholders of USMX on
the exchange of USMX Common Stock for Dakota Common Shares if, by
virtue of the Merger, they become holders of 5% or greater of the
shares of Dakota measured by either voting rights or value,
provided such shareholders enter into gain recognition agreements
<PAGE>
with the IRS as required in Section 367 of the Code and the
Regulations pursuant thereto;
(b) The aggregate tax basis of the Dakota Common Shares received in
the Merger by a USMX Stockholder should be the same as the tax
basis of his USMX Common Stock exchanged therefor;
(c) The holding period of Dakota Common Stock in the hands of a USMX
Stockholder should include the holding period of his USMX Common
Stock exchanged therefor, provided such USMX Common Stock is held
as a capital asset at the time of the Merger; and
(d) Neither Dakota nor USMX will recognize gain or loss as a result
of the Merger.
Certain United States Federal Income Tax Consequences of USMX's U.S.
Stockholders Becoming Holders of Dakota Common Shares
The following discussion summarizes the material United States federal
income tax consequences under current law generally applicable to USMX
Stockholders who become U.S. Holders (as defined below) of Dakota Common Shares
upon the consummation of the Merger. The summary is of a general nature only and
is not intended to be, and should not be construed to be, legal or tax advice to
any USMX Stockholder and no representation or opinion to any USMX Stockholder is
made. USMX Stockholders should consult with their own tax advisors for advice
with respect to the tax consequence of an investment in Dakota Common Shares.
U.S. Holders
As used herein, the term "U.S. Holder" generally means a holder of
Dakota Common Shares who is a U.S. Person. This summary does not address the tax
consequences to, and U.S. Holder does not include persons subject to specific
provisions of federal income tax law such as, tax-exempt organizations,
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers, nonresident
alien individuals, persons or entities that have a "functional currency" other
than the U.S. dollar, shareholders who hold Dakota Common Shares as a part of a
straddle, hedging or a conversion transaction, and shareholders who acquired
their stock through the exercise of employee stock options or otherwise as
compensation for services. This summary is limited to U.S. Holders who own
Dakota Common Shares as capital assets. This summary does not address the
consequences to a person or entity holding an interest in a shareholder of USMX
or the consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire Dakota Common Shares.
Certain U.S. Shareholder Filing Requirements
Sections 367, 368, and 6038B of the Code, and the administrative
pronouncements thereunder, require USMX Stockholders who are U.S. persons to
file certain information with the IRS regarding the Merger. USMX Stockholders
should consider these regulations, and their requirements, prior to filing the
required information with the IRS. If a USMX Stockholder who is a U.S. person,
including a USMX Stockholder who files a gain recognition agreement, fails to
comply with such notice requirements, significant adverse tax consequences,
including penalties, may be imposed on such Stockholder. U.S. Stockholders of
USMX should consult with their tax advisors regarding these requirements.
Distributions on Dakota Common Shares
U.S. Holders receiving dividend distributions (including constructive
dividends) with respect to Dakota Common Shares are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions to the extent that Dakota has current or accumulated earnings and
profits, without reduction for any Canadian income tax, if any, withheld from
such distributions. Such Canadian tax, if any, withheld may be credited, subject
<PAGE>
to certain limitations, against the U.S. Holder's United States federal income
tax liability, or alternatively if the U.S. Holder generally elects, may be
deducted in computing the U.S. Holder's United States federal taxable income by
those who itemize deductions. (See more detailed discussion at "Foreign Tax
Credit" below.) To the extent that distributions exceed current and accumulated
earnings and profits of Dakota, they will be treated first as a return of
capital up to the U.S. Holder's adjusted basis in the Dakota Common Shares and
thereafter as gain from the sale or exchange of the Dakota Common Shares.
Preferential tax rates for net capital gains are applicable to a U.S. Holder
which is an individual, estate or trust. There are currently no preferential tax
rates for long-term capital gains of a U.S. Holder which is a corporation.
Generally, dividends paid on shares of a foreign corporation will not
be eligible for the dividends received deduction provided to corporations
receiving dividends from certain United States corporations. However, an
exception may apply in this case. Specifically, a U.S. Holder of Dakota Common
Shares which is a corporation may, under certain circumstances, be entitled to a
70% deduction of the United States source portion of dividends received from
Dakota (unless Dakota qualifies, as a "foreign personal holding company" or a
"passive foreign investment company," as defined below) if such U.S. Holder owns
shares representing at least 10% of the voting power and value of Dakota. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this summary.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian
income tax with respect to the ownership of Dakota Common Shares may be
entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a credit because a credit reduces United States federal
income taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayer's income subject to tax. This election is made on a year-by-year basis
and applies to all direct and indirect foreign income taxes paid by (or withheld
from) the U.S. Holder during that year. There are significant and complex
limitations which apply to the credit, among which is the general limitation
that the credit cannot exceed the proportionate share of the U.S. Holder's
United States income tax liability that the U.S. Holder's foreign source income
bears to his or its worldwide taxable income. In the determination of the
application of this limitation, the various items of income and deduction must
be classified into foreign and domestic sources. Complex rules govern this
classification process. There are further limitations on the foreign tax credit
for certain types of income such as "passive income," "high withholding tax
interest," "financial services income," "shipping income," and certain other
classifications of income. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific, and holders and
prospective holders of the Dakota Common Shares should consult their own tax
advisors regarding their individual circumstances.
Disposition of Dakota Common Shares
Generally, a U.S. Holder will recognize gain or loss upon the sale of
Dakota Common Shares equal to the difference, if any, between (i) the amount of
cash plus the fair market value of any property received, and (ii) the
shareholder's tax basis in Dakota Common Shares. This gain or loss generally
will be capital gain or loss if the Dakota Common Shares are a capital asset in
the hand of the U.S. Holder, and will be a short-term or long-term capital gain
or loss depending upon the holding period of the U.S. Holder. See discussion
below. For U.S. Holders which are individuals, any unused portion of such net
capital loss may be carried over for use in later tax years until such net
capital loss is thereby exhausted. For U.S. Holders that are corporations (other
than corporations subject to Subchapter S of the Code), an unused net capital
loss may be carried back three years from the loss year and carried forward five
years from the loss year to be offset against capital gains until such net
capital loss is thereby exhausted or expires unused.
<PAGE>
Other Considerations
Foreign Personal Holding Company. If at any time during a taxable year
more than 50% of the total combined voting power or the total value of Dakota's
outstanding shares is owned, directly or indirectly, by five or fewer
individuals who are U.S. Persons and 60% or more of Dakota's gross income for
such year was derived from certain passive sources (e.g., from dividends
received from its subsidiaries), Dakota may be treated as a "foreign personal
holding company." In that event, U.S. Holders that hold Dakota Common Shares
would be required to include in gross income for such year their allocable
portions of such passive income to the extent Dakota does not actually
distribute such income.
Foreign Investment Company. If 50% or more of either the combined
voting power or the total value of Dakota's outstanding shares are held,
directly or indirectly, by U.S. Persons and Dakota is found to be engaged
primarily in the business of investing, reinvesting, or trading in securities,
commodities, or any other interest therein, it is possible that Dakota may be
treated as a "foreign investment company" as defined in Section 1246 of the
Code, causing all or part of any gain realized by a U.S. Holder selling or
exchanging Dakota Common Shares to be treated as ordinary income rather than
capital gain.
Passive Foreign Investment Company. As a foreign corporation with U.S.
Holders, Dakota could potentially be treated as a passive foreign investment
company ("PFIC"), as defined in Section 1296 of the Code, depending upon the
percentage of Dakota's income which is passive, or the percentage of Dakota's
assets producing passive income. U.S. Holders owning common shares of a PFIC are
subject to an additional tax and to an interest charge based on the value of
deferral of tax for the period during which the common shares of the PFIC are
owned, in addition to treatment of gain realized on the disposition of common
shares of the PFIC as ordinary income rather than capital gain. However, if the
U.S. Holder makes a timely election to treat a PFIC as a qualified electing fund
("QEF") with respect to such shareholder's interest therein, the above-described
rules generally will not apply. Instead, for each year the entity qualifies as a
PFIC, the electing U.S. Holder would include in his gross income his pro rata
share of the PFIC's ordinary earnings and net capital gain regardless of whether
such income or gain was actually distributed. A U.S. Holder of a QEF can,
however, elect to defer the payment of United States federal income tax on such
income inclusions. Special rules apply to U.S. Holders who own their interests
in a PFIC through intermediate entities or persons.
Controlled Foreign Corporation. If more than 50% of the voting power of
all classes of stock or the total value of the stock of Dakota is owned,
directly, or indirectly, by U.S. persons that are "US Shareholders," (a "US
Shareholder" is any U.S. person that owns at least 10% of the total combined
voting power of all classes of stock of Dakota) Dakota could be treated as a
"controlled foreign corporation" under Subpart F of the Code. This
classification could invoke many complex results including the required
inclusion in income by such United States shareholders of their pro rata shares
of "Subpart F income" (as specifically defined by the Code) of Dakota.
Generally, Subpart F would require current inclusion in income by United States
shareholders to the extent of a controlled foreign corporation's accumulated
earnings invested in "excessive passive" assets (as defined by the Code). In
addition, under Section 1248 of the Code, gain from the sale or exchange of
stock by a holder of Dakota Common Shares who is or was a "United States
Shareholder" at any time during the five year period ending with the sale or
exchange is treated as ordinary dividend income to the extent of earnings and
profits of Dakota attributable to the stock sold or exchanged. Because of the
complexity of Subpart F, and because it is not clear that Subpart F would apply
to the holders of Dakota Common Shares, a more detailed review of these rules is
outside of the scope of this discussion.
Certain Limitations on Net Operating Losses
Section 382 of the Code generally places an annual limitation on a
corporation's ability to utilize its net operating losses ("NOLs") following a
more than 50 percentage point change in the ownership of the corporation's stock
within a three year period (a "Change"). The annual limitation is expressed as a
product of (i) the value of the corporation immediately prior to the Change and
(ii) an interest rate prescribed monthly by the IRS for ownership changes
occurring within that month. In each year following a Change, the corporation
can only utilize an amount of its pre-Change NOLs equal to the annual limitation
to offset its income for such year. Any unused limitation for a particular year
<PAGE>
will carry forward and increase the following year's limitation. In addition,
Section 382 provides special rules for dealing with inherent but unrealized
gains and losses (i.e., built-in gains and losses) in a corporation at the time
of a Change. Temporary regulations apply these limitations on a sub-group basis.
Further, certain separate return limitation rules will restrict the Dakota U.S.
consolidated groups' ability to utilize the USMX NOLs against income generated
by entities other than members of the USMX consolidated group.
Certain Non-US Shareholders
USMX may be a U.S. Real Property Holding Corporation ("USRPHC") for
purposes of the U.S. Foreign Investment in Real Property Tax Act ("FIRPTA").
Generally, a USRPHC is a U.S. corporation the fair market value of whose U.S.
real property assets, measured at specific testing dates within the prior five
year period, has equaled or exceeded 50% of the sum of the fair market value of
the company's U.S. and foreign real property assets plus business assets. If
USMX is a USRPHC, foreign persons exchanging their shares of USMX for shares in
Dakota will be subject to the special FIRPTA rules, which may cause any gain
realized on their USMX stock to be taxable in the U.S., absent an exception. Any
foreign persons owning more than 5% of a publicly traded USRPHC may be required
to satisfy more stringent FIRPTA requirements in order to qualify for an
exception. Foreign persons participating in the exchange are advised to consult
with their tax advisors regarding the potential application of the FIRPTA rules
and associated filing requirements, if any.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase business combination for
accounting and financial reporting purposes under Canadian GAAP. Under this
method of accounting, Dakota will allocate the cost of acquiring the net assets
of USMX to the assets acquired and liabilities assumed, based upon the fair
value of the assets acquired and liabilities assumed at the date of acquisition.
Accounting for the business combination using the purchase method in accordance
with Canadian GAAP is consistent with the method expected to be used under U.S.
GAAP.
RESALE RESTRICTIONS
United States
The Dakota Common Shares received by USMX Stockholders in the Merger
will be freely transferable, except that the Dakota Common Shares received by
persons who are deemed to be "affiliates" (as such term is defined for purposes
of Rule 145 of the Securities Act) of USMX at the time the Merger is submitted
to the vote of USMX Stockholders may be resold by them only in accordance with
Rule 145 promulgated under the Securities Act. Persons who may be deemed to be
affiliates of USMX generally include individuals or entitles that control, are
controlled by, or are under common control with, such party and may include
officers, directors and principal stockholders.
Under Rule 145 as currently in effect, holders of "restricted shares"
may sell, within any three-month period, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of the Dakota Common Shares
or (ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
SEC, provided that certain requirements relating to the manner of sale, notice
and availability of current public information about Dakota are met. A person
who is not deemed to have been an affiliate of the company at any time during
the 90 days immediately preceding the sale and whose restricted shares have been
fully paid for two years may sell such restricted shares under Rule 145(d)(2)
subject only to the volume limitation described above, and such non-affiliate
who has held such shares for three years may sell such restricted shares under
Rule 145(d)(3) without regard to the limitations described above. Rule 145 has
been amended, effective on or about May __, 1997, to reduce the foregoing
holding periods to one year and two years, respectively.
Canada
To the extent necessary Dakota will apply for rulings or orders of
certain provincial securities regulatory authorities in Canada to permit the
<PAGE>
issuance to former USMX Stockholders of the Dakota Common Shares. Application
has also been made to permit resale of those shares in such provinces without
restriction by a shareholder other than a "control person," provided that no
unusual effort is made to prepare the market for any such resale or to create a
demand for the securities which are the subject of any such resale and no
extraordinary commission or consideration is paid in respect thereof. Applicable
Canadian securities legislation provides a rebuttable presumption that a person
or company is a control person in relation to an issuer where the person or
company alone or in a combination with others holds more than 20% of the
outstanding voting securities of the issuer.
REGULATORY MATTERS
Consummation of the Merger is conditional on the receipt of all
material regulatory authorizations, consents, orders and approvals, subject to
waiver of such conditions, in accordance with the terms of the Merger Agreement.
Dakota and USMX do not believe that any regulatory approvals are required. See
"Terms of the Merger-Conditions to the Merger" and the Merger Agreement attached
as Appendix A, for details.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Directors
At the USMX Meeting, USMX Stockholders will elect a Board of Directors.
If the Merger is approved by both the USMX Stockholders and the Dakota
Shareholders, the directors elected to the USMX Board will remain in office only
until the Effective Time, whereupon their term as directors will cease and
Dakota, as the sole holder of voting stock of the Surviving Corporation, will
then elect new directors of the Surviving Corporation. If the Merger is approved
by both the USMX Stockholders and the Dakota Shareholders, then the directors
nominated for election at the Dakota Meeting will be the directors of Dakota
following the Effective Time, and pursuant to the Merger Agreement, Dakota will
nominate three representatives of USMX and one representative of Pegasus Gold to
the Board. See "Terms of the Merger-Interests of Certain Persons in the Merger
Directors and Officers" and "Dakota Annual and Special Meeting-Matters to be
Addressed at the Meeting - Number and Election of Directors."
Officers
As of the Effective Time, if the Merger is approved by the USMX
Stockholders and the Dakota Shareholders, the officers of Merger Corp. will
become the officers of USMX as the Surviving Corporation. The current officers
of Merger Corp. are Alan R. Bell, Chief Executive Officer, and Robert R.
Gilmore, Vice President, Treasurer and Secretary. If the Merger is approved, the
current Officers of Dakota will continue as such. See "Terms of the
Merger-Interests of Certain Persons in the Merger - Directors and Officers."
Business and Operations of USMX
After the Merger, the business and operations of USMX will be managed
and operated as a wholly-owned Subsidiary of Dakota. Dakota expects that the
business operations of Dakota and USMX will be consolidated after the Merger.
SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
OF DAKOTA MINING CORPORATION
(Unaudited)
The following unaudited pro forma consolidated financial information of
Dakota (collectively, the "Pro Forma Information") was prepared to illustrate
the estimated effects of the acquisition by Dakota (through its wholly owned
Subsidiary, Dakota Merger Corporation) of all the outstanding Common Stock of
USMX for balance sheet purposes as of December 31, 1996 and for purposes of the
results of operations for the year ended December 31, 1996.
<PAGE>
Based upon the terms of the Merger Agreement and the resulting
attributes of the Merger, the Pro Forma Information has been prepared in
accordance with Canadian GAAP using the purchase method of accounting which is
consistent with the method expected to be used under U.S. GAAP. The Pro Forma
Information presented is derived from a combination of USMX financial
information, which is prepared in accordance with U.S. GAAP and Dakota financial
information, which is prepared in accordance with Canadian GAAP. There are no
material differences between U.S. GAAP and Canadian GAAP with respect to USMX
financial information used to prepare the Pro Forma Information.
The balance sheet and statement of operations of Dakota and USMX have
been summarized and reclassified so that they may be presented on a consistent
basis for purposes of the Pro Forma Information. The pro forma consolidated
balance sheet as of December 31, 1996, gives effect to the transactions set out
in the merger agreement more fully described in Note 2 to the Pro Forma
Information as though they had occurred on December 31, 1996, whereas the pro
forma combined statement of operations for the year ended December 31, 1996
gives effect to the these transactions as if they had occurred on January 1,
1996.
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
COMPILATION REPORT
To the Directors of
Dakota Mining Corporation
We have reviewed, as to compilation only, the accompanying unaudited pro forma
consolidated balance sheet of Dakota Mining Corporation as of December 31, 1996
and the unaudited pro forma combined statement of operations for the year ended
December 31, 1996 which have been prepared for inclusion in the Joint Proxy
Statement/Prospectus of Dakota Mining Corporation and USMX, Inc. In our opinion,
the unaudited pro forma consolidated balance sheet and unaudited pro forma
combined statement of operations have been properly compiled to give effect to
the proposed merger and the assumptions described in the notes thereto.
KPMG
Chartered Accountants
Toronto, Canada
March 14, 1997
COMMENT BY INDEPENDENT CHARTERED ACCOUNTANTS FOR UNITED STATES READERS ON
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES REPORTING STANDARDS
The above opinion, provided solely pursuant to Canadian requirements, is
expressed in accordance with standards of reporting generally accepted in
Canada. Such standards contemplate expression of an opinion with respect to the
compilation of pro forma financial information. United States standards do not
provide for the expression of an opinion on the compilation of pro forma
financial statements. To report in conformity with United States standards on
the reasonableness of the pro forma adjustments and their application to the pro
forma financial statements would require an examination which would be
substantially greater in scope than the review we have conducted. Consequently,
under United States standards, we would be unable to express any opinion with
respect to the compilation of the accompanying pro forma financial information.
KPMG
Chartered Accountants
Toronto, Canada
March 14, 1997
<PAGE>
<TABLE>
<CAPTION>
DAKOTA MINING CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Amounts Stated in Thousands of U.S. Dollars)
(Unaudited)
Pro Forma
Dakota USMX Adjustments Consolidated
----------- ----------- --------------- --------------
(Note 3)
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,092 $ 238 $ 15,400 ii $ 20,730
Inventories 2,644 688 918 i 4,250
Other current assets 1,625 1,335 (687) i 2,273
--------------------------------------------------------------
Total current assets 9,361 2,261 15,631 27,253
--------------------------------------------------------------
Property, plant and equipment, net 15,150 42,907 1,834 i 59,891
Commodity futures contracts - 1,144 1,662 i 2,806
Reclamation bonds and other assets 7,058 3,843 509 ii 11,410
--------------------------------------------------------------
Total assets $ 31,569 $ 50,155 $ 19,636 $ 101,360
========== ========= ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt $ 383 $ 21,355 $(15,355)iii $ 6,028
(355) vi
Accounts payable 4,915 6,708 - 11,623
Accrued and other liabilities 3,057 1,330 1,300 i 5,687
---------------------------------------------------------------
Total current liabilities 8,355 29,393 (14,410) 23,338
Long-term debt 3,240 - (1,500)ii 17,095
15,355 iii
Note payable to related party - 3,923 (3,923) vi -
Other long-term liabilities 6,515 298 - 6,813
7.5 % subordinated debentures - - 6,884 ii 6,884
Shareholders' equity:
Warrants 63 - - 63
Common Shares 52,810 16 23,246 i 76,056
(16) i
Contributed Surplus - - 10,525 ii 10,525
Additional paid-in capital - 19,581 (19,581) i -
Accumulated Deficit (39,134) (3,056) 3,056 i (39,134)
Cumulative Translation Adjustment (280) - - (280)
--------------------------------------------------------------
Total shareholders' equity 13,459 16,541 17,230 47,230
--------------------------------------------------------------
Total liabilities and shareholders' equity $ 31,569 $ 50,155 $ 19,636 $ 101,360
========== ========== ========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAKOTA MINING CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
December 31, 1996
(Amounts Stated in Thousands of U.S. Dollars and Shares, Except for Per Share Amounts)
(Unaudited)
Pro Forma
Dakota USMX Adjustments Combined
---------- ------- ----------- -----------
(Note 3)
<S> <C> <C> <C> <C>
Operating revenues $24,556 $ - $ - $ 24,556
Operating costs
Mine, mill and administration 26,296 - 26,296
Depreciation, depletion and amortization 6,496 - 6,496
Royalties and severance taxes 1,164 - 1,164
Exploration 499 643 1,142
Reclamation 2,255 - 2,255
Holding and standby costs 1,330 - 1,330
General corporate costs 1,790 3,621 5,411
Property impairment 7,922 1,416 (1,416) v 7,922
--------------------------------------------------------------
47,752 5,680 (1,416) 52,016
--------------------------------------------------------------
Operating loss (23,196) (5,680) 1,416 (27,460)
-------------------------------------------------------------
Other income (expense):
Unrealized gain on commodity futures - 884 (884) v -
contracts
Investment income 476 995 1,471
Interest expense (442) (511) (654) iv (1,607)
Other 92 955 (936) v 111
--------------------------------------------------------------
126 2,323 (2,474) (25)
--------------------------------------------------------------
Loss before income taxes (23,070) (3,357) (1,058) (27,485)
Income tax expense (benefit) - (55) 55 v -
--------------------------------------------------------------
Net loss $ (23,070) $ (3,302) $(1,113) $(27,485)
==============================================================
Net loss per common share operations $ (0.73) $ (0.61)
Weighted average number of shares outstanding 31,405 46,118
</TABLE>
<PAGE>
Dakota Mining Corporation
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
1. Basis of Presentation
The unaudited pro forma condensed consolidated balance sheet and combined
statement of operations have been prepared in conformity with accounting
principles generally accepted in Canada ("Canadian GAAP"). As described in
Note 4, these principles differ in certain material respects from those
that would have been followed had the unaudited pro forma condensed
consolidated balance sheet and combined statements of operations been
prepared in conformity with accounting principles generally accepted in the
United States ("US GAAP").
The pro forma condensed consolidated balance sheet has been prepared to
give effect to the pro forma transactions as though they had occurred on
December 31, 1996 and the pro forma combined statement of operations gives
effect to the pro forma transactions as though they had occurred effective
January 1, 1996.
The operating results presented in the pro forma condensed combined
statement of operations are not necessarily indicative of future combined
operating results nor of operating results that would have been reported
had the companies previously been combined.
2. Pro Forma Assumptions
a) The pro forma consolidated balance sheet and pro forma combined statement
of operations have been prepared to give effect to the transactions set out
in the Merger Agreement more fully described elsewhere in this Joint Proxy
Statement. In summary, the following material transactions have been
assumed:
i) On February 6, 1997, Dakota signed a definitive Merger Agreement
with USMX, Inc. (USMX). Under the terms of the agreement,
shareholders of USMX will receive one Dakota common share for
every 1.1 common shares of USMX held and USMX will become a
wholly owned subsidiary of Dakota. Dakota expects to issue
14,712,893 shares to complete the transaction.
ii) On February 6, 1997, Dakota completed an offering, by way of
private placement, of 25,000 special warrants at a price of
Cdn.$1,000 per special warrant. Each special warrant entitles the
holder, upon exercise thereof and without payment of any
additional consideration, to acquire one 7.5% unsecured
subordinated convertible debenture of Dakota in the principal
amount of Cdn.$1,000 (the Debentures). Each debenture will be
convertible into common shares of Dakota at a conversion price of
Cdn.$2.00 per common share up to and including the last business
day immediately preceding February 5, 2004. The Debentures will
not be redeemable prior to January 29, 2001 but thereafter will
be redeemable by Dakota if the weighted average trading price of
Dakota's common shares is 125% of the conversion price for a
defined period prior to such redemption. On maturity or
redemption, Dakota will have the option to repay the principal
amount of the Debentures in cash or common shares of Dakota
valued at a price equal to 95% of the weighted average trading
price for a defined period prior to such maturity or redemption.
iii) On February 21, 1997, the terms of the $22 million USMX credit
facility were amended as part of the merger between USMX and
Dakota. Among the amended terms is a requirement that Dakota
apply $1.5 million of proceeds from the offering discussed above
to repay part of the $2.5 million convertible portion of the USMX
credit facility, and the convertible nature of the remaining $1
million balance terminates. As at December 31, 1996, USMX was in
breach of certain financial covenants and hence the amount
outstanding under the loan facility was classified as a current
liability. Upon completion of the Merger, payment of the $1.5
million referred to above and various other terms and conditions,
USMX is not expected to be in breach of these covenants. There
were no other material amendments to the terms of the credit
facility and the carrying value of the facility approximates its
fair market value.
<PAGE>
iv) Under the terms of the Merger Agreement, Dakota has provided a $5
million line of credit subsequent to December 31, 1996, to USMX
in accordance with various terms and conditions. Borrowings
pursuant to this line would be eliminated in the pro forma
presentation. At March 14, 1997, no amounts were outstanding
under this borrowing arrangement.
b) The Merger described in (a) above has been accounted for using the purchase
method whereby Dakota acquires the net assets of USMX and the value of
consideration given (being the representative market value at the date of
acquisition of the Dakota shares exchanged for the shares of USMX Common
Stock) is allocated to the assets and liabilities of USMX on the basis of
the estimated fair market values thereof.
3. Pro forma adjustments
(i) Adjustment to reflect the purchase business combination and the issuance
of 14,712,893 common shares in exchange for 100% of the issued and
outstanding common shares of USMX. The Dakota shares have been valued at
a price of US$1.58. The share value is based upon the average trading
price on the Toronto Stock Exchange for a reasonable period before and
after the date of the announcement of the agreement in principle to
combine the two companies.
The accounting for the acquisition of USMX is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Deemed consideration
Ascribed value of Dakota common shares $23,246,000
Transaction costs 1,300,000
------------
24,546,000
Net assets of USMX 16,541,000
-------------
Excess of deemed consideration over net book value of assets $ 8,005,000
============
The purchase price discrepancy has been attributed to the identifiable
assets of USMX as follows:
Inventories $ 918,000
Other current assets (687,000)
Property, plant and equipment (including mineral
properties) 1,834,000
Commodity futures contracts 1,662,000
Current portion of long term debt 355,000
Note payable to related party $ 3,923,000
-----------
$ 8,005,000
=============
</TABLE>
The amounts allocated to developed mineral properties will be amortized
to operations on a units of production basis upon commencement of
commercial production.
- 57 -
<PAGE>
(ii) Adjustment to cash, common shares and long-term liabilities giving effect
to the receipt of net proceeds of $16.9 million from the issuance of
25,000 special warrants as follows:
Gross proceeds $Cdn 25,000,000
Conversion to U.S. dollars @ 0.73 $ 18,250,000
Less: Agents commission
and other costs 1,350,000
---------------
Net proceeds $ 16,900,000
===============
Classified as follows:
7.5% subordinated debentures (liability) 6,884,000
Deferred issue costs (asset) (509,000)
Contributed Surplus net of
costs of issues of $841,000 $ 10,525,000
--------------
$ 16,900,000
==============
The issue amount for the convertible debentures has been allocated
between an equity component and a liability component. The liability
component has been calculated, effective the date of the issue, by
discounting the mandatory cash payments of principal and interest under
the terms of the debenture. The discount rate used reflects the
presumed interest rate that would have been obtainable had Dakota
issued a pure debt instrument of a similar term. Recorded interest
expense related to the convertible debentures is determined by applying
the discount rate to the outstanding liability component.
Of the net proceeds obtained from the issuance, $1,500,000 will be
used to prepay a portion of the $22 million USMX credit facility.
(iii) Under the terms agreed with Rothschild, subsequent to the Merger, USMX
will not be in breach of various loan facility covenants. This
adjustment reclassifies a portion of the current liability to long-term
debt .
(iv) Adjustment for additional interest expense on the subordinated
debentures issued at an assumed interest rate of 9.5%. Refer also note
(ii) above.
(v) Adjustment to remove the operating loss effect of the USMX property
impairment ($1,416,000) and unrealized gain on commodity futures
contracts ($884,000) since the assets to which these charges relate
have been adjusted to their fair values in the pro forma consolidated
information, in accordance with note 2(b) above. Similarly, the profit
on sale of Alta common stock ($936,000) reflected as "other income" has
been eliminated.
(vi) Adjustment to reflect the Montana Tunnels asset sale closing and
cancelation and forgiveness of the note payable to related party
assuming USMX stockholders approval of the Montana Tunnels Royalty
Agreement.
(vii) The pro forma combined statement of operations has not been adjusted for
anticipated reductions in general and administrative expenses resulting
from the Merger
4. Differences between Canadian and United States Accounting principles
These pro forma condensed consolidated financial statements have been
prepared in accordance with Canadian GAAP which differs in certain
material respects from U.S. GAAP.
The historical financial statements of Dakota on which the pro forma
condensed consolidated financial statements are based, are prepared
under Canadian GAAP. Differences between Canadian and U.S. GAAP are
described in note 10 to the consolidated financial statements of Dakota
and note 17 to the consolidated financial statements of USMX.
The pro forma adjustments (ii) and (iv) in note 3 above, for the issuance
of 25,000 special warrants are made in accordance with the applicable
<PAGE>
Canadian accounting standards, classifying a portion as a long-term
liability and a portion as shareholders' equity in the pro forma
consolidated balance sheet and adjusting the interest expense in the
combined statements of operations. Had the pro forma condensed
consolidated financial information been prepared in accordance with
U.S. GAAP, certain items would be reported as follows:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Consolidated Pro Forma Consolidated
According to GAAP According to
Canadian GAAP Adjustments U.S. GAAP
--------------- ------------- --------------
<S> <C> <C> <C>
Assets
Reclamation bonds and other assets $ 11,410,000 $ 841,000 $ 12,251,000
Liabilities and shareholders equity
7.5 % subordinated debentures 6,884,000 11,366,000 18,250,000
Contributed surplus 10,525,000 (10,525,000) --
Other income (expense)
Interest Expense (1,607,000) (715,000) (2,322,000)
Net loss from recurring operations (27,485,000) (715,000) (28,200,000)
</TABLE>
<PAGE>
DAKOTA ANNUAL AND SPECIAL MEETING
Solicitation of Proxies
This Joint Proxy Statement/Prospectus is furnished in connection with
the holding of an annual and special meeting of the shareholders of Dakota to be
held at the time and place and for the purposes set forth in the accompanying
Notice of Annual and Special Meeting of Shareholders ("the Notice") and at any
adjournment(s) thereof. Proxies are solicited hereby by or on behalf of the
management of Dakota ("Management"). While it is expected that solicitation will
be primarily by mail, proxies may be solicited personally or by telephone by the
Management and/or other employees or agents of Dakota. All costs of this
solicitation will be borne by Dakota. The Notice and Joint Proxy
Statement/Prospectus are being mailed to Shareholders on or about April __,
1997.
Appointment and Revocation of Proxies
The individuals named in the accompanying form of proxy (the
"Management Proxy") are the Chairman of the Board, the President, the Chief
Financial Officer and the Assistant Secretary of Dakota. A SHAREHOLDER WISHING
TO APPOINT SOME OTHER PERSON (WHICH OTHER PERSON NEED NOT BE A SHAREHOLDER) TO
REPRESENT SUCH SHAREHOLDER AT THE DAKOTA MEETING HAS THE RIGHT TO DO SO, EITHER
BY DELETING THE NAME(S) SET FORTH IN THE PROXY, INSERTING SUCH PERSON'S NAME IN
THE BLANK SPACE PROVIDED IN THE PROXY AND RETURNING THE SAME OR BY COMPLETING
AND RETURNING ANOTHER FORM OF PROXY. A proxy will not be valid unless the
completed form of proxy is received by Dakota's transfer agent, Montreal Trust
Company of Canada, 151 Front Street West, 8th Floor, Toronto, Ontario M5J 2N1,
not less than 48 hours (excluding Saturdays, Sundays and holidays) preceding the
day of the Dakota Meeting or, if adjourned, any reconvening thereof.
A Dakota Shareholder who has given a proxy has the right to revoke it
at any time before it is exercised. In addition to revocation in any other
manner permitted by law, a Dakota Shareholder may revoke a proxy by an
instrument in writing, executed by the Dakota Shareholder (or by his attorney,
duly authorized in writing) or, where the Dakota Shareholder is a corporation,
by a duly authorized officer or attorney of the corporation, and delivered
either to Dakota's transfer agent at the address set forth above or to the
registered office of the Company, P.O. Box 10424, Pacific Centre, Suite 1300,
777 Dunsmuir Street, Vancouver, British Columbia V7Y 1K2 (Attention: Dawn
Whittaker) any time up to and including the last business day preceding the day
of the Dakota Meeting or, if adjourned, any reconvening thereof, or with the
Chairman of the Meeting on the day of the Dakota Meeting or, if adjourned, any
reconvening thereof
A Dakota Shareholder may also revoke a proxy by signing a form of proxy
bearing a later date and returning such proxy to Dakota's transfer agent or
registered office up to but not after the time limit specified in the preceding
paragraph.
Voting of Proxies and Discretionary Authority
Unless specifically directed in the form of proxy to withhold the
shares represented by the form of proxy from a poll, Management shall vote the
shares represented by the form of proxy on each poll. Where a choice with
respect to any matter to be acted upon has been specified in the form of proxy,
the shares will be voted in accordance with the specification so made. ON A
POLL, SHARES REPRESENTED BY THE FORM OF PROXY WILL BE VOTED BY MANAGEMENT "FOR"
EACH MATTER IN RESPECT OF WHICH NO CHOICE HAS BEEN SPECIFIED BY THE SHAREHOLDER.
THE ENCLOSED FORM OF PROXY, WHEN PROPERLY COMPLETED, DELIVERED AND
UNREVOKED, CONFERS DISCRETIONARY AUTHORITY UPON THE PERSON(S) APPOINTED PROXY
THEREUNDER TO VOTE ON ANY AMENDMENTS OR VARIATIONS WITH RESPECT TO ANY MATTERS
IDENTIFIED IN THE NOTICE, AND WITH RESPECT TO OTHER MATTERS WHICH MAY PROPERLY
<PAGE>
COME BEFORE THE DAKOTA MEETING. In the event that amendments or variations to
matters identified in the Notice are properly brought before the Dakota Meeting
or any further or other business is properly brought before the Dakota Meeting,
it is the intention of the proxy holders designated in the enclosed form of
proxy to vote in accordance with their best judgment on such matters or
business. At the time of the printing of this Joint Proxy Statement/Prospectus,
Management knows of no such amendment, variation or other matter which may be
presented to the Dakota Meeting.
A person duly appointed under an instrument of proxy will be entitled
to vote the shares represented thereby, only if the form of proxy is properly
completed and delivered in accordance with the requirements set out above under
the heading "Appointment and Revocation of Proxies" and such proxy has not been
revoked.
Voting Securities
Dakota is authorized to issue 20,000,000 Preference Shares without
nominal or par value ("Preference Shares"), which shares are issuable in series.
There are no Preference Shares outstanding. The Directors of the Company are
authorized to issue the Preference Shares in one or more series and to fix the
number of shares in, and to determine the designation, rights, privileges,
restrictions and conditions attached to each series of Preference Shares which
may be issued. The Preference Shares rank prior to the Dakota Common Shares with
respect to the payment of dividends and with respect to the distribution of the
assets of Dakota in the event of its dissolution, liquidation or winding-up.
Dakota is authorized to issue an unlimited number of Common Shares
without nominal or par value of which 35,479,742 Dakota Common Shares were
issued and outstanding and entitled to vote at the Dakota Meeting. Each Dakota
Common Share entitles the holder thereof to receive dividends as and when
declared by Dakota's Board of Directors and ranks equally with all other Dakota
Common Shares in respect of the payment of dividends and upon the dissolution,
liquidation or winding-up of Dakota. Each Dakota Shareholder is entitled to one
vote for each Dakota Common Share registered in such Shareholder's name. The
Dakota Common Shares have no preemptive or conversion rights. All of the
outstanding Dakota Common Shares are fully paid and nonassessable shares in the
capital of Dakota.
THERE ARE NO OTHER VOTING CLASSES OF SECURITIES OF THE COMPANY ISSUED
AND OUTSTANDING.
The Board of Directors of Dakota has fixed the close of business on
April 14, 1997 as the Record Date for determining those Dakota Shareholders
entitled to receive notice of the Dakota Meeting, but the failure of any Dakota
Shareholder to receive a notice of the Dakota Meeting does not deprive the
Dakota Shareholder of a vote at the Dakota Meeting. If a person has acquired
Dakota Common Shares after the Record Date, that person is entitled to vote
those shares at the Dakota Meeting upon producing properly endorsed share
certificates or otherwise establishing share ownership, and demanding the
inclusion of such person's name on the list of Dakota Shareholders entitled to
vote at the Dakota Meeting not later than 10 days before the Dakota Meeting.
Approval Required
An ordinary resolution is required in respect of the matters identified
in the Notice. An ordinary resolution means a resolution passed by a majority of
the votes cast by shareholders who voted in respect of that resolution.
In accordance with the provisions of the CBCA and Dakota's Articles and
By-Laws, for the election of the directors, and the appointment of KPMG,
Chartered Accountants as auditors of the Company, only proxies and ballots
marked "FOR" are counted to determine the total number of votes cast;
abstentions and broker non-votes are not counted for purposes of such
resolutions. For any other resolution, only proxies and ballots marked "FOR" the
resolution or "AGAINST" the resolution are counted as votes cast in respect of
that resolution, and abstentions and broker non-votes are not counted as votes
cast for the purposes of such resolutions.
<PAGE>
Matters to be Addressed at the Dakota Meeting
Merger Resolution. Dakota Shareholders at the Dakota Meeting will be
asked to approve and adopt the Merger Agreement and to approve the transactions
contemplated thereby including the issuance of Dakota Common Shares to effect
the Merger. By voting to approve and adopt the Merger, the Dakota Shareholders
will also approve the assumption by Dakota of the USMX Options. The resolution
proposed to be passed is included in Appendix B to this Joint Proxy
Statement/Prospectus and requires the approval of a majority of the Dakota
Common Shares present held by shareholders represented in person or by proxy and
voting at the Dakota Meeting.
FOR THE REASONS AS SET FORTH UNDER "THE MERGER - DAKOTA'S REASONS FOR
THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION," THE DAKOTA BOARD OF
DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE MERGER.
Approval of Issue of Common Shares with Respect to the Series B Special
Warrants. In accordance with the requirements of the TSE, at the Dakota Meeting
Dakota Shareholders will be asked to approve the issue of up to 4,884,500 Dakota
Common Shares issuable upon conversion of Debentures issuable upon exercise of
8,881 Series B Special Warrants of Dakota. Pursuant to an Agency Agreement dated
as of February 5, 1997, Dakota sold by way of private placement 25,000 Special
Warrants, comprised of 16,119 Series A Special Warrants and 8,881 Series B
Special Warrants, for net proceeds of Cdn.$23.5 million. Such net proceeds, less
U.S. $5 million which has been loaned by Dakota to USMX (see "Terms of the
Merger - Other Agreements - $5,000,000 Loan Agreement") are currently held in
escrow pending completion of the Merger, shareholder approval of the issue of
the Dakota Common Shares ultimately underlying the Series B Special Warrants and
the filing of a prospectus in Canada in respect of the Special Warrants. The
Special Warrants are exercisable for Cdn.$25 million aggregate principal amount
of 7.5% unsecured convertible debentures ("Debentures") of Dakota. Each $1,000
principal amount of Debentures is convertible to 500 Dakota Common Shares. The
net proceeds realized by Dakota from the sale of the Special Warrants will be
used to complete construction and commence start-up of USMX's Illinois Creek
Mine, for developmental drilling, for repayment of $1.5 million of certain of
USMX's bank debt and for working capital.
The maximum number of Dakota Common Shares issuable upon conversion of
all Debentures issued on exercise of all Series B Special Warrants (assuming the
imposition of a penalty as more fully described elsewhere herein) is 4,884,550,
representing approximately 13.8% of the outstanding Dakota Common Shares as at
March 14, 1997 and representing approximately 6.9% of the outstanding Dakota
Common Shares on a fully diluted basis upon completion of the Merger. For
details regarding the issue of Special Warrants, including the Series B Special
Warrants, and the Debentures of Dakota, see "Dakota-Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources." The resolution proposed to be passed is included in Appendix B to
this Joint Proxy Statement/Prospectus and requires the approval of a majority of
the Dakota Common Shares held by shareholders represented in person or by proxy
and voting at the Dakota Meeting. The TSE, however, prohibits the holders of
Dakota Common Shares issued as a result of the conversion of Debentures issued
upon exercise of Series A Special Warrants from voting on this resolution.
Ratification of Amendment to Share Incentive Plan.
Description of Share Incentive Plan. Dakota maintains a Share
Incentive Plan (the "Share Incentive Plan"), the principal purpose of which is
to promote a proprietary interest in Dakota among its directors and employees
("participants"); to retain, attract and motivate the qualified managers which
Dakota requires to carry on its operations; to provide long-term incentive
element and overall compensation; and to promote the long-term profitability of
Dakota. Dakota currently has approximately 30 directors and key employees
eligible to participate in the Share Incentive Plan.
The Share Incentive Plan currently provides that the maximum
aggregate number of Common Shares issuable thereunder is 3,000,000. In addition,
the Share Incentive Plan provides that the aggregate number of Dakota Common
<PAGE>
Shares so reserved for issuance under Share Incentive Plan to any one
participant shall not exceed 5% of the outstanding Dakota Common Shares. The
price at which Dakota Common Shares may be issued upon the exercise of stock
options granted under the Share Incentive Plan is determined by the Board,
provided that such price may not be less than the closing price per Dakota
Common Share on the date of grant of the stock option. Each participant holding
an option is entitled, upon exercise of such option, to receive Dakota Common
Share. Options are exercisable for a period of five years from the date of the
grant unless the participant's relationship with Dakota is terminated.
Incentives which may be awarded under the Share Incentive Plan
include share options, share appreciation rights or share purchase rights. The
share appreciation right, which would be attached to a share option, once
activated by the Board of Directors, entitles the participant in the Share
Incentive Plan to elect, in lieu of exercising an outstanding share option, to
receive the number of Dakota Common Shares equivalent in value to the difference
between such participant's option exercise price and the net existing market
price of a Dakota Common Share multiplied by the number of Dakota Common Shares
for which the option could be exercised.
The share purchase right provides for the purchase by a
participant in the Share Incentive Plan of Common Shares, payment for which is
to be satisfied by deducting the purchase price in installments from the
participant's salary, and by contributing up to an equal amount by Dakota.
The Share Incentive Plan is administered by the Stock Option
Committee of the Board of Directors. The members of the Stock Option Committee
will not receive any benefits under the Share Incentive Plan during their tenure
on such committee. Share options and share appreciation rights may be granted at
any time to any director or key employee of Dakota or one of its affiliates,
including the executive officers, taking into consideration the present and
potential contribution of a particular director or key employee to the success
of Dakota or any affiliate and any other factors which the Stock Option
Committee may deem proper and relevant. Share purchase rights may be granted at
any time, in the sole discretion of the Stock Option Committee, to any key
employee who has been continuously employed by Dakota or any affiliate for at
least 12 consecutive months, although the Stock Option Committee has the power
to waive this 12 months' service requirement.
The Share Incentive Plan provides that the Board of Directors
of Dakota may, at any time, authorize Dakota to loan money to an optionee on
such terms and conditions as the Board of Directors, in its sole discretion, may
determine in order to assist the optionee to exercise an option held by him or
her.
The U.S. federal income tax consequences of exercising a stock
option will depend upon whether the option is an incentive stock option. If the
option is not an incentive stock option, an optionee generally will not
recognize income upon the grant of the option, but will recognize compensation
income on the exercise of the option equal to the difference between the fair
market value of the stock acquired and the option price. To the extent that the
optionee recognizes compensation income upon the exercise of the option, Dakota
will be entitled to a corresponding deduction, subject to the general rules
relating to reasonableness of compensation and certain withholding requirements.
If the option is an incentive stock option, an optionee will
not be deemed to receive any income at the time the option is granted or
exercised, although the exercise may give rise to alternative tax liability for
the optionee. If an optionee does not dispose of the shares acquired on exercise
of an incentive stock option within the two-year period beginning on the day
after the day of the grant of the option or within the one-year period beginning
on the day after the day of the transfer of the shares to the optionee, the gain
(if any) on a subsequent sale (i.e., the excess of the proceeds received over
the option price) will be long term capital gain and any loss the optionee may
sustain on such sale will be long term capital loss. If the optionee disposes of
the shares within the two-year or one-year period referred to above, the
disposition is a "disqualifying disposition" and the optionee will generally
realize ordinary income taxable as compensation in the year of the disqualifying
disposition to the extent of the excess of the fair market value of the shares
on the date of purchase over the option price, and the balance, if any, will be
long term or short term capital gain depending, generally, on whether the shares
<PAGE>
were held more than one year after the incentive stock option was exercised. To
the extent the optionee recognizes compensation income with respect to a
disqualifying disposition, Dakota will be entitled to a corresponding deduction,
subject to general rules relating to reasonableness of compensation.
Amendment to Share Incentive Plan. At the Dakota Meeting,
Dakota Shareholders will be asked to consider and, if thought advisable, to
ratify an amendment (the "Plan Amendment") to the Share Incentive Plan
increasing the number of Common Shares issuable pursuant to the exercise of
options granted under the Share Incentive Plan from 3,000,000 to 6,000,000. As
at March 14, 1997, options to purchase an aggregate of 2,088,525 Dakota Common
Shares, representing approximately 6.0% of the outstanding Dakota Common Shares
have been granted and 1,843,525 options remain unexercised under the Share
Incentive Plan. The proposed increase to a maximum number of 6,000,000 Dakota
Common Shares to be reserved for issuance under the Share Incentive Plan would
represent approximately 16.9% of the outstanding Dakota Common Shares as at
March 14, 1997 or 10.7% upon completion of the Merger
The Board of Directors of Dakota have approved the Plan
Amendment subject to obtaining the required shareholder approval and unanimously
recommends that Dakota Shareholders vote in favor of the ratification of the
Plan Amendment. In making its recommendation, the Board of Directors considered
that options are an integral component of Dakota's compensation strategy to
attract and retain qualified and capable personnel and are necessary in order to
act as an incentive to enhance shareholder value.
The Plan Amendment must be ratified by the affirmative vote of
the holders of a majority of the Dakota Common Shares present in person or
represented by proxy at the Dakota Meeting. The TSE, however, has approved the
Plan Amendment subject to Dakota obtaining the approval of "disinterested"
shareholders. For these purposes, "disinterested" shareholders are deemed to
exclude "Insiders" of Dakota and their "Associates" as such terms are defined by
the Securities Act (Ontario). To the best knowledge of Dakota, such Insiders and
their Associates as of March 14, 1997 hold an aggregate of 6,379,196 Dakota
Common Shares. On any ballot that may be called for relating to the ratification
of the Plan Amendment, the shares represented by proxies in favor of
Management's nominees will be voted in favor of the resolution ratifying the
Plan Amendment, the full text of which resolution is set out in Appendix B to
this Joint Proxy Circulation, unless the Shareholder has specified in his/her
proxy that their shares are to be voted against ratification of the Plan
Amendment. A draft of the amended Share Incentive Plan is available for
inspection at the registered offices of the Company, P.O. Box 10424, Pacific
Centre, Suite 1300, 777 Dunsmuir Street, Vancouver, British Columbia, Canada V7Y
1K2 and 410 Seventeenth Street, Suite 2450, Denver, Colorado 80202. The amended
Share Incentive Plan will be tabled at the Dakota Meeting.
<PAGE>
The following table summarizes the number of Dakota Common
Shares issuable upon exercise of presently outstanding options issued under the
Share Incentive Plan to the indicated persons as of March 14, 1997:
<TABLE>
<CAPTION>
<S> <C>
Alan R. Bell, Director, President and Chief Executive Officer(1)............ 395,000
Robert R. Gilmore, Vice-President, Finance, Chief Financial Officer and
Secretary................................................................... 256,032
All current executive officers as a group................................... 916,032
All current directors as a group............................................ 1,256,032
Each nominee for director:
Stanley Dempsey (2)................................................. 90,000
Edward G. Thompson (2).............................................. 90,000
Landon T. Clay (2).................................................. 90,000
Tor Jensen (2)...................................................... 70,000
D. James Rudack..................................................... ---
Donald P. Bellum (3)................................................ ---
Christopher M. T. Thompson (3)...................................... 50,000
Gregory Pusey (3)................................................... ---
Each Other Person owning more than 5% of outstanding options:
Karl Spodding....................................................... 100,000
All employees, excluding executive officers................................. 455,000
<FN>
(1) Mr. Bell is also a nominee for director of Dakota.
(2) Incumbent director and nominee; not an executive officer of Dakota.
(3) Nominees for director only if the Merger is approved.
</FN>
</TABLE>
Number and Election of Directors.
Nominees if Merger Approved. The term of office of the present
directors of Dakota expires at the termination of the Dakota Meeting. The number
of directors of Dakota is fixed at nine, and if the Merger Agreement is approved
by the Dakota Shareholders and USMX Stockholders, the nine nominees named below
will be presented for election at the Dakota Meeting as Management's nominees
for the Board of Directors, and, unless a contrary direction is indicated, the
proxies named in the accompanying form of proxy intend to vote "FOR" the
election of these nominees. Management does not contemplate that any of these
nominees will be unable to serve as a director but, if such an event should
occur for any reason prior to the Dakota Meeting, the proxies named in the form
of proxy reserve the right to vote for another nominee in their discretion
unless the shareholder has specified otherwise in the form of proxy.
The following sets out the names and ages of Management's
nominees for director, the municipality in which each is ordinarily resident,
their principal occupation for the past five years, their position with Dakota,
if any, and the period of time during which each has been a director of the
Dakota. Dakota Common Shares beneficially owned, directly or indirectly,
controlled or directed as at March 14, 1997 by each nominee is set out under
"Dakota Security Ownership of Certain Beneficial Owners."
<PAGE>
Name and Municipality Current
of Residence Position with Dakota Director Since
- ------------ -------------------- --------------
Alan R. Bell(1)(3) President and Chief May 19, 1991
Age: 58 Executive Officer
Littleton, Colorado
Landon T. Clay(1) Director May 11, 1990
Age: 71
Hancock, New Hampshire
Stanley Dempsey(1)(2)(3) Director September 13, 1993
Age: 57
Lakewood, Colorado
Tor Jensen(2) Director June 25, 1996
Age: 61
Scarborough, Ontario
Edward G. Thompson(2) Director September 13, 1993
Age: 60
Toronto, Ontario
D. James Rudack Nominee N/A
Age: 74
Sault Ste. Marie, Ontario
Donald P. Bellum Nominee N/A
Age: 64
Sedalia, Colorado
Christopher M. T. Thompson Nominee N/A
Age: 49
Englewood, Colorado
Gregory Pusey Nominee N/A
Age: 44
Vail, Colorado
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Environmental Committee
The principal occupation and other directorships held by each nominee are as
follows:
Alan R. Bell has been a Director and President and Chief Executive Officer of
Dakota since May 1991. From August 1987 to May 1991, Mr. Bell was President and
Chief Executive Officer of Nevada Goldfields Company, a gold mining company. Mr.
Bell also serves as a director of Granges Inc.
Landon T. Clay has been the Chairman and Chief Executive Officer of Eaton Vance
Corp., an investment company, for more than the past five years.
Stanley Dempsey has been Chairman, President and Chief Executive Officer of
Royal Gold Inc. for more than the past five years.
<PAGE>
Tor Jensen was elected as a director of the Company in 1996 and has been the
President of Mining Financial Services Inc. since 1993. This private company
provides consulting services to the mining industry as well as the financial
community. Mr. Jensen has served as a director of several publicly traded
companies in the mining industry in recent years.
Edward G. Thompson is President of E.G. Thompson Mining Consultants, Inc. and
Consolidated Thompson-Lundmark Gold Mines Ltd. and has been a consultant to the
mining industry for more than five years. From 1987 to 1990, Mr. Thompson was
President and Chief Executive Officer of Mingold Resources Inc. and is also a
director of Adrian Resources Ltd., Consolidated Thompson Lundmark, Freewest
Resources (Canada) Inc., Geomaque Exploration Ltd., Golden Queen Mining Co.
Ltd., International Gold Resources Corp., Minera Rayrock Inc., Newfoundland
Goldbar Resources Inc., Orvana Minerals Corp., Sparton Resources and Windy
Mountain Explorations Ltd.
D. James Rudack is semi-retired and has been a consultant since 1993. Mr. Rudack
previously served as President and Chief Executive Officer of Economic
Development Corporation (1987-1993) and as major projects Program Manager for
Rio Algom Ltd. (1975-1987). Mr. Rudack serves on the Board of Directors of
Michigan Bidco Corporation, J. Pierman Corp. and Metis and Aboriginal
Development Corp.
Donald P. Bellum became Chairman of the Board of Directors and Chief Executive
Officer of USMX on May 1, 1996 and President on July 1, 1996. From 1991 to 1996
Mr. Bellum was an independent consultant in the mining industry. From 1987 to
1991 he was Executive Vice President of Cyprus Minerals Company and he served as
President of Cyprus Coal Company from 1980 to 1987. Prior to joining Cyprus, he
had 22 years experience with other mining companies, including Kennecott Copper
Corporation and Utah International.
Christopher M. T. Thompson has been President of Castle Group, Inc. and
Executive Vice President of Fulcrum Management, Inc., its predecessor, for more
than the past five years. Mr. Thompson currently serves as a director of the
following public companies: Silver Standard Resources, Ltd., Pacific Rim Mining
Corp., Lone Star Explorations, N.L., Golden Queen Mining Co., Ltd. and Canyon
Resources Corporation.
Gregory Pusey, served as USMX's Chief Financial Officer from May 1989 until
January 1990 and he also has served as the Secretary and Treasurer of USMX.
Since 1983, Mr. Pusey has been engaged in private investment activities. He has
served as President of Livingston Capital, Ltd. and President of the General
Partner of Graystone Capital, Ltd, a venture capital firm. He is also President
and a Director of Cambridge Holdings, Ltd. and a Director of Nutrition For Life
International, Inc. Mr. Pusey was a founder of USMX.
Nominees if Merger Not Approved. If the Merger Agreement is not approved by
the USMX Stockholders or the Dakota Shareholders, proxies for directors of
Dakota will be solicited with respect to the following five nominees: Alan R.
Bell, Landen T. Clay, Stanley Dempsey, Tor Jensen and Edward G. Thompson.
Appointment and Remuneration of Auditors. Management will recommend to
the Dakota Shareholders, and unless a contrary direction is indicated, intends
to vote the proxies in the attached form of proxy "FOR" the appointment of KPMG,
Chartered Accountants, as Auditors of Dakota and "FOR" the authorization of the
directors to fix the Auditors' remuneration. KPMG, Chartered Accountants, was
first appointed Auditors of Dakota in October 1993. Representatives of KPMG will
be present at the Dakota Meeting with the opportunity to make a statement if
they so desire and to respond to appropriate questions.
Other Matters. Other than the approval of the foregoing, Dakota is not
presently aware of any other business to be brought before the Dakota Meeting.
If any matters come before the Dakota Meeting which are not directly referred to
in this Joint Proxy Statement or the enclosed proxy, including matters
incidental to the conduct of the Dakota Meeting, the proxy holders will vote the
shares represented by the proxies in accordance with the recommendations of
Dakota management.
<PAGE>
Corporate Governance
The TSE prescribes guidelines for effective corporate governance. These
guidelines address matters such as the constitution and independence of
corporate boards, the functions to be performed by boards and their committees,
and the effectiveness and education of board members. The Board of Directors and
Management of Dakota believe that the development of such corporate governance
guidelines, together with adherence to the TSE guidelines, are important for the
Dakota Shareholders.
Mandate of the Board. The Board of Directors has the duty to manage the
business and affairs of Dakota pursuant to the powers vested in it by and in
accordance with the requirements of, the CBCA and of all other statutory and
legal requirements generally applicable to directors of a business corporation
that is also a reporting issuer. Management is responsible for the day-to-day
operation of the business and affairs of Dakota. In fulfilling its mandate, the
Board is responsible for, among other things, (i) adoption of a strategic
planning process for Dakota which establishes Dakota's long-term goals and
monitors the success of Management in achieving those goals; (ii) identification
of the principal risks arising from or incidental to the business activities of
Dakota, notably related to financial, regulatory, technological and
environmental matters, and ensuring the implementation of the appropriate
systems to manage these risks; (iii) succession planning for Dakota including
appointing, training and the monitoring the performance of all senior management
which includes overseeing executive compensation policies and their
implementation and review of the performance of senior executives in line with
Company policies and objectives; (iv) oversee public communications policy for
Dakota and implementation including disclosure of material information and
shareholder communications; and (v) monitor and assess the scope, implementation
and integrity of Dakota's internal control and management information systems.
In order to carry out is mandate, the Board holds regular meetings on a
quarterly basis and additional meetings as necessary to consider particular
issues or conduct specific reviews between quarterly meetings whenever
appropriate. During 1996, the Board of Directors met nine times. Each of the
incumbent directors who is nominated for election at the Dakota Meeting attended
at least 75% of the total number of meetings held by the Board of Directors
during their respective terms and the total number of meetings held by all of
the managing committees of Dakota upon which each respective director served.
Composition of the Board. The TSE guidelines recommend that a board of
directors be constituted with a majority of individuals who qualify as
"unrelated directors." The TSE defines an unrelated director as a director who
is independent of management and is free from any interest and any business or
other relationship which could, or could reasonably be perceived to, materially
interfere with the director's ability to act with a view to the best interests
of the corporation, other than interests and relationships arising from
shareholding. The TSE guidelines also recommend that in circumstances where a
corporation has a "significant shareholder" (that is, a shareholder with the
ability to exercise the majority of the votes for the election of the directors
attached to the outstanding shares of the corporation) the board of directors
should include a number of directors who do not have interests in or
relationships with either the corporation or the significant shareholder and
which fairly reflects the investment in the corporation by shareholders other
than the significant shareholder.
The directors have examined the relevant definitions in the TSE
guidelines and have individually considered their respective interests and
relationships in and with Dakota. As a consequence the Board has determined that
of its five directors, four are unrelated directors and one is a related
director. Mr. Bell is an "inside" director (i.e. a director who is an officer
and/or employee of Dakota or any of its affiliates and is, by definition,
"related"). Dakota does not have a significant shareholder (as defined). The
Board considers its size of five directors to be appropriate at the current time
and a nine director Board following the completion of the Merger to be
appropriate in light of the changes to Dakota to result from the Merger. The
following is a summary of the responsibilities and activities of the various
committees of the Board.
Executive Committee. The Executive Committee is permitted to exercise
all the powers of the Board except as may be restricted by the Board itself or
<PAGE>
by legislation. The committee generally is responsible for considering major
corporate business plans and issues prior to presentation and approval from the
full Board of Directors of Dakota. The Executive Committee is composed of two
outside directors who are also unrelated and Mr. Bell who is an "inside"
director. This committee did not meet in 1996.
Audit Committee. The Audit Committee reviews the annual and interim
financial statements of Dakota and certain other public disclosure documents
required by regulatory authorities and makes recommendations to the Board with
respect to such statements and documents. The committee also makes
recommendations to the Board regarding the appointment of independent auditors,
reviews the nature and scope of the annual audit as proposed by the auditors and
management, and reviews with the management the risks inherent in Dakota's
business and risk management programs relating thereto. The committee also
reviews with the auditors and management the adequacy of the internal accounting
control procedures and systems within Dakota. The Audit Committee is composed of
three outside directors, all of whom are also unrelated directors. The committee
met two times during 1996.
Environmental Committee. Environmental Committee responsibilities
include the review and monitoring of the Company's environmental policies and
practices, including the procedures and scope of internal assessments used by
key personnel to identify, prevent, minimize and respond to significant risks to
the environment, and to communicate with regulatory authorities. The
Environmental Committee is composed of one outside director who is also an
unrelated director and Mr. Bell, who is an inside and related director. The
committee met one time during 1996.
Decisions Requiring Prior Board Approval. In addition to those matters
which must by law or by the Articles of Continuance of Dakota be approved by the
Board, Management is required to seek Board approval for all major transactions
such as debt financings, investments, acquisitions and divestitures. The Board
of Directors has delegated to senior management the authority to enter into
various types of transactions, including certain financing transactions subject
to specified limitations.
Other. Dakota considers its orientation and education program for new
directors to be an important element of ensuring responsible corporate
governance. In addition to extensive discussions with the Board and Chief
Executive Officer with respect to the business and the operations of Dakota, a
new director receives a record of historical public information on Dakota
together with the mandates and prior minutes of applicable committees of the
Board. The Board has not adopted a formal policy for the recruitment of
directors. In addition, Board meetings are regularly held at Dakota's mining
operations in order to assist the directors in better understanding Dakota's
operations.
Through its investor relations department, Dakota receives and responds
to shareholder inquiries. Shareholder inquires and concerns are dealt with
promptly by senior management of Dakota. To date, the Board has not needed to
take an active role in responding to shareholder inquiries and concerns.
In certain circumstances it may be appropriate for an individual
director to engage an outside advisor at the expense of Dakota. The engagement
of the outside advisor would be subject to the approval of the Board.
Executive Officers
The following table sets forth the names and ages of each of the
officers of Dakota and all offices of Dakota now held by each of them.
Name Age Office Held
- ----------------------- --------- ------------------------------
Alan R. Bell 58 President and Chief Executive
Officer
Robert R. Gilmore 45 Vice-President, Finance, Chief
Financial Officer and Secretary
Joseph G. Kircher 39 Vice-President, Operations
<PAGE>
Kayron L. McCoy 54 Assistant Secretary
Alan R. Bell (See information under "Number and Election of Directors").
Robert R. Gilmore has been Vice-President, Finance, Chief Financial Officer and
Secretary since June 1991.
Joseph G. Kircher has been Vice-President, Operations of Dakota since May 1996.
From June 1991 to April 1996, Mr. Kircher was Vice-President, Operations of
Consolidated Nevada Goldfields Corporation, a gold mining company.
Kayron L. McCoy joined the Company in October, 1993. She became Assistant
Secretary in June 1995. Prior thereto, Ms. McCoy was secretary to various
administrative directors and managers of Homestake Mining Company in Colorado
and South Dakota for more than five years.
Voting Commitments, Agreements or Understandings
As of the Dakota Record Date, directors and executive officers of
Dakota and their affiliates had the right to vote approximately 3.19% of the
issued and outstanding Dakota Common Shares entitled to vote at the Dakota
Meeting. There are no agreements, commitments or understandings between Dakota
and its directors, officers and shareholders with respect to voting at the
Dakota Meeting. However, the directors and executive officers of Dakota have
indicated their intention to vote their shares in favor of the proposal to
approve the Merger Agreement.
DAKOTA MANAGEMENT
Executive Compensation
As permitted under Canadian law, the Company reports on executive
compensation in accordance with the requirements of the Exchange Act. The
following table summaries the total compensation of the Chief Executive Officer
and the other most highly compensated executive officers ("Named Officers") of
Dakota earning in excess of $100,000 for the year ended December 31, 1996, as
well as the total compensation paid to each such individual for the Company's
three previous fiscal years:
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Awards
Securities
Underlying
Annual Compensation Options
Name and
Principal Position Year Salary Bonus Other(1) Shares
- ------------------ - ----- -- ------- --- ------ - --------- - ------
<S> <C> <C> <C> <C> <C>
Alan R. Bell................. 1996 $210,000 -- $14,314
President and CEO 1995 $210,000 -- $13,817 225,000
1994 $210,000 -- $13,418 --
Robert R. Gilmore............ 1996 $135,000 -- $12,227 25,000
Vice President 1995 $135,000 -- $12,165 75,000
Finance and CFO 1994 $135,000 -- $11,704 --
<FN>
(1) Other compensation consists principally of Company paid medical/life
insurance of $6,977 in 1996, $6,385 in 1995 and $6,124 in 1994 each for
Messrs. Bell and Gilmore, employer matching contributions under a 401(k)
plan of $4,620 for each year for each named officer, and Company-paid
parking expenses and director fees paid to Mr. Bell.
<PAGE>
</FN>
</TABLE>
Options Granted in Last Fiscal Year. Shown below is information as to
grants of stock options made pursuant to the Share Incentive Plan during
the year ended December 31, 1996 to each Named Officer. Options were
exercisable upon date of grant.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
% of total of Stock Price
Number of Options Appreciation
Securities Granted to for option Term
Underlying Employees in Cdn$/share ------------------------
Options Fiscal Year Exercise Price Expiration 10%
Name Granted Date 5% (Cdn.$) (Cdn.$)
- ------- ---------- ------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan R. Bell Nil 0% -- -- -- --
Robert Gilmore 25,000 4.2% $2.75 06/26/01 $4,750 $23,750
</TABLE>
Aggregated Option Exercises and Fiscal Year-End Option Values. Shown
below is information as at December 31, 1996 with respect to the exercise of
stock options during the year ended December 31, 1996 by each Named Officer and
unexercised options to purchase Common Shares granted in prior years to Named
Officers under the Share Incentive Plan:
<TABLE>
<CAPTION>
Securities Number of Securities
Acquired Underlying Unexercised Cdn. $ Value of Unexercised
on Options Held at December 31, In-the-Money Options at
Exercise(1) Value 1995 December 31, 1995
Common Realized Exercisable/Unexercisable(1)(2) Exercisable/
Name Shares Cdn($) Common Shares Unexercisable(1)(2)
- ------------------- ------------ ----------- ----------------------------- ---------------------
<S> <C> <C> <C> <C>
Alan R. Bell None Nil 395,000 $105,500
Robert R. Gilmore.... 25,000 $22,815 256,032 $50,000
<FN>
(1) All options held by Named Officers were exercisable at December 31, 1996.
(2) Based on the closing price on the TSE on December 31, 1996, 245,000 options
held by Mr. Bell and 125,000 options held by Mr. Gilmore were in-the-money.
</FN>
</TABLE>
Compensation of Directors. Those directors of Dakota who are not
officers of Dakota receive the following stipends:
(i) an annual fee of Cdn. $5,000 payable in quarterly instalments;
(ii) Cdn. $750 per board meeting attended in person;
(iii) Cdn. $750 per committee meeting attended in person; and
(iv) Cdn. $250 per board or committee meeting attended by conference
telephone.
Directors who are also officers of Dakota or its Subsidiaries receive only the
regular board meeting attendance fee, but do not receive annual fees, fees for
committee meetings or board meetings conducted by telephone. In addition, Dakota
reimburses the directors for reasonable expenses incurred by them in attending
meetings of the Board of Directors or of Committees of the Board.
Grants of stock options made pursuant to the Share Incentive Plan during 1996 to
each director are as follows:
<TABLE>
<CAPTION>
<PAGE>
Underlying Securities
Options Common Cdn$/Share Expiration
Name of Director Granted Shares Exercise Price Date
- --------------------- --------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Landon T. Clay 22,507 22,507 $2.75 06/26/01
David S. Robertson(1) 26,868 26,868 $2.75 06/26/01
Stanley Dempsey 20,000 20,000 $2.75 06/26/01
Edward G. Thompson 20,000 20,000 $2.75 06/26/01
Tor Jensen 50,000 50,000 $2.75 06/26/01
Paul A. Bailly(1) 50,000 50,000 $2.45 08/21/01
<FN>
(1) Mr. Bailly and Mr. Robertson retired from the Board of Directors
effective December 31, 1996.
</FN>
</TABLE>
Employment Contracts. Effective May 19, 1991, the Company entered into
a five-year agreement with Mr. Alan R. Bell, Dakota's President, Chief Executive
Officer and a director of Dakota, which provides, among other things, that in
the case of a change in control of Dakota, Mr. Bell is entitled to receive
severance pay equal to the lesser of one year's salary or the salary for the
unexpired term of his five-year contract, less any deductions required by law.
Unless otherwise terminated, the agreement is automatically extended on a one
year by one year basis.
Effective June 17, 1991, the Company entered into a three-year
agreement with Mr. Gilmore, Vice-President Finance, Chief Financial Officer and
Secretary of Dakota, which provides, among other things, that in the case of a
change in control of Dakota, Mr. Gilmore is entitled to receive severance pay
equal to the lesser of six months salary or the salary for unexpired term of his
three year contract, less any deductions required by law. Unless otherwise
terminated, the agreement is automatically extended on a year by year basis.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions. Messrs. Paul A. Bailly and David S. Robertson, former directors of
Dakota, served as the Compensation Committee and the Stock Option Committee for
Dakota's Board of Directors during the year ended December 31, 1996. No
committee member was an officer or employee of Dakota or any of its
Subsidiaries, other than Mr. Bailly who was the Chairman of the Board of Dakota
until his resignation on December 31, 1996. Messrs. Bailly and Robertson are
directors of MinVen, Inc., a general partner of VenturesTrident II, L.P. See
"Dakota-Certain Relationships and Related Transactions."
Report on Executive Compensation
Compensation of Dakota's executive officers is currently determined by
the Board of Directors. The Board of Directors is responsible for setting and
administering the policies which govern annual compensation. The Board of
Directors reviews with Management the compensation levels of Dakota's managers
and other key employees as well as the performance of Management, management
succession, and related matters. No adjustments to salaries have been made or
bonuses granted for any officer since September 1993.
The key elements of Dakota's executive compensation consist of salary,
bonus, and stock options. The Board of Directors monitors and approves salary
levels and bonuses of officers and the Stock Option Committee of the Board of
Directors monitors and approves employee stock-option awards. In evaluating the
performance and setting the compensation of the Chief Executive Officer and
other senior management, the Board of Directors has taken particular note of
Management's' success in completing numerous complex financing transactions
which have resulted in the improvement in the overall financial condition of
Dakota over the past three years. At June 1993, Dakota reported a deficit in
working capital of approximately $26 million. As of February 28, 1997, after the
private placement of Special Warrants on February 6, 1997 (see "Dakota
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Special Warrant Financing and Issue of Debentures"), Dakota's working
capital had improved to approximately $17 million at February 28, 1997. The
partial turnaround of Dakota's financial circumstances are, in the Board's view,
largely attributable to Management's successful completion of several private
placement financings which have enabled Dakota to repay substantially all of its
long-term indebtedness and in obtaining new operating permits which enabled
Dakota to restart operations at its Stibnite Mine in 1995 and its Anchor Hill
gold deposit at Gilt Edge mine in 1996. Accordingly, past executive compensation
<PAGE>
has not been based upon specific corporate operating results over the past three
years.
Salaries for executive officers are also determined by evaluating the
responsibilities of the position held and the experience of the individual, and
by reference to the competitive marketplace for executive talent, including an
analysis of salaries for similar positions at other gold-mining companies of a
comparable size. The Board believes that Dakota's most direct competitors for
executive talent are not necessarily all of the companies that would be included
in a peer group established to compare shareholder returns. Thus, the
compensation peer group is not the same as the peer group index in the
Shareholder Return Performance graph included in this Joint Proxy
Statement/Prospectus. The Board of Directors will, where appropriate, also
considers other performance measures, such as, safety, environmental awareness,
and improvements in relations with shareholders, employees, the public and
governmental regulators.
Bonuses are based upon merit and the specific circumstances giving rise
to Dakota realizing direct benefits from the employee's efforts. No bonuses were
declared or paid in 1996.
The Board of Directors believes that the Chief Executive Officer and
the other officers of Dakota remain motivated and are dedicated to the growth in
value of Dakota. The Board of Directors also believes that the Chief Executive
Officer is receiving reasonable salary compensation when compared to peer-group
levels and that his performance incentives are dependent upon his share purchase
plan and employee stock options in Dakota. For a description of Mr. Bell's
compensation arrangements, refer to "Executive Compensation."
Board of Directors
Alan R. Bell
Landon T. Clay
Stanley Dempsey
Edward J. Thompson
Tor Jensen
<PAGE>
Shareholder Return Performance Graph
The following graph shows the cumulative total shareholder return on Dakota
Common Shares compared to the cumulative total return of three other stock
market indices: (1) Standard and Poor's 500 Index; (2) Standard and Poor's Gold
Indes; and (3) a peer group of small market capitalization North American gold
mining companies. The time period graphed is the five year period from December
31, 1991 through December 31, 1996.
Shareholder Returns(1)
[GRAPHIC OMITTED]
- --------------------------------------------
(1) Assumes $100 invested on January 1,1992 in Dakota Common Shares,
Standard and Poor's 500 Index, Standard & Poor's Gold Index, and Peer
Group Index (small market capitalization North American Gold Mining
companies).
<TABLE>
<CAPTION>
Company Name/Index Base Period
Dec '91 Dec '92 Dec '93 Dec '94 Dec '95 Dec '96
<S> <C> <C> <C> <C> <C> <C>
Dakota Mining Corp 100 80.13 48.37 35.47 38.70 43.52
S& P Gold & Precious Metals Mining-500 100 93.37 171.05 138.20 155.55 154.39
S&P 500 Index 100 107.62 118.46 120.03 165.13 203.05
Old Peer Group 100 101.76 184.91 189.97 204.55 208.16
New Peer Group 100 99.41 175.20 135.87 120.96 126.71
</TABLE>
<PAGE>
The Standard and Poor's Gold Index includes data from four large North
American gold mining companies: Echo Bay Mines Ltd., Homestake Mining Company,
Nominate Gold Company and Placer Dome Inc.
As of December 31, 1996, Management concluded that the old peer group
was no longer reasonably comparable to Dakota for purposes of analyzing total
shareholder returns, because several of the old peer group companies had either
been acquired, merged into other companies, ceased operations, or had grown
significantly larger than Dakota. Accordingly, Dakota determined that it would
be appropriate to establish a new peer group. The new peer group of gold mining
companies includes data from fourteen (14) companies, all of which are listed on
Nasdaq or AMEX. The fourteen companies are: Alta Gold Co., Pioneer Metals Corp.,
Atlas Gold, Rea Gold Corp., Canyon Resources Corp., USMX Inc., Consolidated
Nevada Goldfields, Vanderbilt Gold Corp., Crown Resources Corp., Viceroy
Resource Corporation, Glamis Gold Ltd., Vista Gold Corp., North Lily Mining Co.
and Wharf Resources Ltd.
The old peer group of gold mining companies includes data from 19
companies, all of which are listed on Nasdaq, AMEX or the New York Stock
Exchange. The companies are: Alta Gold Co., Atlas Corp., Canyon Resources Corp.,
Consolidated Nevada Goldfields, Crown Resources Corp., Glamis Gold Ltd., Vista
Inc., Kinross Gold Corp. (formerly known as Plexus Resources Corp.), North Lily
Mining Co., Piedmont Mining Co. Inc., Pioneer Metals Corp., USMX Inc.,
Vanderbilt Gold Corp., Viceroy Resource Company, and Wharf Resources Ltd.
Directors' and Officers' Liability Insurance
Dakota holds directors' and officers' liability insurance acquired by
it from Chubb Insurance Company on behalf of its directors and officers. The
policy provides coverage to Dakota for payments made on behalf of its directors
and officers under indemnity provisions of its Bylaws, and to the individual
directors and officers for losses arising during the performance of their duties
from which they are not indemnified by Dakota. Effective September 1996, the
policy provided coverage for one year with an aggregate limit of Cdn.$2,000,000
for all policy participants in each policy year, subject to a deductible of
Cdn.$500,000 for each amount payable to Dakota. The approximate amount of
premium paid by Dakota for the period from September 1996 through September 1997
in respect of its directors and officers as a group was approximately
Cdn.$69,000.
DAKOTA SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, certain information with respect to
beneficial ownership of the Common Shares as of March 14, 1997, by (i) each
director or nominee for director of Dakota; (ii) each Named Officer; (iii) all
officers and directors of Dakota as a group; and (iv) each person or entity
known to Dakota to be the beneficial owner of more than 5% of Dakota's
outstanding Common Shares. Information with respect to beneficial ownership by
each officer or director is based upon information furnished by that individual.
Unless otherwise noted, all directors and officers have sole power and sole
investment power with respect to shares beneficially owned by them.
<TABLE>
<CAPTION>
Number of Percentage
Common of Common
Name Address Shares Owned Shares Owned(1)
- ---- ------- ------------ ---------------
Directors
- ---------
<S> <C> <C> <C>
Alan R. Bell 4303 E. Links Parkway 395,001(2) *
Littleton, CO 80122
Stanley Dempsey 10899 W. 30th Avenue 90,001(3) *
Lakewood, CO 80215
Edward G. Thompson 111 Moore Avenue 90,001(4) *
Toronto, Ontario
M4T 1V7
Landon T. Clay 24 Federal Street 6,469,196(5) 18.19%
Boston, MA 02110
Tor Jensen 51 Bledlow Manor Drive 70,000(6) *
Scarborough, Ontario
<PAGE>
D. James Rudack -- --
Donald P. Bellum 3341 Park Ridge Road -- --
Sedalia, CO 80135
Christopher M.T. Thompson 475 17th Street, Suite 50,000(7) *
750
Denver, CO 80202
Gregory Pusey 1722 Buffehr Creek Road -- --
Vail, CO 81657
Named Officers
Robert R. Gilmore 735 Leyden Street 256,033(8) *
Denver, CO 80220
All Officers, Directors and
Nominees
As a Group: 14 persons 7,625,232(12) 20.8%
- -----------
Five Percent Shareholders
VenturesTrident II, L.P. 475 Seventeenth St. 3,996,965 11.3%
Suite 750
Denver, CO 80202
MacKenzie Financial 150 Bloor Street West 3,164,786 8.92%
Corporation Suite M111
Toronto, Ontario
M5S 3B5
Sun Valley Gold Company 620 Sun Valley Road 2,145,050 6.00%
PO Box 2211
Ketchum, ID 83340
Silverton International Fund 129 Front Street 4,000,000(9) 10.13%
Suite 301
Toronto, Ontario
M4W 1E6
Fulcrum Management, Inc. 24 Federal Street 1,351,369(10) 5.07%
Boston, MA 02110
C.A. Delaney Capital BCE Place 2,942,400(11) 8.19%
Management Ltd. Canada Trust Tower
161 Bay Street, #3900
Toronto, Ontario
M5J 2S1
<FN>
* Less than 1%
* Less than 1.0%.
(1) As of March 14, 1997, the total number of Dakota Common Shares
outstanding was 35,479,742.
(2) Includes 395,000 Dakota Common Shares issuable pursuant to stock
options.
(3) Includes 90,000 Dakota Common Shares issuable pursuant to a stock
option.
(4) Includes 90,000 Dakota Common Shares issuable pursuant to stock
options.
(5) Mr. Clay is an affiliate of Ventures Trident II, L.P. and Fulcrum
Management, Inc. Includes 11,040 Dakota Common Shares held in two
trusts in which Mr. Clay holds an interest, 90,000 Dakota Common
Shares issuable pursuant to a stock option, 5,908 Dakota Commons
Shares held by his wife, 24,078 Dakota Commons Shares held by LTC
Corp., a private corporation controlled by Mr. Clay, and 5,348,334
Dakota Common Shares held by Ventures Trident II, L.P. and Fulcrum
Management, Inc. Mr. Clay is a
<PAGE>
controlling person of VenturesTrident II, L.P. and Fulcrum Management,
Inc. Under this arrangement, Mr. Clay has shared voting, investment
and dispositive power with respect to the shares owned by
VenturesTrident II, L.P. and Fulcrum Management, Inc. Mr. Clay
disclaims ownership of the portion of such holding in which he has no
actual pecuniary interest.
(6) Consists of 70,000 Dakota Common Shares issuable pursuant to a stock
option.
(7) Consists of 50,000 Dakota Common Shares issuable pursuant a stock
option.
(8) Consists of 256,032 Dakota Common Shares issuable pursuant to a stock
option.
(9) Consists of 4,000,000 Dakota Common Shares issuable upon conversion of
convertible debentures issuable upon exercise of Special Warrants.
(10) Includes 250,000 Dakota Common Shares issuable upon exercise of Common
Share Purchase Warrants.
(11) Includes 460,000 Dakota Common Shares issuable upon exercise of Common
Share Purchase Warrants.
(12) Includes 1,246,032 Dakota Common Shares issuable pursuant to stock
options and 5,348,334 Dakota Common Shares held by VenturesTrident II,
L.P. and Fulcrum Management Inc. which Dakota Common Shares are
beneficially held by Mr. Clay. Refer to footnote (6) above.
</FN>
</TABLE>
DAKOTA SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Dakota's officers and
directors, and persons who own more than 10% of a registered class of Dakota's
equity securities, to file reports of ownership and changes in ownership with
the SEC and AMEX. Officers, directors and greater than 10% shareholders are
required by SEC regulation to furnish Dakota with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such forms received
by it, or written representations from certain reporting persons, Dakota
believes that, during the fiscal year ended December 31, 1996 all filing
requirements applicable to its officers, directors, and greater than 10%
beneficial owners were complied with.
DAKOTA CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Interests Of Management And Others In Material Transactions
During the three year period prior to the date hereof, no director,
senior officer or principal shareholder of Dakota, nor any affiliate or
associate thereof, has had any material interest, direct or indirect, in any
transaction which has or will materially effect Dakota except as disclosed
below.
Certain Transactions Relating To Principal Shareholders
VenturesTrident II, L.P. ("VTII") is a Delaware limited partnership formed
to invest in precious metals projects and companies. VTII is managed by Castle
Group, Inc. Fulcrum Management Partners, L.P. ("Fulcrum") and Fulcrum Management
Partners II, L.P. ("Fulcrum II") are Delaware limited partnerships serving as
the sole general partners. MinVen, Inc., a Massachusetts corporation, together
with Landon T. Clay, a director of Dakota, are the general partners of each of
Fulcrum and Fulcrum II. Mr. Clay is also a director of MinVen, Inc. MinVen, Inc.
and Fulcrum Management Inc. are wholly-owned subsidiaries of Eaton Vance Corp.,
of which Mr. Clay is the Chairman and Chief Executive Officer. Eaton Vance Corp.
and Mr. Clay are also partners of VTII.
Due to the various relationships among Dakota, VTII, Castle Group,
Inc., Fulcrum, Fulcrum II and Fulcrum Management Inc., and due to the status of
Mr. Clay as a director of Dakota, there are or may occur circumstances when
conflicts of interest arise in connection with decisions affecting Dakota. In
such circumstances, Mr. Clay has abstained and will continue to abstain from
voting on relevant transactions.
On October 13, 1994, VTII exercised Arrangement Warrants and purchased
359,767 Dakota Common Shares at $1.75 per share. The Company used these proceeds
to repay VTII $629,592 of interest accrued to date on certain notes that were
converted pursuant to the Arrangement completed on September 15, 1993. See
"Business of Dakota Mining Corporation - Dakota."
Indebtedness of Directors and Senior Officers
No individual who is, or at any time during the most recently completed
financial year of Dakota was, a director, executive officer or senior officer of
Dakota, no proposed nominee for election as a director of Dakota, and
<PAGE>
no associate of any such director, officer or proposed nominee is, or at any
time since the beginning of the most recently completed financial year of Dakota
has been, indebted to Dakota or any of its Subsidiaries or has been the subject
of a guarantee, support agreement, letter of credit or other similar arrangement
or understanding provided by Dakota or any of its Subsidiaries.
DAKOTA SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected financial data in Table I has been derived from the
audited consolidated financial statements of Dakota and should be read in
conjunction therewith, including notes thereto, included elsewhere in this Joint
Proxy. Dakota utilizes the United States dollar as its reporting currency. All
financial data presented below are in thousands of United States dollars except
per share and other data.
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Income Statement Data
Revenue $ 24,556 $ 17,209 $ 8,442
Exploration costs 499 87 203
Loss from operations (15,274) (8,718) (5,663)
Other income (expense) (7,796) (272) (76)
Net loss (23,070) (8,990) (5,739)
Net loss per share (0.73) (0.35) (0.33)
Dividends per share 0.00 0.00 0.00
Balance Sheet Data(1):
Property, plant and equipment $ 15,150 $ 22,973 $ 23,527
Total assets 31,569 35,905 34,344
Total debt:
Short-term borrowings 624 1,158 1,158
Current portion of long-term debt 383 566 1,824
Long-term 3,240 440 898
Other non-current liabilities 6,515 3,558 1,851
Shareholders' equity 13,459 22,590 25,485
Other Data:
U.S. dollar exchange rate
(Canadian$/US$)(2)
As of December 31, 0.7301 0.7325 0.7129
Yearly average 0.7334 0.7284 0.7321
Low for period 0.7215 0.7025 0.7105
High for period 0.7515 0.7529 0.7632
</TABLE>
Had the consolidated financial statements been presented in accordance
with accounting principles and practices generally accepted in the United
States, additional financial data would be disclosed as follows:
<TABLE>
<CAPTION>
TABLE II
1993(3) 1992
-------------- --------------
<S> <C> <C>
Income Statement Data
Revenue $ 7,156 $ 31,834
Exploration costs 147 326
Operating loss (5,080) (7,850)
Other income (expense) (2,036) (1,357)
Net loss (7,115) (8,991)
Net loss per share (1.04) (2.80)
Dividends per share 0.00 0.00
Balance Sheet Data (1):
Property, plant and equipment $ 23,362 $ 39,990
<PAGE>
Total assets 35,036 48,804
Total debt:
Short-term borrowings 1,549 -
Current portion 3,329 20,494
Long-term 2,416 1,333
Other non-current liabilities 1,648 2,389
Shareholders' equity 19,852 17,143
Other Data:
U.S. dollar exchange rate
(Canadian$/US$)(2)
As of December 31, 0.7553 0.7867
Yearly average 0.7753 0.8276
Low for period 0.7435 0.7760
High for period 0.8050 0.8760
<FN>
(1) Amounts are at the last day of each of the periods indicated.
(2) Exchange rates are expressed as the United States dollar equivalent to
one Canadian dollar.
(3) The Arrangement was accounted for as financial reorganization under
Canadian generally accepted accounting principles ("Canadian GAAP")
which resulted in a "fresh start." Accordingly, results of operations
subsequent to September 15, the effective date of the Arrangement, are
reported separately in Table I in conformity with Canadian GAAP. Under
U.S. GAAP, the Arrangement would have been accounted for as a
quasi-reorganization with results of operations for the
pre-Arrangement period, January 1, 1993 to September 15, 1993,
combined with the post-Arrangement period.
</FN>
</TABLE>
DAKOTA MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
USMX Merger. On February 5, 1997, Dakota entered into the Merger
Agreement with USMX. Under the terms of the Merger Agreement, holders of USMX
Common Stock will receive one Dakota Common Share for every 1.1 share of USMX
Common Stock and USMX will become a wholly-owned subsidiary of Dakota. In
connection with the transaction, Dakota will issue approximately 14.7 million
Dakota Common Shares. The Dakota Common Shares had an approximate market value
of $23.2 million or $1.58 per share, based upon an average trading price for
Dakota's Common Shares for a reasonable period before and after the Merger was
announced. Dakota will account for the Merger as a "purchase". Based upon the
opinion of Coopers & Lybrand L.L.P., Dakota anticipates that the Merger will not
be taxable to Dakota and should not be taxable to shareholders of Dakota or
USMX. See "U.S. Federal Income Tax Considerations of the Merger." Completion of
the Merger remains subject to shareholder approval, review by regulatory
authorities, and other customary conditions. Dakota expects to complete the
Merger in May, 1997. See "The Merger."
The principal asset of USMX is its Illinois Creek Project. Reference is
made to "Business and Properties of USMX - The Illinois Creek Project." The
Illinois Creek Project is expected to produce approximately 64,000 ounces of
gold and 419,000 ounces of silver in 1997 at a cash cost of approximately $250
per ounce of gold. The Illinois Creek Project has an estimated six year life and
is expected to be an important source of operating cash flow to Dakota
throughout its productive life.
Special Warrant Financing and Issue of Debentures. To provide financing
for Dakota and USMX in connection with the Merger, on February 5, 1997, Dakota
entered into an agency agreement with certain Canadian investment dealers (the
"Agents") to sell by way of private placement 25,000 Special Warrants (as
defined hereafter) at a price of Cdn.$1,000 per Special Warrant for aggregate
gross proceeds to Dakota of Cdn.$25 million (U.S. $18.5 million). Proceeds from
the Special Warrant offering, after deducting the 6% commission paid to Agents
and other expected costs, approximate $16.9 million. The offering proceeds will
principally be used to complete construction and commence start-up of the
Illinois Creek Project, developmental drilling, repayment of $1.5 million of the
Rothschild Credit Agreements and for general working capital purposes.
<PAGE>
The Special Warrants are comprised of 16,119 Series A Special Warrants
and 8,881 Series B Special Warrants. The Special Warrants offering was completed
on February 6, 1997 with all proceeds, net of a 6% commission paid to Agents
placed in escrow. Each Special Warrant entitles the holder, upon exercise
thereof and without payment of any additional consideration, to acquire one
Debenture in the principal amount of Cdn$1,000. The Debentures are described
under the heading "Capitalization and Description of Dakota
Securities-Description of Dakota Share Capital and Debentures-Debentures."
Dakota has agreed to use its best efforts to file a prospectus in
British Columbia, Alberta, Ontario and Quebec to qualify for distribution the
Debentures issuable upon exercise of the Special Warrants and the Dakota Common
Shares issuable upon conversion of the Debentures.
If the shareholders of Dakota do not approve the issuance of the Series
B Special Warrants prior to June 5, 1997, then all Series B Special Warrants
will automatically be retracted and the holders thereof will receive the
original purchase price paid therefor plus a pro rata portion of the interest
earned on the purchase price while it was held in escrow.
If the Merger is not completed prior to May 31, 1997 or such later date
as the Agents may determine in their sole discretion, the number of Dakota
Common Shares issuable upon conversion of the Debentures will be such that each
Debenture will be convertible for 550 Dakota Common Shares (the "Penalty").
On March 11, 1997, $5.0 million of the Special Warrant offering
proceeds was released to Dakota in connection with the terms of the Merger
Agreement and the $5,000,000 Loan Agreement. Reference is made to the heading
"Terms of the Merger-Other Agreements-$5,000,000 Loan Agreement." Proceeds from
the $5,000,000 Loan Agreement will be used by USMX to reduce outstanding
accounts payable balances and to fund construction and start-up activities at
the Illinois Creek Project until the Merger is completed. All expenditures must
first be approved in advance by Dakota and Rothschild. Further reductions in
outstanding USMX accounts payable balances, together with additional
construction and start-up costs at the Illinois Creek Project in 1997, are
expected to be approximate an additional $7 million. These additional costs will
be funded by Dakota from proceeds of the Special Warrant offering.
The remaining proceeds of the Special Warrant offering will be released
upon completion of the Merger, the obtaining of receipts from various securities
commissions in Canada of the final prospectus qualifying the securities issuable
by Dakota in connection with the offering and upon approval of the issue of the
Dakota Common Shares ultimately underlying the Series B Special Warrants by
Dakota shareholders. Should the Merger not be consummated for any reason, Dakota
will be obligated to exchange a pro rata portion of the Special Warrants for
Debentures in an amount equal to the proceeds released from escrow prior to that
time. USMX will be obligated to repay all outstanding obligations under the
$5,000,000 Loan Agreement. The remaining escrowed proceeds will then be used to
retract from the holders of the Special Warrants a pro rata number of Special
Warrants for the original purchase price thereof together with a pro rata amount
of interest earned thereon while such proceeds were held in escrow.
Upon completion of the Merger, Dakota will be obligated to repay USMX's
$22 million balance due under the Rothschild Credit Agreements. USMX has failed
to comply with various provisions of the Rothschild Credit Agreements and has
continued operations to date with the forbearance of Rothschild. However, Dakota
and Rothschild entered into an Intercreditor Agreement on March 12, 1997 which
among other things, contained Rothschild's consent to the Merger Agreement and
set forth certain changes to the Rothschild Credit Agreements, which changes
will become effective upon consummation of the Merger. Refer to "Terms of the
Merger-Other Agreements-Intercreditor Agreements." In Dakota's view, the
prospective changes to the Rothschild Credit Agreements will avoid any existing
or immediate defaults thereunder after closing of the Merger.
The most significant changes to the Rothschild Credit Agreements
include: (i) $1.5 million of the proceeds from the Special Warrant offering will
be used to repay a portion of the Rothschild Credit Agreements, (ii) certain
minimum cash retention requirements will no longer be required; (iii) all
remaining and outstanding loan balances will be deemed to be project debt and no
portion thereof will be convertible into Dakota Common Shares; (iv) scheduled
loan repayment dates will be changed to better match projected Illinois Creek
Project cash flows; (v) minimum working capital cash balances will be retained
in the Illinois Creek Project; (vi) certain terms related to "commercial
completion" and various financial covenants
<PAGE>
will be amended; and (vii) Dakota will guarantee the Rothschild Credit
Agreements until "commercial completion" is realized.
The adjusted project loan balance of $20.5 million will bear interest,
payable quarterly, at 2.25% above LIBOR until "commercial completion" of the
project has occurred. The requirements for commercial completion include the
construction of the Illinois Creek Mine facilities, which facilities and the
equipment thereon must be mechanically complete and electrically operable
("Mechanical Completion"), the achievement of production amounts and grades,
costs and reserves similar to the development plan, and the absence of any
default in the Rothschild Credit Agreement. Following commercial completion,
this note bears interest at 1.879% above LIBOR. Principal payments are to be
made in installments of $3 million each on November 30 and February 28, of each
year, commencing November 30, 1997.
Dakota expects to repay the outstanding amounts under the Rothschild
Credit Agreements and all related interest accrued thereon from the operating
cash flows from the Illinois Creek Project. No assurances can be given that the
Illinois Creek Project will provide sufficient cash flows to meet these
repayment obligations.
Sources and Uses of Cash. On February 28, 1997, Dakota and Gerald
Metals, Inc. ("Gerald") signed a letter agreement to amend and restate Dakota's
line of credit facility with Gerald. Under the amended terms, Dakota's line of
credit will be increased from the present outstanding balance of $3.23 million
to $5.0 million. The loan will be repayable at a rate of $1.0 million per month
commencing in June 1998, will bear interest at LIBOR plus 2.25% and will be
collateralized by Dakota's underlying assets at its Gilt Edge and Stibnite Mines
and a guarantee by Dakota.
Gerald has also agreed to provide a $2.5 million standby credit
facility to Dakota until July 31, 1997. The standby facility is intended to
serve as a bridge financing until completion of the Merger and the release from
escrow of the remaining proceeds from the Special Warrant offering. Dakota will
be obligated to pay a 1/2 of one percent commitment fee on any unused portion of
the standby credit facility. All outstanding balances thereunder bear interest
at LIBOR plus 2.25% and are collateralized by an assignment of Note 2 under the
$5,000,000 Loan Agreement as described under the heading "Terms of the
Merger-Other Agreements -$5,000,000 Loan Agreement."
In April, 1996, Dakota commenced construction of expanded heap leach
facilities at its Gilt Edge Mine. Remaining capital costs are estimated to be
$4.0 million over two years. The heap leach pad expansion is being constructed
in stages. In this manner, ores can be mined and processed, thereby generating
an operating cash flow, prior to the completion of the entire heap leach pad
expansion. The remaining capital costs are expected to be funded by cash flows,
cash on hand and proceeds from the borrowing arrangements with Gerald.
As of December 31, 1996, the investment in property, plant and
equipment at Gilt Edge Mine approximated $9.4 million of which $1.7 million is
attributed to the sulfide development potential of the property which is not
currently subject to amortization. Based upon a $380 per ounce gold price, an
independent engineering study and past operating experiences, Dakota believes
that mining and processing the Anchor Hill oxide deposit and the substantial
sulfide deposit will generate sufficient operating margins to ensure the
recovery of Dakota's remaining investment in Gilt Edge Mine.
Dakota estimates that the salvage value of the Golden Reward Mine
assets are equal to or exceed all remaining obligations of the partnership.
Accordingly, future holding costs are not expected to be material to Dakota.
Dakota has identified sufficient mineralized oxide materials at its
Stibnite Mine to conduct operations at annual production rates of approximately
24,000 ounces of gold during 1997 and has drill indicated mineralized material
which Dakota believes will allow for several additional years of operations. The
drill indicated areas will require further development drilling at a cost of
approximately $500,000 per year over the next two to three years. Drilling
activities will be financed from the proceeds of the Special Warrants and from
operating cash flows.
Dakota's investment in mining assets at Stibnite Mine as of December
31, 1996 is approximately $4.3 million of which approximately $1.9 million has
been attributed to the sulfide ore potential of the property and is not
currently subject to amortization. Future depreciation will approximate $34 per
ounce providing that 65% of the drill-indicated reserves convert to the proven
and probable category. Based upon a $380 per ounce gold price and its past
<PAGE>
operating experience, Dakota believes Stibnite Mine's future operating margins
should ensure the recovery of its remaining investment in mining assets.
Once the Merger is completed, the principal focus of Dakota for the
remainder of 1997 will be: (i) to complete the successful start-up of operations
at Illinois Creek Project, including construction of expanded leach pad
facilities at a cost of $4.5 million; (ii) to continue operations at Gilt Edge
and Stibnite Mines, (iii) to complete construction of additional heap leach pads
at Gilt Edge Mine as previously discussed; (iv) to conduct development drilling
activities at Stibnite and Gilt Edge Mines at a cumulative cost of $1.1 million
in order to convert drill indicated mineral resources into proven and probable
mineable reserves; and (v) to continue exploration and evaluation of other
mining properties, including the Thunder Mountain Project owned by USMX located
near Dakota's Stibnite Mine.
Over the next three years, the combined capital expenditures of Dakota
and USMX are expected to approximate $11.0 million in 1997, $5.9 million in
1998, and $3.0 million in 1999, excluding any costs to develop USMX's Thunder
Mountain Project. For additional information on operating properties, see
"Business and Properties of Dakota" and "Business and Properties of USMX."
Management expects that the cash flows generated from mining activities,
together with the proceeds from the offering of Special Warrants and under the
Gerald credit facilities, discussed previously, will be adequate to fund all
required capital expenditures and operating activities. However, no assurances
can be given that Dakota's operations will provide sufficient cash flow to fund
these capital expenditures.
At December 31, 1996, Dakota had a working capital of $1.0 million as
compared to a working capital deficit of $2.2 million at December 31, 1995. The
improvement is due to higher cash balances in 1996 and a lower outstanding
balance under a short-term borrowing arrangement. At December 31, 1995, Dakota
had a working capital deficit of $2.2 million primarily due to an increase in
accounts payable of $3.47 million since December 31, 1994. The increase in
accounts payable arose in connection with the recommencement of operations at
Stibnite Mine as discussed below and increased operating activities at Gilt Edge
Mine related to the processing of certain previously stockpiled sulfide ores.
The working capital deficit was eliminated in February 1996 as a result of the
private placement of equity securities and reductions in accounts payable using
proceeds from sales of gold bullion produced after December 31, 1995.
Cash used in operations was $6.2 million during 1996 compared to cash
provided by operations of $413,219 in 1995. The increase in cash used during
1996 is a result of operating losses of approximately $2.8 million in 1996 at
Stibnite Mine and preproduction costs of approximately $ 3.2 million incurred in
connection with the start-up of Gilt Edge Mine in the spring of 1996.
Cash provided by operations was $413,219 during 1995 compared to cash
used in operations of $3.88 million in 1994. The decrease in cash used in 1995
compared to 1994 is primarily due to the increase in accounts payable and
accrued liabilities in 1995. The increase in cash used in 1994 to $3.88 million,
from $2.96 million in 1993, is due primarily to the payment of holding and
standby costs at the Gilt Edge and Stibnite Mines neither of which conducted
significant operations in 1994 nor provided operating cash flows.
Cash used in investing activities during 1996 primarily pertains to
additions to plant, property and equipment including the expansion of the leach
pad and development of Anchor Hill at the Gilt Edge Mine.
Cash used in investing activities during 1995 pertains to additions to
plant, property and equipment, including deferred development activities at Gilt
Edge Mine and Golden Reward Mine and the addition of a water treatment plant at
Gilt Edge Mine. During 1994, cash used also related to additions to plant,
property and equipment, including development activities at Gilt Edge Mine and
Golden Reward Mine.
Cash provided by financing activities during 1996 included
approximately $13.5 million of proceeds, net of offering costs, from the sale of
special warrants and $340,397 of proceeds received upon the exercise of common
share purchase warrants. Dakota also borrowed $3.23 million under a Revolving
Loan Agreement with Gerald Metals, Inc. In total, Dakota repaid almost $1.1
million of borrowings during 1996, including its pro rata share of long-term
debt obligations of Golden Reward L.P.
Cash provided by financing activities during 1995 included
approximately $5.5 million of proceeds, net of offering costs, from the sale of
<PAGE>
special warrants and $587,873 of proceeds received upon the exercise of common
share purchase warrants. Dakota also borrowed $1.875 million under a short-term
credit facility with Gerald Metals, Inc., which credit facility was fully repaid
prior to the end of 1995. Proceeds from the borrowing were used for working
capital to restart operations at Stibnite Mine. Dakota also repaid approximately
$1.8 million of its pro rata share of certain long-term debt obligations of
Golden Reward L.P. In total Dakota repaid borrowings of $3.7 million in 1995.
Financing activities in 1994 generated $9.5 million of proceeds, net of offering
costs, from the sale of special warrants and $2.17 million of proceeds received
upon the exercise of Common share purchase warrants. Dakota repaid approximately
$1.87 million of its pro rata share of certain long-term debt obligations of
Golden Reward L.P. and in total repaid borrowings of $6.13 million in 1994.
Dakota has needs for cash to fund permitting, construction and
environmental compliance activities at its Gilt Edge, Stibnite and Golden Reward
projects. See "Business and Properties of Dakota-Gilt Edge Mine, Golden Reward
Mine and Stibnite Mine."
Other. In order to minimize an adverse effect of changing gold
prices upon operations, Dakota from time-to-time, enters into gold price
protection agreements. At December 31, 1996, Dakota had entered into various
forward sale contracts with a gold bullion dealer to deliver 7,500 ounces of
gold at a minimum prices of $370 per ounce and a maximum of $385 per ounce
during the period from January 31, 1997 through June 30, 1997. In addition,
forward sales contracts for 16,000 ounces at an average price of $387 were in
place at year-end. As of February 28, 1997, Dakota had forward sale contracts
remaining to deliver approximately 21,000 ounces of gold throughout 1997 at an
average price of $384 per ounce. Fluctuations in future gold prices could
significantly impact Dakota's future revenues as only a portion of Dakota's
expected gold production in 1997 has been hedged by these forward sales
contracts.
Dakota intends to adopt the new Recommendations of the
Canadian Institute of Chartered Accountants relating to the presentation and
disclosure of financial instruments. In accordance with these recommendations
the Debentures will be segregated into their debt and equity components. The
financial liability component, representing the present value of future interest
payments, will be included in long-term debt. The remaining component,
representing the value ascribed to both the holders' option to convert the
principal balance into Dakota Common Shares and Dakota's right to pay the
principal amount of the instrument in Common Shares, will be classified in
shareholders' equity as the equity component of convertible instruments. These
components will be measured at their respective fair values at the date the
Debentures are exchanged for the Special Warrants.
Environmental Matters and Government Regulation. All of Dakota's
exploration, development and production activities are subject to regulation
under one or more of the various state, local 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
endangered species, protection of natural resources and others. Such laws and
regulations are generally becoming more restrictive. Dakota has made and expects
to continue to make in the future, significant expenditures to comply with such
laws and regulations.
Existing and possible future environmental legislation, regulations and
actions, could cause additional expense, capital expenditures, restrictions and
delays in the activities of Dakota, the extent of which cannot be predicted.
Regulatory requirements and environmental standards are subject to constant
evaluation and may be significantly increased, which significantly adversely
affect Dakota's business. The cost of compliance with changes in governmental
regulations has the potential to reduce the profitability of operations.
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, 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. 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 had 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. If
enacted, such legislation could impair the ability of Company to economically
<PAGE>
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 Dakota as a result of future Congressional action is
not presently determinable.
The South Dakota Department of Environment and Natural Resources
("DENR") has conducted a Preliminary Assessment on behalf of the United States
Environmental Protection Agency ("EPA") of Gilt Edge Mine activities including
the approximately 406 acres permitted under Dakota's South Dakota state mining
permit. At this time, EPA has not made a determination as to whether any further
study needs to be made of the site. Accordingly, Dakota is not able to determine
what impact, if any, further action by the DENR or EPA in connection with the
Preliminary Assessment may have on the site. Dakota does not know when the EPA
may reach a decision on the Preliminary Assessment.
In April 1993, the DENR issued the DENR Order regarding remediation
efforts related to acid rock drainage at Gilt Edge Mine. The DENR Order remains
in effect and Dakota is in full compliance. The DENR Order principally requires
that, unless discharge water meets certain permitted terms and conditions, there
shall be no discharge of acid mine drainage. On January 19, 1996, Dakota
received final approval of an updated and amended reclamation plan from the
State of South Dakota. Under the conditions of the revised reclamation plan,
Dakota plans to reclaim waste depositories and other areas by capping these
areas with impervious materials available from the overburden associated with
the Anchor Hill oxide deposit. Such capping will prevent any continued migration
of acid mine drainage.
Dakota has provided the State of South Dakota with a form of financial
assurance in the amount of $7.9 million in connection with the reclamation and
remediation plan in the form of cash deposits of $2.4 million and a demand note
as proof of financial assurance in the amount of $5.5 million. Dakota has
estimated that its actual capping costs will approximate $3.2 million, which
costs have been fully accrued at December 31, 1996. Funding of this obligation
will be made from operating cash flow derived from processing the Anchor Hill
oxide deposit.
Dakota is required to meet certain equity covenants of $20 million as a
condition of its permits with the State of South Dakota. As of December 31, 1996
Dakota did not meet this requirement, however completion of the Special Warrant
offering on February 6, 1997 as discussed previously will ensure that Dakota
meets this requirement on a go-forward basis.
At a future date when Dakota provides notice to the State of South
Dakota that the Gilt Edge Mine will close and that post closure care is to
begin, Dakota will be obligated to convert a portion of its financial assurance
into a post-closure fund in a form acceptable to the State to ensure long term
treatment and maintenance of the site. The amount of the post-closure financial
assurance is not expected to be less than $3.0 million although no final
determination will be made until the mine actually closes.
The State of South Dakota requires mines to provide the State with
financial assurance to cover mitigation costs in the event of an environmental
accident. In order to fulfil its obligation, Dakota has provided the State with
a form of demand note in the amount of $359,000.
Golden Reward L.P. is required by the State of South Dakota to provide
financial security to cover the estimated cost of reclamation. Reclamation bonds
totaling $1,175,759 have been posted as a guarantee that the land which is
disturbed by mining will be reclaimed. Golden Reward L.P. anticipates that total
costs of reclamation will not exceed the amount of these bonds.
In November 1993, Dakota filed an application for a U.S. Federal Clean
Water Act National Pollution Discharge Elimination System permit in respect of
Stibnite Mine. This permit is not necessary for Dakota's current mining
operations at Stibnite Mine. However, Dakota believes that obtaining this permit
would be of benefit as it would allow Stibnite Mine to discharge clean water
from the minesite in accordance with such permit standards in the future. Dakota
cannot anticipate when a draft permit will be issued.
On July 10, 1995, Dakota entered into a voluntary Administrative Order
on Consent with the EPA regarding the tailings area (the "Meadow Creek Plan").
<PAGE>
Approximately 50% of the work under the Meadow Creek Plan was completed in 1995.
Through December 31, 1996, $224,733 has been incurred in connection with the
Meadow Creek Plan. Management estimates that it will cost approximately $667,000
in 1997 in order to complete the Meadow Creek Plan. Such costs will be funded
from operating cash flows although there is no assurance that sufficient cash
flow from operations will be generated to complete the Meadow Creek Plan. Dakota
has apprised previous owners and operators of the property of the Meadow Creek
Plan and believes that a portion of such costs may be recoverable from these
parties. However, there is no assurance that Dakota will be successful in
obtaining a recovery of any of the costs of the Meadow Creek Plan.
On September 11, 1996, Dakota received a Notice of Potential Liability
and Conduct of Removal Action from the United States Environmental Protection
Agency ("EPA") pertaining to certain remediation activities at an historic mine
sight, located on certain lands once leased by Dakota. Dakota never conducted
operations at this sight and no longer owns any interest in the leases
pertaining to this property. The EPA estimates a total cost of $940,000 for its
action. However, Dakota cannot presently determine the extent of its liability,
or whether any liability actually exists.
Reclamation bonds totaling $701,322 have been posted by Dakota in
accordance with State of Idaho and USFS requirements to ensure that land which
is disturbed by mining will be reclaimed. Dakota estimates that the total costs
of reclamation of other land which is disturbed by mining will not exceed the
amount of these reclamation bonds.
Reference is made to the respective sections "Operations, Permitting
and Environmental Matters" in the description of the Gilt Edge, Golden Reward
and Stibnite Mines in the "Business Properties of Dakota-Properties" section of
this document for further discussion of the financial impact of environmental
compliance.
Results of Operations
Revenues and Direct Operating Costs. Dakota recorded a consolidated net
loss of $23.1 million, or $0.73 per share, in 1996. Of this loss, $16.4 million
reflects non-recurring expenses including the following: (i) a $9.6 million
writedown in asset carrying values and accrual of certain future estimated costs
related to the suspension of operations at Golden Reward Mine, (ii) an increase
in depletion of $2.9 million at Stibnite Mine due to a change in accounting
estimates and the expensing of deferred stripping costs of $700,000 which had
been deferred in prior years, and (iii) $3.2 million of preproduction and
start-up expenses at the Gilt Edge Mine prior to recommencing operations at the
Anchor Hill deposit in May 1996.
Shown below is Dakota's share of metal sales (in ounces) in each of the
last three years:
<TABLE>
<CAPTION>
Metal Sales
Year Ended December 31(1)
1996 1995 1994
---- ---- ----
Gold Silver Gold Silver Gold Silver
<S> <C> <C> <C> <C> <C> <C>
Cactus Mine (25%) 564 197 1,468 997 2,595 7,624
Gilt Edge Mine(2) 23,537 32,619 8,839 16,156 2,534 7,245
Golden Reward Mine (40%) 10,070 9,078 19,078 5,451 19,618 5,323
Stibnite Mine 28,752 7,309 17,622 4,739 - -
------ ----- ------ ------ ---------- --------
62,923 49,203 47,007 27,343 24,747 20,192
====== ====== ====== ====== ====== ======
<FN>
(1) Precious metals production for each of the joint venture operations
includes Dakota's pro rata share.
(2) Includes gold sales from Gilt Edge Mine of 2,308 ounces and 2,534
ounces while in holding and standby stage during 1995 and 1994,
respectively. The related revenues were recorded as a reduction of
holding and standby costs.
</FN>
</TABLE>
Operating results for the last three years are summarized in the
following table:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating revenue $ 24,556,406 $ 18,094,834 $ 9,589,821
Loss on gold loan repayment(1) - - (205,558)
Reclassified to holding and standby - (886,226) (942,640)
--- --------- ---------
Net operating revenue $ 24,556,406 $ 17,208,608(2) $ 8,441,593(2)
============ ============= ===========
<FN>
(1) Loss on gold loan relates to the payoff of a gold loan as a result of
the revaluation of the gold loan to $348 per ounce pursuant to the
arrangement completed September 15, 1993.
(2) Excludes sales of gold from Gilt Edge Mine while in holding and
standby stage.
</FN>
</TABLE>
The benefits of Dakota's short-term gold hedging program principally provide a
minimum selling price for ounces of gold which only slightly exceeded the
average spot prices.
<TABLE>
<CAPTION>
Mine, Mill and Administration(1)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gilt Edge Mine $ 10,339,845 $ 6,442,615 $ 3,563,013
Golden Reward Mine 3,003,781 4,363,047 4,681,572
Stibnite Mine 12,666,675 6,450,714 856,884
Cactus Mine 285,832 477,409 751,499
--------------- ------------ -------------
Subtotal 26,296,133 17,733,785 9,852,968
Reclassified to holding and standby - (3,882,148) (4,419,897)
--------------- ------------- -------------
Total mine, mill and administration $ 26,296,133 $ 13,851,637 $ 5,433,071
============= ============ ============
Average cash cost per ounce of gold sold $418 $310(2) $245(2)
<FN>
(1) Cash costs include mining, milling, project administration,
on-property exploration, and all holding and standby costs.
(2) Excludes ounces of gold sold by Gilt Edge Mine while in the holding
and standby stage.
</FN>
</TABLE>
1996 Compared to 1995. Metal sales at both Gilt Edge Mine and Stibnite Mine
were higher in 1996 than 1995 due primarily to an increase in ore tons
processed. During 1996, Gilt Edge Mine processed approximately 1.583 million ore
tons at an average grade of 0.023 ounces of gold per ton and Stibnite Mine
processed 927,000 ore tons at an average grade of 0.031 ounces of gold per ton.
In comparison, during 1995, Gilt Edge Mine processed approximately 572,000 ore
tons at an average grade of 0.043 ounces of gold per ton and Stibnite Mine
processed 544,000 ore tons at an average grade of 0.05 ounces of gold per ton.
The higher tonnages resulted in increased total metal production.
The above increases in production were partially offset by lower metal
sales from Dakota's 40% interest in the Golden Reward Mine. Golden Reward Mine
ceased mining activities at the end of the second quarter of 1996.
Mine, mill and administrative expense increased substantially in 1996
when compared to 1995. The increase in costs relates primarily to the higher
volumes of ore tons mined at Gilt Edge and Stibnite Mines as discussed
previously. Although ore tonnages were higher, lower ore grades in 1996
adversely effected cash costs per ounces of gold sold. In addition, costs at
Gilt Edge Mine in 1996 include approximately $3.2 million of pre-production
expenses related to the Anchor Hill oxide deposit for the period from January to
April, the date at which operations for this deposit commenced. Such expenses,
which are not recurring in nature, increased the average cash costs per ounce of
gold sold by $51 in 1996. The Golden Reward Mine incurred $1.3 million less
costs in 1996 than in 1995, due to the cessation of mining activities in June.
Costs at Cactus Mine were lower in 1996 than in 1995 and relate to wind-up and
reclamation activities.
The increase in depreciation, depletion and amortization in 1996 when
compared to 1995 is due to higher production rates in 1996 and to a change in
accounting estimate which led to a higher per ounce depletion rate for the
Stibnite Mine in 1996. This change in estimate resulted in additional depletion
of $2.9 million during 1996.
<PAGE>
Based upon uncertainties arising from the proximity of certain
unpermitted reserves to a ski hill, the operator of Golden Reward Mine reflected
in the financial statements of the partnership in 1995 and 1996, an impairment
of its investment in mineral properties relating to the Golden Reward Mine.
Dakota recorded this impairment of approximately $7.9 million in its 1996
financial statements after Golden Reward L.P. failed to reach an agreement
regarding the acquisition of certain surface rights owned by the ski hill. Of
this amount, approximately $790,500 pertains to the write down of inventory.
During the second quarter of 1996, Dakota recorded an accrual of approximately
$1.7 million for its share of reclamation and other costs due to the cessation
of mining operations.
Royalties vary from mine-to-mine and within the specific area being
mined in accordance with various agreements with landowners. Effective in 1995,
the State of South Dakota adjusted its method for calculating severance taxes,
the result of which was to significantly lower the effective rate. Overall,
royalties and severance taxes generally relate directly to revenues earned.
Therefore higher revenues in 1996 resulted in higher royalty and severance taxes
than in 1995.
Reclamation costs in 1996 consist of accruals at Gilt Edge Mine,
Stibnite Mine and Golden Reward Mine of $1.2 million, $380,000 and $640,000,
respectively. The costs at Gilt Edge Mine pertain to the mining of ore and waste
tons at Anchor Hill, the costs at Stibnite pertain to revised estimates of
reclamation costs due to additional mining activities in the West End and
Stibnite pits, and the costs at Golden Reward pertain to the cessation of
operations in the second quarter of 1996. According to estimates provided by our
partner in Golden Reward Mine, all future reclamation costs should now be
accrued as of December 31, 1996.
General corporate costs increased $500,000 in 1996 when compared to
1995 due to additions in staff, legal expenses, travel activities, and in the
use of outside professional services incurred in connection with mine
acquisitions. These increases are due, in part, to overall increases in
corporate activity.
Investment income is higher in 1996 due principally to interest earned
on higher cash balances available for investment purposes.
Interest expense is slightly lower in 1996 than in 1995 due to
decreased vendor interest on outstanding payable balances during 1996. This is
slightly offset by interest on the balance of the Revolving Loan Agreement with
Gerald Metals, Inc. beginning in the second quarter of 1996.
Dakota does not anticipate that its U.S. operations will be subject to
alternative minimum tax during 1997. 1995 Compared to 1994 and 1994 Compared to
1993. Gold production and related operating revenues in 1995 increased from 1994
levels principally due to the recommencement of operations at Stibnite Mine in
August 1995 after the successful completion of various permit matters and
leaching certain stockpiled ores at Gilt Edge Mine. In 1994 gold production and
revenues decreased from 1993 levels due to the decrease in ounces sold from Gilt
Edge Mine as a result of the cessation of mining activities in January 1993.
This was partially offset by higher average gold prices realized and by
increased ounces of gold produced at Golden Reward Mine due to higher mined
tonnages.
In 1995, Dakota mined and processed at Stibnite Mine a total of 544,340
tons of ore with an average grade of 0.05 ounces of gold per ton with overall
average recoveries expected to approximate 86%. Approximately 4,000 ounces of
gold remained on leach pads at December 31, 1995 and were recovered during the
Spring 1996 start-up. In 1994, Stibnite Mine was on standby awaiting the
issuance of certain operating permits. Production at Gilt Edge Mine was higher
in 1995 and is attributable to processing of approximately 572,000 tons of
certain stockpiled sulfide ores with an average grade of 0.043 ounces of gold
per ton and an expected recovery of 45%. Leaching of these materials continued
into 1996. Gilt Edge production in 1994 was principally from reprocessing
certain previously leached materials.
Mine, mill and administrative costs increased significantly in 1995
when compared to 1994. Such costs increased by approximately $2.9 million at
Gilt Edge Mine principally as a result of crushing and pad loading costs
associated with the processing of stockpiled sulfide ores as noted above. Costs
at Gilt Edge Mine in 1994 and through August 1995 relate principally to
neutralization, environmental compliance and administration. Costs at Stibnite
<PAGE>
Mine increased $5.6 million as a result of the recommencement of operating
activities. Accordingly, costs are not comparable to 1994. Costs at Golden
Reward were relatively unchanged.
The decrease in average cash costs per ounce sold in 1994 resulted
primarily from increased cost efficiencies obtained at Golden Reward Mine which
are substantially due to the termination of a life-of-mine contract with Harley
Hall in October 1993. Due to the cessation of mining activities at Gilt Edge
Mine wherein certain fixed costs were spread over fewer ounces produced, cost
per ounce values for 1994 are not meaningful and have been excluded from Dakota
average.
Costs at Cactus Mine were lower in 1995 than in 1994 and relate to
wind-up and reclamation activities. Such costs will continue to decline in the
future as final reclamation activities continue.
The increase in depreciation, depletion and amortization in 1995 when
compared to 1994 is due to an increase in the depletion rate at Golden Reward
Mine resulting from a reduction in estimated recoverable reserves at December
31, 1995. Increases in depletion of approximately $398,000 at Gilt Edge Mine and
$726,000 at Stibnite Mine are attributable to units of production amortization
as each mine recommenced gold production in the third quarter of 1995.
Depreciation and depletion also increased in 1994 when compared to 1993
primarily due to the purchase of equipment at Gilt Edge Mine and the utilization
of straight-line depreciation of equipment while production was suspended during
1994. However, Dakota principally amortizes its mining assets using the units of
production method.
Holding and standby costs pertain to Gilt Edge Mine - $1.5 million and
Stibnite Mine - $866,605 and represent additional accrued 1994 operating
expenses incurred by each mine respectively while awaiting new operating
permits. The increase in holding costs at Gilt Edge Mine are a result of slower
than expected neutralization of spent ores on heap leach pads and the resultant
delays in processing certain stockpiled ores.
Royalties vary from mine-to-mine and within the specific area being mined
in accordance with various agreements with landowners. Effective in 1995, the
State of South Dakota adjusted its methods for calculating severance taxes, the
result of which was to significantly lower the effective rate. Overall,
royalties and severance taxes generally relate directly to revenues earned.
Therefore higher revenues in 1995 resulted in higher royalty and severance taxes
than in 1994. In 1994 royalties increased due to higher operating revenues, but
remained consistent in proportion to such revenue.
Reclamation costs in 1995 include approximately $1.7 million and in
1994 include approximately $1.3 million accrued in connection with the
finalization of a planned acceleration of concurrent reclamation activities
related to existing waste facilities at Gilt Edge Mine. Other reclamation costs
pertain principally to Golden Reward Mine and are relatively unchanged.
General corporate costs decreased in 1995 when compared to 1994 due to
reductions in staff, legal expenses, travel activities, and in the use of
outside professional services. These reductions are due, in part, to overall
decreases in corporate activity during 1995. Such corporate costs decreased in
1994 as compared to 1993 primarily due to an accrual of bonuses to certain
officers in 1993, offset in part, by increased shareholder and investor
relations activities.
Investment income is lower in 1995 due principally to lower cash
balances available for investment purposes. Investment income increased in 1994
as compared to 1993 due to interest earned on higher average cash balances. The
increase in cash balances arose from proceeds realized as a result of the
Arrangement described under "Business and Properties of Dakota" below, completed
in September 1993 and the private placement of special warrants in February
1994.
Interest expense is lower in 1995 due to lower outstanding indebtedness
as a result of the repayment of indebtedness to Wharf throughout 1995 and 1994.
This is partially offset by an increase in vendor interest due to larger
outstanding payable balances. Interest expense decreased in 1994 compared to
1993 primarily as a result of the $1.75 million payoff to Citibank, N.A. in
September 1993, offset in part by the interest accrued to Wharf due to advances
made for cash calls at the Golden Reward Mine.
<PAGE>
BUSINESS AND PROPERTIES OF DAKOTA
Dakota was formed as a result of an amalgamation of Brohm Resources
Inc. and MFC Mining Finance Corporation under the provisions of The Company Act
(British Columbia) effective August 2, 1988. Under the terms of the
amalgamation, Dakota was renamed MinVen Gold Corporation. On December 16, 1988,
Dakota was continued under the Canada Business Corporations Act (the "CBCA").
On September 13, 1993, the shareholders of Dakota approved a
recapitalization of Dakota's outstanding common shares as part of an arrangement
structured as a plan of arrangement (the "Arrangement") under Section 192 of the
CBCA. As a part of the Arrangement, all of the common shares of Dakota
outstanding as of September 15, 1993 (the "Old Common Shares") were exchanged
for Common Shares and common share purchase warrants ("Arrangement Warrants")
and the name of MinVen Gold Corporation a was changed to Dakota Mining
Corporation.
Under Canadian GAAP, the Arrangement was accounted for as a financial
reorganization utilizing "fresh start" accounting. Generally, prior period
figures are not included in the financial statements of an enterprise that has
comprehensively revalued its assets and liabilities as a result of a financial
reorganization. This is consistent with the concept that the enterprise is
starting anew using a "fresh start" basis of accounting. Accordingly, results of
operations and cash flow activities prior to September 15, 1993, the effective
date of the Arrangement, have not been included in the consolidated statements
of operations and cash flows as of December 31, 1993, rather these consolidated
financial statements are limited to the post-Arrangement period commencing
September 16, 1993.
Corporate Structure
The following chart sets forth Dakota's corporate structure including
all material Subsidiaries and their respective jurisdictions of incorporation.
CHART OMITTED
Dakota carries out its operations through its direct and indirect wholly-owned
Subsidiaries as noted above.
Business of Dakota
Dakota is engaged in the business of investing in and operating
precious metals mining projects, producing gold and silver and exploring for,
acquiring and developing precious metals properties throughout the world. Dakota
currently has 100% interest in Gilt Edge Mine located near Deadwood, South
Dakota, a 40% interest in Golden Reward Mine located near Lead, South Dakota and
a 100% interest in Stibnite Mine located in Valley County, Idaho.
[A map of the western United States highlighting the states of Idaho, South
Dakota and Colorado and the location of Dakota's operations has been inserted at
this point]
Dakota has a 25% interest in Cactus Mine located near Lancaster,
California. The entire ore deposit at Cactus Mine has been mined and while gold
recovery occurred throughout 1996 in connection with heap leach neutralization
activities, Cactus Mine is not expected to significantly affect future
operations of Dakota.
Dakota currently holds limited interests in certain other mining
claims, mineral claims and Crown granted mineral claims in British Columbia.
Although no work programs with respect to these existing claims are currently
under way Dakota continues to seek the acquisition of additional mineral
interests outside of the United States.
<PAGE>
Properties
Reference hereafter, is occasionally made to sulfide or oxide ore
deposits. Sulfide ores are mineralized rock in which much of the gold is
contained in sulfide. Such sulfide ore deposits are generally mined and
processed by means of crushing the ore into fine particles and floating the
particles in a solution to separate the gold. This process is capital intensive
and often not an economic means of processing lower grade ore bodies.
Oxide ore deposits are sulfide deposits that have been oxidized. Unlike
sulfide deposits, gold can be extracted from oxide deposits through the use of
cyanide heap leaching solutions. Because cyanide heap leaching is generally a
less expensive process than crushing and floating sulfide ores, lower grade ore
bodies can be more economically mined. For this reason, Dakota has incurred
costs to investigate methods of treating sulfide deposits to render them
amenable to cyanide leaching processing. See "Properties - Gilt Edge Mine
Sulfide Deposit." Each ore body has unique metallurgical characteristics, and
oxide and sulfide ores are commonly intermingled.
Gilt Edge Mine. Gilt Edge Mine is a year round open pit heap leaching
operation. The following table sets forth certain historical production
information for Gilt Edge Mine:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ore crushed (thousands of tons) 1,583 572 - - 773
Average grade gold (ounces/tons) 0.023 0.043 - - 0.056
Average recovery (%) 72.8% 39.6% - - 60.0%
Ounces produced
Gold 26,150 9,748 2,374 9,423 26,836
Silver 38,223 19,436 5,670 18,524 45,201
Per ounce of gold sold
Cash Cost ($) $439 -(1) -(1) $301 $308
Total Cost ($) $500 -(1) -(1) $366 $381
<FN>
(1) During 1994 and through to August 1995, Gilt Edge Mine was on stand-by
pending the issue of operating permits for new mining areas. All costs
incurred in this period to care for and maintain the mine and
production facilities have been categorized as "stand-by costs". All
proceeds from the sale of gold and silver during this period were used
to offset stand-by costs. Cost per ounce figures are not meaningful.
</FN>
</TABLE>
General. Dakota owns 100% of Gilt Edge Mine. Gilt Edge Mine is
located near Deadwood, South Dakota, approximately 40 miles from Rapid City,
South Dakota, where there is scheduled commercial airline service. Access to the
property is from Highway 385 on a secondary road maintained by the county. Gilt
Edge Mine is located within the Black Hills National Forest on private land that
is leased from various unaffiliated third parties. Unless production is
continuing or the leases are otherwise extended, such leases expire at various
times through 2012. The property consists of 308 patented and 323 unpatented
claims covering approximately 7,725 acres.
Ownership of the mineral rights under certain lease agreements
is transferable to Dakota upon payment of an aggregate of $3.67 million, of
which $1.3 million has been paid to date. Current production royalties of
approximately 2% with annual minimum royalty payments of approximately $228,200.
are paid to parties dealing at arm's length with Dakota. All current production
royalty payments are applied to the $3.67 million lease buy-out price noted
above.
Pursuant to an agreement between Dakota and Repadre
International Corporation ("Repadre") dated March 8, 1995, Repadre has a 1-3/4%
royalty interest in certain properties and a 3/4% royalty interest in the other
properties at Gilt Edge Mine in consideration for having made a credit facility
available to Dakota. These royalties are in addition to the 2% production
royalties described above.
All mining, hauling and road maintenance at Gilt Edge Mine is
performed by a mining contractor.
<PAGE>
Conventional open-pit mining methods are used with ores
processed through a heap-leach processing facility. The Gilt Edge Mine site
includes one planned open-pit mine known as Anchor Hill and two historic
open-pit mines, a 7,000 ton per day crushing plant, a 14 acre heap leach pad, a
1,000 gallon per minute Merrill-Crowe zinc precipitation processing plant,
solution storage facilities and ancillary facilities including two water
treatment processing plants, laboratory, warehouse, pump house, maintenance
shops, and administrative buildings. The plant and equipment are in good
condition and are adequately maintained.
Anchor Hill Oxide Deposit. As of January 1996, Dakota had
obtained all requisite state and county permits required for the initial
development of the Anchor Hill oxide deposit. Gold production from this deposit
commenced in April 1996. Based on presently established proven and probable
reserves and planned mining rates, the Anchor Hill deposit will produce gold for
approximately three years. Dakota is also conducting site exploration and
development drilling activities in order to enlarge the presently known oxide
reserves. Refer to "Reserves" below. Several promising targets have been
identified and gold mineralizations have been confirmed. Dakota expects to
expend approximately $500,000 per year over the next three years in connection
with this program.
Sulfide Deposit. Since 1989, Dakota has been evaluating the
possibility of mining the large sulfide deposit which has been fully delineated
and lies directly beneath the two open pits which were mined prior to 1992.
In September 1992, following laboratory tests conducted by
Dakota on mineralization from Gilt Edge Mine showing that the sulfide
mineralization responded to conventional cyanide leaching, a bulk heap leach
test of the material was instituted. A 42,000 ton bulk sample of the material
was crushed to a minus 1/4 inch in size and was subjected to conventional heap
leach procedures. The bulk test was concluded in November 1993 after 383 days of
leaching with actual gold recoveries at 49.4%. Extrapolated gold recoveries
after two full years of leaching were calculated to be in excess of 61%.
Based upon the bulk test results, Dakota commissioned two
studies to evaluate the commercialization of this large gold resource, including
an estimate of future capital costs and utilization of biooxidation processes to
treat sulfide ores at Gilt Edge.
One study was undertaken to substantiate the economic
viability of utilizing a heap leach facility to process certain sulfide gold
bearing material at Gilt Edge Mine using the results obtained from the large
scale bulk test noted above. However, management of Dakota has not yet concluded
that such a facility will be constructed in the near future. Rather, Dakota is
continuing to evaluate alternatives which, if successful, could further enhance
Gilt Edge Mine by allowing Dakota to process a greater portion of the known
sulfide deposit. Such alternatives include investigation of a pre-treatment
process, including bio-oxidation of sulfide ores prior to cyanidation leaching
as described below, and conventional mill grinding of ores.
To date Dakota has spent approximately $717,600 on studying
the feasibility of the bio-oxidation process at Gilt Edge. Results gathered to
date are encouraging and indicate that for each 1% increase in oxidation there
is a corresponding approximately 1% increase in recovery. Due to the promising
results to date in exploring for additional oxide reserves at Gilt Edge Mine,
Dakota has refocused its efforts to expanding its oxide reserves as noted above.
Accordingly, no significant expenditures are contemplated in the next year to
further develop these sulfide resources
Geology. Mineralized deposits covered by Gilt Edge Mine
properties are associated with an early Tertiary alkalic igneous complex.
Multiple stock, dike and sill intrusions, comprised of alkalic trachyte
porphyries, have been emplaced into Precambrian metamorphic and Cambrian
sedimentary basement rocks along major northeast and northwest trending fracture
zones. Gold mineralization is disseminated within the porphyritic intrusions and
concentrated within fracture and breccia zones cross cutting all rock types. In
addition, gold mineralization as replacement stratiform or manto type bodies,
occurs within favorable (chemically reactive) strata of the flat lying Cambrian
sedimentary rocks.
<PAGE>
Exploration. There is exploration potential for other oxide
and sulphide gold deposits on the Gilt Edge Mine properties. Most of the
potential oxide tonnages are in small "pockets" (relative to the much more
extensive sulphide mineralization) that could prolong mine life to the point
that development of sulphide gold deposits takes place. The Anchor Hill oxide
deposit, from which production commenced in 1996, remains as the largest oxide
deposit defined to date. In addition, the Southeast Langley oxide deposit, which
will compliment Anchor Hill production in 1997, will require additional drilling
to fully delineate the reserves in that area. Finally, 1996 exploration drilling
intersected significant mineralized intervals in two exploration targets not
drilled previously. These areas (Ruby Ridge and West Anchor) are directly
adjacent to existing mine and operating facilities and no resource estimate has
been calculated for these areas.
Additional drilling in 1997 will be completed in the Southeast
Langley and the two new areas to fully assess the reserve potential. Field
geochemical work and mapping has identified at least two additional areas which
will be drilled for the first time in 1997.
Reserves. The table below sets forth the permitted in-place
proven and probable oxide reserves at Gilt Edge Mine as of December, 1996; as
audited by DMBW:
<TABLE>
<CAPTION>
Grade oz. Contained Stripping
Area Tons /ton Au Ounces Au Ratio
---------------- --------- -------- --------- ----------
<S> <C> <C> <C> <C>
Anchor Hill
Southeast 7,231,372 0.029 210,465 1.74:1
Langley 403,379 0.029 11,588 1.13:1
-------- ----- ------- ------
Total 7,634,651 0.029 222,053 1.43:1
========= ===== ======= ======
</TABLE>
Operations, Permitting and Environmental Matters. Dakota has
obtained all of the requisite state and county permits that are required for the
development of the Anchor Hill oxide deposit. However, the ultimate open pit
design contemplates a disturbance of approximately 37 acres of U.S. National
Forest Service lands principally for pit wall layback. Accordingly, Dakota must
finalize an ongoing Environmental Impact Statement (the "Gilt Edge Mine EIS") to
develop the ultimate open pit mine design. The Gilt Edge Mine EIS, which has
been underway since January 1994, is expected to be finalized in May 1997.
Assuming the Gilt Edge Mine EIS is completed on a timely basis, no disruption to
mining operations is expected in 1997. To date, the Dakota has expended $151,409
for the Gilt Edge Mine EIS and expects to spend an additional $58,000 in 1997
for a total expenditure of $209,409 through to its completion.
On February 21, 1997, Gilt Edge Mine received a draft Notice
of Violation ("NOV") from the State of South Dakota regarding an unauthorized
discharge of approximately 5,500 gallons of mine water due to an equipment
failure. Gilt Edge Mine had previously reported the discharge which occurred in
November 1996. The NOV requests a fine of $5,400 and that Dakota increase its
efforts to properly treat and discharge excess mine waters presently stored at
the minesite. Dakota is presently assessing the nature and extent of the
requested additional water treatment procedures requested by the State of South
Dakota and cannot presently determine what incremental costs, if any, that it
may likely incur as a result of the NOV.
Reference is also made to "Dakota Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Environmental of Matters and
Government Regulation."
Severance Tax. Production from Gilt Edge Mine is subject to
severance taxes payable to the State of South Dakota at the rate of $4.00 per
ounce of gold produced together with a defined net profit tax of 10%.
Golden Reward Mine. Golden Reward Mine is a year round open pit heap
leaching operation. The following table sets forth certain historical production
information for Golden Reward Mine:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ore crushed (thousands of tons) 665 1,683 1,829 1,513 2,127
Average grade gold (ounces/tons) 0.037 0.040 0.040 0.033 0.038
Average recovery (%) - 72.7% 71.8% 71.2% 63.7%
Ounces produced
Gold 21,430 47,569 52,556 35,549 51,135
Silver 9,078 13,061 12,795 30,776 67,712
Per ounce of gold sold
Cash Cost ($) $298 $229 $263 $362 $381
Total Cost ($) $462 $401 $370 $471 $494
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Gold 8,572 19,078 21,022 14,220 24,909
Silver 3,631 5,451 5,118 12,310 13,020
</TABLE>
General. Golden Reward Mine is situated within the historic
Ruby Basin Mining District in the northern Black Hills, approximately four miles
southwest of Lead, South Dakota. Access to the mine is from Highway 85 via the
paved Fantail Gulch Road. The property leased by Golden Reward L.P. comprises
approximately 6,450 acres of land consisting of 426 patented and 194 unpatented
claims. All present and immediate future activities are on patented lands leased
from third parties. The leases require annual minimum payments of $400,000
($160,000 for Dakota's account) with royalty rates ranging from 1% to 5%.
Dakota has a 40% interest in Golden Reward Mine. From
inception of the project through February 27, 1992, Dakota's ownership interest
in Golden Reward Mine was 33-1/3%. Dakota's ownership interest in Golden Reward
Mine was adjusted from 33-1/3% to 54% effective February 28, 1992 as a result of
a former joint venture partner's failure to pay certain cash call obligations
that were in default. On October 8, 1992, Dakota acquired that joint venture
partner's remaining interest in the assets of Golden Reward Mine. Immediately
upon attaining a 100% ownership interest in Golden Reward Mine, Dakota sold a
60% ownership interest in Golden Reward Mine to Wharf Resources, Ltd. of
Toronto, Ontario. Thereafter, Wharf and Dakota contributed their respective
ownership interests into a newly formed limited partnership, Golden Reward
Mining Company, L.P. ("Golden Reward L.P."). The limited partnership is governed
by a partnership agreement dated October 8, 1992.
The mine has exhausted all of its presently permitted mineral
reserves. Present activities pertain only to care and maintenance which costs
are minimal to Dakota. Future mining activities, if any, are dependent upon
Golden Reward L.P. acquiring certain land surface rights and new operating
permits. No assurance can be given that Golden Reward L.P. will be successful in
its endeavors.
Operations. Mining at Golden Reward Mine takes place in
satellite pits using conventional open-pit mining methods. Ore and waste is
drilled and blasted and then the ore is trucked to the crusher. The ore is
crushed to a nominal 5/8 inch product, and is transported by conveyor to a rail
mounted stacker which loads the ore on to the "on/off" leach pad. This consists
of 12 cells each capable of holding 50,000 tons of ore. Gold extraction from the
solution is by means of Merrill-Crowe recovery plant. All facilities are in
excellent condition and well maintained.
Geology. Golden Reward Mine is located in the Black Hills
igneous intrusive belt, an east-west trend of Eocene Age with intrusive activity
being 70 miles in length. These igneous rocks are typically alkalic and are
generally porphyritic in texture with Tertiary porphyry the most volumetrically
significant intrusive rock in the area. All intrusive rock types at Golden
Reward Mine host gold mineralization. The tertiary intrusive rocks consist of
porphyritic dykes, sills and dyke-sill complexes. These dykes typically occur
along high-angle structures or schistocyte planes in the steeply inclined
Precambrian rocks. The sills within the Deadwood Formation, the dominant exposed
sedimentary rock, usually follow bedding planes or shale horizons.
Mineralization occurs in fracture zones radiating from these igneous-sedimentary
contacts.
<PAGE>
Historically, gold production at Golden Reward Mine has come
from high-angle structures or "verticals" and associated replacements within the
dolomitic rocks of the Cambrian Deadwood Formation. The majority of the
mineralization at the present operation is oxide and occurs in the nearly flat
lying Cambrian Deadwood Formation.
Ski Area. Golden Reward Mine is located next to the Terry Peak
Ski Area, a regionally popular Winter recreation site. Due to the sensitive
nature of this area to recreational activities, Golden Reward L.P. has
instituted a reclamation planning project for the area, which includes
sequentially mining the various areas and reclaiming the areas which were
previously mined as new mine areas are opened. Golden Reward L.P. owns a 31%
interest in the ski area for which it paid $1.3 million in 1986. A new lodge was
constructed and new snow making equipment installed in 1989 and the project is
now self-sufficient. The operations of the Terry Peak Ski Area are not material
to the operations of Golden Reward L.P. The cost of the investment has been
accounted for as part of the cost of the property and is being amortized over
the life of the Golden Reward Mine.
Reserves and Mineralized Deposits. Shown below are the proven
and probable in-place oxide ore reserves and other oxide mineralized deposits of
Golden Reward Mine (100% interest) as of December 31, 1996 as prepared on
January 27, 1997 by Glenn R. Clark, an independent professional engineer (the
"Clark Ore Reserve Report").
<TABLE>
<CAPTION>
Grade oz/ Contained
Tons ton Au Ounces Au
-------------- ------------- ------------
<S> <C> <C> <C>
Proven and Probable Reserves
Permitted 1.85 million 0.054 94,350
Non-Permitted 3.35 million 0.037 123,950
Defined mineral Deposits
Permitted .2 million 0.034
Non-Permitted(1) 1.0 million 0.030
<FN>
(1) Non-permitted mineralization represents extensions to existing
identified reserves or mineralized deposits on contiguous acreage
controlled by Golden Reward L.P.
</FN>
</TABLE>
Certain third party surface rights or facilities encumber the
development of 1.57 million tons of permitted proven and probable reserves at an
average grade of 0.052 ounces of gold per ton, or 81,640 ounces of gold, all
non-permitted proven and probable reserves and non-permitted defined mineral
deposits. In order to access such additional reserves and mineralized deposits,
Golden Reward L.P. will be required to relocate its existing crusher facility
and reduce its leach pad capacity by approximately 25% or to acquire or
otherwise compensate third parties to acquire or remove their facilities. All
the present time, Golden Reward Mine is not actively pursuing the removal of
said encumbrances.
The known reserves and defined mineral deposits at Golden
Reward Mine are on patented or private lands and would not be subject to a U.S.
federal royalty should the U.S. Congress enact a requirement for such a royalty.
Exploration. Potential exists for Golden Reward Mine to increase its ore
reserves. The development effort has focused on those surface ore deposits which
are amenable to open-pit mining, however, potential also exists for underground
deposits which have yet to be evaluated. Golden Reward L.P. has not yet
determined that such underground deposits, if any, could economically be
developed.
Other Matters. Dakota and Wharf have disagreed regarding certain
operational and financial matters for the Golden Reward Mine, including planned
future operations and related funding requirements. The resolution of these
matter is not presently determinable.
<PAGE>
Severance Taxes. Golden Reward Mine is subject to a severance tax of $4.00
per ounce of gold produced and 10% of net profits as levied by the State of
South Dakota.
Stibnite Mine. Stibnite Mine is a seasonal open pit heap leach operation
with potential for future expansion of existing oxide production.
Stibnite Mine recommenced operations in August 1995 after being placed
on stand-by for substantially all of 1993 and for 1994 while awaiting operating
permits. In July 1995, Stibnite Mine received all requisite operating permits to
recommence mining and processing activities and now has all requisite permits to
continue operations throughout 1996. See "Stibnite Mine-Operations, Permitting
and Environmental Matters." The following table sets forth certain historical
production information concerning Stibnite Mine.
<TABLE>
<CAPTION>
1996 1995 1994(1) 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ore crushed (thousands of tons) 927 544 - 91 814
Average grade gold (ounces/tons) 0.031 0.050 - 0.016 0.038
Average recovery (%) 81.0% 71.0%(3) - 89.0% 89.4%
Ounces produced
Gold 29,352 19,094 - 1,863 27,651
Silver 7,309 5,358 - 1,212 11,683
Per ounce of gold sold
Cash Cost ($) $441 $366 - N/A(2) $323
Total Cost ($) $558 $407 - N/A(2) $330
<FN>
(1) No operations were conducted in 1994 while the mine was on stand-by
awaiting operating permits.
(2) Costs for 1993 are not meaningful due to reduced level of mining
activities pending the issue of operating permits.
(3) Approximately 4,000 ounces of gold remain on the heap leach pads at
December 31, 1995 and once recovered in 1996 will increase recoveries
to approximately 86%.
</FN>
</TABLE>
General. Dakota's original 50% interest in Stibnite Mine was
acquired in 1986 from Pioneer Metals Corporation. In 1991, Dakota acquired the
remaining 50% interest in Stibnite Mine from Pegasus Gold.
Stibnite Mine is located in central Idaho's Salmon River
Mountains in Valley County, approximately 15 miles east of the town of Yellow
Pine. Access is by secondary road from State Highway 55. A landing strip
suitable for light aircraft also exists on the property. The property comprises
thirty patented claims, 28 patented millsites and 487 unpatented mining claims
covering 8,028 acres leased from third parties. This land surrounds the Yellow
Pine Mine owned by Hecla Mining Company ("Hecla").
The leases generally require production royalties that range
from 5% up to 6%. Two leases cover the majority of the production or targeted
areas on the property and will expire in the years 2005 through 2010. The leases
require advance minimum royalties of approximately $92,500 per year.
Operations.
Stibnite Mine is a seasonal, heap leach operation with mining
activity generally occurring from May through November. Conventional
drill-blast-load-haul methods are used. The ore is then crushed into pieces less
than one inch in diameter and deposited on leach pads for dilute cyanide
treatment. Gold and silver are recovered from the solution in a carbon
absorption plant with the barren ore being rinsed, neutralized and removed from
the pads. All facilities and equipment are in good condition and are adequately
maintained.
All mining, hauling, crushing and road maintenance is
performed by a mining contractor. Dakota and contractor personnel are housed
on-site in both company and privately owned trailers. Additional permanent
<PAGE>
living quarters and mess hall facilities are provided at the site by Dakota.
Geology. The Stibnite Mine district lies in the east-central
margin of the Idaho Batholith. Quartzmonzonite and aplite dikes of this
Cretaceous intrusive complex are the most common rock-type in this area.
Precambrian metasediments of the Belt Series are also present. The sediments are
composed of quartzite, schist, conglomerate, calc silicate hornfels and marble.
The sediments form part of a large roof pendent with the contained sedimentary
formations, generally striking in a northwesterly direction and dipping to the
northeast.
North-to-northeasterly trending faulting is strongly developed
in the area, with three major northeast striking faults identified.
Gold occurs in fractures and quartz veining mainly in
metasediments, closely associated with pyrite, marcasite, pyrrhotite,
chalcopyrite and arsenopyrite which has been oxidized near the surface.
Brecciated quartzite is the most common rock. The gold bearing oxide zones
currently mined are generally underlain by deeper gold bearing sulfide zones.
Exploration. During 1996, Dakota entered into an agreement
with Hecla to develop the sulfide potential in the Stibnite district. Dakota and
Hecla each hold 50% of the unitized mineral interest. Under the terms of the
agreement, the parties are actively seeking a third party mining company to
develop the resource. Dakota's oxide heap leach operations and resources are not
to be a part of the unitized assets.
Modest exploration programs have been conducted over the past
several years, principally within three target areas. Drilling results to date
have produced encouraging results. These three mineralized areas will be the
subject of a continuing drill program in 1997 when it is anticipated that the
mineralization and extent of the deposits will be defined in order to increase
mineable reserves. In addition, soil and stream geochemical sampling and modest
geophysical work are planned for the coming year. Dakota expects to expend
approximately $531,000 in 1997 for exploration.
The Stibnite Mine district has good potential to host
significant oxide and sulfide gold deposits. However, due to severe cash
limitations in the past few years, exploration efforts have been restricted to
oxides and to the needs of short term mine feed. A focused sulfide drilling
program could enhance this resource.
A particular opportunity exists at Stibnite Mine due to its
strategic land position surrounding the Yellow Pine sulfide deposit owned by
Hecla. Yellow Pine is undeveloped and reported by Hecla to contain approximately
20 million tons of refractory sulfide material or approximately two to three
million ounces of gold. The potential to define additional sulfide material
exists primarily on Stibnite Mine lands. Furthermore, should the Yellow Pine
deposit be developed at some future date, Stibnite Mine lands may be essential
for pit layback, mill site, waste and tailing disposal.
Reserves and Defined Mineralized Deposits. An independent
audit conducted by DMBW, professional mining consultants, confirmed reserves as
of January 10, 1997 as follows:
Tons Grade Contained Ounces/Au
Proven and Probable Reserves 432,190 0.049 21,386
DMBW has also identified other mineralized oxide material
outside of the current reserves of approximately 5.68 million ore tons at an
average grade of .032 opt gold.
In addition to the defined mineralized oxide material above,
Dakota's engineering staff has also located on the property refractory sulfide
material of approximately 5.0 million tons at a grade of 0.061 ounces of gold
per ton located throughout the property.
<PAGE>
Of the total known mineralization, only the mineralized material in the
West End Pit, and mineralized material (sulfide) at the Yellow Pine, Homestake
and Meadow Creek Mines are located on patented or private lands. All other known
mineralization is on unpatented claims, which could be adversely affected in the
event certain proposed changes in mining laws in the United States are enacted.
See "Risk Factors-General Risks Related to the Mining Industry-Proposed Changes
in Mining Laws."
Operations, Permitting and Environmental Matters. Since early
1992, Dakota has been in the process of preparing an Environmental Impact
Statement (the "Stibnite Mine EIS") to expand its mining operations. Dakota does
not expect that the Stibnite Mine EIS will be finalized until fall 1997.
However, operations planned for 1997 are not affected by the EIS.
Reference is made to "Dakota Management's Discussion and Analysis of
Financial Condition and Results of Operations - Environmental Matters and
Government Regulations."
<PAGE>
CAPITALIZATION AND DESCRIPTION OF DAKOTA SECURITIES
The following table sets forth the unaudited consolidated
capitalization of Dakota as at December 31, 1996 and February 28, 1997 before
and after giving effect to the Merger and offering of Special Warrants. This
capitalization table should be read in conjunction with the Pro Forma
Consolidated Financial Information and respective consolidated financial
statements for each of Dakota and USMX and the related notes thereto, which
consolidated financial statements are included elsewhere in the Joint Proxy. All
amounts are in thousands except share data.
<TABLE>
<CAPTION>
Outstanding Outstanding
28-Feb-97 28-Feb-97
after effect after effect
of Merger and of Merger and
Amount Outstanding Outstanding exercise of conversion of
Description Authorized 31-Dec-96 28-Feb-97 Special Warrants Debentures
(3) (1) (4) (4)
- ------------------------- ------------ ---------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Long-term debt, including
current portion (2) $ 3,623 $ 3,483 $ 24,123 $ 24,123
Note payable to related party $ - $ - $ - $ -
7.5% convertible
subordinated debentures $ - $ - $ 6,884 $ -
Shareholders equity (5)
Special Warrants, net of $ - $ 16,900 $ - $ -
offering costs [25,000] [25,000]
[Special Warrants
outstanding]
Purchase Warrants $ 63 $ 63 $ 63 $ 63
[Purchase Warrants [4,550,000] [4,550,000] [4,550,000] [4,550,000] [4,550,000]
outstanding]
Preference Shares $ - $ - $ - $ -
[Preference Shares [20,000,000] nil nil nil nil
outstanding]
Common Shares $ 52,810 $ 52,810 $ 76,056 $ 93,465
[Common Shares [unlimited] [35,479,742] [35,479,742] [50,192,469] [62,692,469]
outstanding]
Contributed Surplus - - 10,525 -
Accumulated Deficit (6) $ (39,134) $ (39,134) $ (39,134) $ (39,134)
Cumulative Translation $ (280) $ (280) $ (280) $ (280)
Adjustment
------------------ ------------------ ------------------ ------------------
Total long-term debt and
shareholders' equity $ 17,082 $ 33,842 $ 78,237 $ 78,237
================== ================== ================== ==================
<FN>
(1) Amounts in accordance with the pro forma consolidated financial
information which assumes the issuance of 14,712,893 Dakota Common
Shares in exchange for 100% of the issued and outstanding Common Stock
of USMX.
(2) Consists of long-term debt due to Rothschild (see Note 8 of Notes to
USMX consolidated financial statements) and amounts due to Gerald
Metals Inc. (see Note 6 of Notes to Dakota consolidated financial
statements).
(3) Reflects the issuance of 25,000 Special Warrants by Dakota. Refer to
Dakota Management's Discussion and Analysis of Financial Condition and
Results of Operations. Of the total proceeds, $1,500,000 will be used
to repay a portion of the long-term debt due Rothschild.
(4) Assuming that no Series B Special Warrants are retracted and that all
conditions imposed on Dakota under the Agency Agreement are met such
that no penalty in respect to the number of Common Shares issuable
upon conversion of each Debenture issued on the exercise of the
Special Warrants is imposed, all Special Warrants are exercised for
25,000 Debentures and all Debentures are converted into 12,500,000
Common Shares.
(5) Does not include 2,250,150 Common Shares issuable upon the exercise of
options and warrants previously issued by Dakota or 1,097,652 Common
<PAGE>
Shares issuable by Dakota in accordance with terms of the Merger
Agreement upon the exercise of options previously issued by USMX.
(6) The accumulated deficit as of December 31, 1996 is applied to
calculate the pro forma shareholders' equity as of February 28, 1997.
</FN>
</TABLE>
Description of Dakota Share Capital and Debentures
The authorized share capital of Dakota consists of an unlimited number
of Common Shares without nominal or par value and 20,000,000 Preference Shares
without nominal or par value.
Common Shares. The holders of the Common Shares are entitled to receive
notice of, attend and vote at all meetings of the Dakota Shareholders. The
Common Shares carry one vote per share. The holders of the Common Shares are
entitled to receive dividends if, as and when declared by the Board of Directors
of Dakota. The Common Shares have no pre-emptive or conversion rights.
Preference Shares. The directors of Dakota are authorized to issue
Preference Shares in one or more series and to fix the number of shares in, and
to determine the designation, rights, privileges, restrictions and conditions
attached to, each series of Preference Shares which may be issued. The
Preference Shares rank prior to the Common Shares with respect to payment of
dividends and with respect to the distribution of the assets of Dakota in the
event of its dissolution, liquidation or winding-up. As at the date hereof, no
Preference Shares have been issued by Dakota.
Debentures. Upon Completion of the Merger and subject to the
fulfillment of certain other conditions (see "Dakota Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources") Dakota will have outstanding Cdn. $25 million aggregate
principal amount of unsecured convertible debentures ("Debentures") due February
5, 2004. The Debentures will bear interest at the rate of 7.5% per annum payable
in arrears in equal semi-annual installments on June 30 and December 31 in each
year.
Debentures will be convertible, at the option of the holders thereof,
at any time up to and including the close of business on the last business day
immediately preceding February 5, 2004 into fully paid and nonassessable Dakota
Common Shares at a conversion price of $2.00 per Dakota Common Share, subject to
the adjustment in certain circumstances, including any subdivision or
consolidation of Dakota Common Shares.
Debentures will redeemed at the option of Dakota at any time on or
after February 4, 2001 and up to and including maturity, provided that the
weighted average price per share at which the Dakota Common Shares have traded
on the TSE during the 20 consecutive trading days ending not more than five
trading days before the date on which a notice of redemption is given exceeds
125% of the conversion price mentioned above.
Unless an event of default under the terms of the Debentures has
occurred and is continuing, Dakota may at its option, and subject to applicable
law and regulatory approvals, elect to satisfy the obligation to repay the
principal amount of the Debentures on redemption or maturity by the issue and
delivery of that number of freely tradeable Dakota Common Shares determined by
dividing the principal amount of the Debentures by 95% of the weighted average
price per share at which the Dakota Common Shares have traded on the TSE during
the 20 consecutive trading days ending not more than five trading days before
the date that the Debentures are fixed for redemption or the date of maturity,
as the case may be, provided that, in the event that such weighted average price
on maturity of the Debentures is less than Cdn. $2.00, Dakota, at its option,
may satisfy its obligation to pay the principal amount payable to the holders
thereof by the issue to such holders of that number of Dakota Common Shares
equal to the lesser of (a) the number determined by dividing such principal
amount by 95% of such weighted average price of the Dakota Common Shares on
maturity and (b) the number determined by dividing the principal amount by the
closing market price of the Dakota Common Shares on the TSE on the maturity
date.
The indebtedness evidenced by the Debentures is a direct unsecured
obligation of Dakota and is subordinated and subject in right of payment to the
prior payment of all senior liabilities including, without limitation, trade
debts of Dakota, whether outstanding at the date of issue of the Debentures or
<PAGE>
thereafter created, incurred, assumed or guaranteed.
Trading History
The Common Shares of Dakota are listed for trading on the TSE and AMEX
under the trading symbol "DKT" and on the BSE under the trading symbol "DMC."
The following table sets forth for the period indicated, the high and low sale
prices per Dakota Common Shares as reported by the TSE and AMEX. On January 2,
1997 the day preceding the date of the public announcement of the Merger, the
closing sale price on the TSE of Dakota Common Share was Cdn. $1.96 per share
and AMEX was U.S. $1.63 per share. For current price information, Dakota
Shareholders are encouraged to consult publicly available sources.
<TABLE>
<CAPTION>
TSE AMEX
Volume Volume
High Low (000's) High Low (000's)
---- --- ------- ---- --- -------
(Cdn. $) (U.S.$)
<S> <C> <C> <C> <C> <C> <C>
1995
First quarter............ $2.35 $1.50 1,037,941 $1.88 $1.06 387,500
Second quarter........... 2.40 1.70 417,183 2.00 1.25 266,700
Third quarter............ 2.40 1.80 452,302 1.88 1.25 359,400
Fourth quarter........... 2.25 1.40 213,527 1.75 1.06 1,204,600
1996 3.65 1.40
First quarter............ 3.65 1.85 4,081,816 2.84 1.50 3,855,100
Second quarter........... 3.65 2.65 4,261,941 2.50 2.00 641,600
Third quarter............ 3.30 2.25 3,062,423 2.25 1.63 2,028,900
Fourth quarter........... 2.96 2.00 1,293,870 2.25 1.50 2,509,600
1997
January.................. 2.50 1.82 2,284,971 1.88 1.38 1,118,900
February................. 2.00 1.85 1,902,431 1.50 1.38 663,900
March (As of
March 12, 1997).......... 1.93 1.85 245,704 1.44 1.38 206,900
</TABLE>
Dividend Policy
Dakota has no fixed dividend policy. Dividend distribution will be
considered by the Board of Directors from time to time having regard to Dakota's
operating results, capital requirements and general financial condition and
requirements. No dividends have been paid by Dakota to date. For the foreseeable
future, it is anticipated that Dakota will use earnings to finance its growth
and that dividends will not be paid to shareholders.
<PAGE>
THE USMX ANNUAL MEETING
Time, Date and Place of USMX Meeting
The USMX Meeting will be held at 10:00 a.m., local time, on May 20, 1997,
in Lakewood, Colorado.
Record Date
The USMX Board of Directors has fixed the close of business on April 16,
1997 as the USMX Record Date for the determination of the holders of shares of
USMX Common Stock entitled to receive notice of and to vote at the USMX Meeting
and at any adjournments or postponements thereof.
Business to be Conducted at USMX Meeting
At the USMX Meeting, the USMX Stockholders will vote on proposals to
approve the Merger Agreement and the Montana Tunnels Royalty Agreement and to
elect directors. See "The Merger."
The USMX Board of Directors has unanimously approved the Merger Agreement
and Montana Tunnels Royalty Agreement and recommends that the USMX Stockholders
vote FOR approval and adoption of the Merger Agreement and Montana Tunnels
Royalty Agreement and the transactions contemplated thereby.
Vote Required
As of the USMX Record Date there were 16,184,182 shares of USMX Common
Stock outstanding. Each share of USMX Common Stock outstanding on the USMX
Record Date is entitled to one vote upon each matter properly submitted at the
USMX Meeting. The affirmative vote of a majority of the shares represented at
the USMX Meeting is required to elect each director. The affirmative vote of a
majority of the outstanding shares of USMX Common Stock is required to approve
the matters to be considered and voted on at the USMX Meeting in connection with
the Merger Agreement and Montana Tunnels Royalty Agreement. The terms of the
Merger Agreement do not require the affirmative vote of a majority of the issued
and outstanding shares of USMX Common Stock held by persons unaffiliated with
USMX for the approval and adoption of the Merger Agreement and the transactions
contemplated thereby.
The presence in person or by proxy at the USMX Meeting of one-third of the
outstanding shares of USMX Common Stock is necessary to constitute a quorum for
the transaction of business. Abstentions will be counted as present for the
purposes of determining whether a quorum is present. All abstentions and broker
non-votes with respect to the proposal to approve and adopt the Merger Agreement
and Montana Tunnels Royalty Agreement and the transactions contemplated thereby
will have the same effect as negative votes.
Voting Commitments, Agreements or Understandings
As of the USMX Record Date directors and executive officers of USMX and
their affiliates owned beneficially approximately 35.1% of the shares of USMX
Common Stock entitled to vote at the USMX Meeting. Except as set forth in the
following sentence, there are no agreements commitments or understandings
between USMX and its directors, officers and shareholders with respect to voting
at the USMX Meeting. However, the directors and executive officers of USMX have
indicated their intention to vote their shares of USMX Common Stock in favor of
the proposal to approve the Merger Agreement and Montana Tunnels Royalty
Agreement and Pegasus Gold, the owner of approximately 29.2% of the outstanding
shares of USMX Common Stock, is a party to the Montana Tunnels Royalty Agreement
and has entered into an agreement with Dakota and USMX pursuant to which Pegasus
Gold has agreed to vote in favor of the proposal to approve the Merger. See
"Terms of the Merger-Other Agreements."
<PAGE>
Voting and Revocation of Proxies
Shares of USMX Common Stock represented by a proxy properly signed and
received at or prior to the USMX Meeting, unless subsequently revoked, will be
voted in accordance with the instruction thereon. If a proxy is signed and
returned without indicating any voting instructions, shares of USMX Common Stock
represented by the proxy will be voted FOR the proposal to adopt and approve the
Merger Agreement. Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before the proxy is voted by filing a duly
executed revocation or of a duly executed proxy bearing a later date with the
Secretary of USMX prior to or at the USMX Meeting, or by voting in person at the
USMX Meeting. All written notices of revocation and other communications with
respect to revocation of USMX proxies should be addressed as follows: Secretary,
USMX, Inc., 141 Union Boulevard, Suite 100, Lakewood, Colorado 80228. Attendance
at the USMX Meeting will not in and of itself constitute revocation of a proxy.
The USMX Board of Directors is not currently aware of any business to be
acted upon at the USMX Meeting other than as described herein. If, however,
other matters are properly brought before the USMX Meeting, or any adjournments
or postponements thereof, the persons appointed as proxies will have discretion
to vote or act thereon according to their best judgment.
Solicitation of Proxies
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from holders of the USMX Common Shares by the management
of USMX for use at the USMX Meeting to be held at the time and place and for the
purposes set forth in the accompanying Notice of Meeting and at any adjournments
thereof. Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
USMX Common Stock is accompanied by a form of proxy for use at the USMX Meeting.
The solicitation will be by mail and possibly supplemented by telephone or other
personal contact to be made without special compensation by regular officers and
employees of USMX. No solicitation will be made by specifically engaged
employees or soliciting agents. The cost of solicitation will be borne by USMX.
USMX does not reimburse members, nominees or agents for the costs incurred in
obtaining from their principals authorization to execute forms of proxy.
Election of Directors of USMX
The Board of Directors of USMX is divided into three Groups, with the
terms of office of each Group ending in successive years. The terms of directors
of Group III (Donald P. Bellum and Gregory Pusey) expire with the USMX Meeting.
Proxies will be voted at the USMX Meeting, unless authority is withheld, FOR the
election of the Group III directors. Each of these persons is currently a
director of USMX. There is no nominating committee of the USMX Board. The
affirmative vote of a majority of the shares represented at the USMX Meeting is
required to elect each director. If the Merger is consummated, Dakota may remove
any of the current USMX directors and elect new directors of USMX.
The directors and executive officers of USMX, their respective positions
and ages, and the year in which each director was first elected are set forth in
the following table. Additional information concerning each of these individuals
follows the table:
<TABLE>
<CAPTION>
Director
Name Age Position with USMX Since
<S> <C> <C> <C>
Donald J. Bellum (1) 64 President 1992
George J. Allen(3) 68 Director 1990
Phillips S. Baker 37 Director 1995
Terry P. McNulty(2) 58 Director 1990
<PAGE>
Werner G. Nennecker (1)(3) 43 Director 1992
Gregory Pusey(1)(3) 44 Director 1979
Robert Scullion(2) 58 Director 1987
John R. Haigh 59 Vice-President-Investor Relations and Public Affairs
Dennis L. Lance 52 Vice President - Exploration
Donald E. Nilson 52 Vice President-Finance, Secretary and Chief Financial
Officer
Thomas M. Smagala 45 Treasurer
Paul B. Valenti 48 Senior Vice President
<FN>
(1) Members of the Executive Committee.
(2) Members of the Audit Committee.
(3) Members of the Compensation Committee.
</FN>
</TABLE>
Donald P. Bellum became Chairman of the Board of Directors and Chief Executive
Officer of USMX on May 1, 1996 and President on July 1, 1996. From 1991 to 1996
Mr. Bellum was an independent consultant in the mining industry. From 1987 to
1991 he was Executive Vice President of Cyprus Minerals Company and he served as
President of Cyprus Coal Company from 1980 to 1987. Prior to joining Cyprus, he
had 22 years experience with other mining companies, including Kennecott Copper
Corporation and Utah International.
George J. Allen has served as President of Allen Engineering since 1983. From
1951 to 1983, he served in various positions with Kennecott Corporation,
including Vice President and Director of Tolling.
Phillips S. Baker joined Pegasus Gold in January 1994 as Vice President, Finance
and Chief Financial Officer. Prior to joining Pegasus, Mr. Baker worked seven
years for Battle Mountain Gold Company, most recently as Treasurer. He also
worked as an accountant for Arthur Andersen LLP. Mr. Baker is an attorney,
Certified Public Accountant and Certified Cash Manager.
Terry P. McNulty has served as President of T.P. McNulty & Associates, a
consulting firm, since 1988. From 1983 to 1988, he was President of Hazen
Research, Inc.
Werner G. Nennecker joined Pegasus Gold Inc. in September 1992 as Senior Vice
President and Chief Operating Officer. In November 1992, Mr. Nennecker assumed
the position of President and Chief Executive Officer of Pegasus. Prior to
joining Pegasus, Mr. Nennecker worked 15 years in the mining industry with
Ranchers Exploration and Santa Fe Pacific Gold Corporation. Most recently, he
held the positions of Executive Vice- President of Santa Fe Pacific Minerals
Corporation and President of Santa Fe Pacific Gold Corporation. He has extensive
experience in all aspects of the mining business. Mr. Nennecker is also a
director of Pegasus Gold Inc., Zapopan NL, the Gold Institute, and the National
Mining Hall of Fame.
Gregory Pusey served as USMX's Chief Financial Officer from May 1989 until
January 1990 and he also has served as the Secretary and Treasurer of USMX.
Since 1983, Mr. Pusey has been engaged in private investment activities. He has
served as President of Livingston Capital, Ltd. and President of the General
Partner of Graystone Capital, Ltd, a venture capital firm. He is also President
and a Director of Cambridge Holdings, Ltd. and a Director of Nutrition For Life
International, Inc. Mr. Pusey was a founder of USMX.
Robert Scullion has been a partner in Scullion, Strasheim & Company, a firm of
Certified Public Accountants, since 1975. He is a Certified Public Accountant
licensed in the United States as well as a Scottish Chartered Accountant.
John R. Haigh has served as Vice President - Investor Relations and Public
Affairs of USMX since June 1996. Mr. Haigh has 36 years experience in the mining
industry and from July 1991 until June 1996 was manager of Investor Relations of
USMX. Mr. Haigh is a degreed geologist and prior to June 1991 was the Chief
Executive Officer and Director of a public gold and diamond mining company that
he created in 1973.
<PAGE>
Dennis L. Lance has served as Vice President -- Exploration of USMX since May
1989. He also served as Secretary of USMX from January 1990 to December 1990. He
has served as a geologist with USMX since June 1986. Prior thereto, he was an
independent consulting geologist. Donald E. Nilson has served as Vice President
- -- Finance and Secretary of USMX since his employment in October 1990. Mr.
Nilson has been a Certified Public Accountant since 1968 and holds a graduate
degree in Computer Information Systems.
Thomas M. Smagala joined USMX in April, 1989 as Business Development Manager and
was elected to Treasurer of USMX in July, 1993. Prior thereto, he was an
independent consulting geological engineer.
Paul B. Valenti joined USMX in May 1987 and was elected Vice President in August
1988. From November 1983 to May 1987, he served as the Metallurgy Manager for
Silver King Mines.
The USMX Board held eleven meetings in person or by consent during the
year ended December 31, 1996. All incumbent directors attended at least 75% of
the meetings of the Board during 1996.
The USMX Board had three standing committees in 1996: The Executive
Committee, Audit Committee and Compensation Committee. The Executive Committee
is permitted to exercise all the powers of the USMX Board except as may be
restricted by the USMX Board or by the DGCL. The Executive Committee held three
meetings in person or by consent in 1996.
The Audit Committee reviews the scope and results of audits by USMX's
independent auditors, internal accounting controls, non-audit services performed
by the independent accountants and the cost of accounting services. The Audit
Committee held two meetings in 1996.
The Compensation Committee reviews matters related to compensation
programs, including stock option grants, with particular emphasis on executive
compensation. The Compensation Committee held three meetings in 1996.
Executive Compensation
Following is information regarding compensation paid during each of the
last three completed fiscal years to the executive officers of USMX whose salary
and bonus exceeded $100,000 during 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Long Term
Compensation All Other
Name and Principal Position Awards Compensation
Year Salary ($) Bonus ($) (Options #) ($)
<S> <C> <C> <C> <C> <C>
Donald P. Bellum, President $1,512 (1)
and CEO(3) 1996 $134,400 - 150,000 $2,200 (2)
1995 - - - $8,850 (2)
1994 - - - $6,506 (2)
James A. Knox
President and CEO(4) 1996 $148,289 - 25,000 $4,663 (1)
1995 $156,050 $10,000 50,000 $4,620 (1)
1994 $151,500 $20,000 30,000 $4,022 (1)
Dennis L. Lance,
V.P. -- Exploration 1996 $109,200 - 35,000 $2,867 (1)
1995 $107,100 - 25,000 $3,213 (1)
1994 $ 93,816 $8,000 15,000 $2,814 (1)
<PAGE>
Donald E. Nilson
V.P. -- Finance 1996 $107,200 - 35,000 $2,874 (1)
1995 $105,100 - 25,000 $3,153 (1)
1994 $ 95,530 $8,000 15,000 $2,790 (1)
Paul B. Valenti,
V.P. -- Operations 1996 $114,198 - 40,000 $3,426 (1)
1995 $108,150 - 25,000 $3,244 (1)
1994 $ 98,650 $8,000 15,000 $2,959 (1)
<FN>
1. The amounts shown represent USMX's matching contribution for the
stated individuals to its 401(K) plan.
2. Director's fees.
3. Mr. Bellum became Chairman of the Board of Directors and Chief
Executive Officer of USMX on May 1, 1996. On July 1, 1996, Mr. Bellum
also assumed the duties of President of USMX.
4. Mr. Knox served as Chairman of the Board of Directors and Chief
Executive Officer of USMX until May 1, 1996, and as President until
July 1, 1996.
</FN>
</TABLE>
The following table sets forth information with respect to stock
options granted during 1996 to each USMX executive named in the Summary
Compensation Table. The assumed annual rates of stock price appreciation of 5%
and 10% are set by a rule of the SEC, and are not intended as a forecast of
possible future appreciation and stock prices. The potential value of options
granted depends on an increase in the market price of USMX's common stock. If
the stock price does not increase, the options will be worthless. If the stock
price does increase, this increase would benefit both option holders and
stockholders commensurately.
<TABLE>
<CAPTION>
Option Grants in 1996.
Potential Realizable Value
% of Total at Assumed Annual Rates of
Options Stock Price Appreciation
Granted for Option Term
Options to Employees Exercise Expiration
Name Granted (#) in Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- -------------- ------------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Donald P. Bellum 150,000 18.5 % $2.55 4/18/2006 $240,552 $609,606
James A. Knox 25,000 3.1 % $2.63 6/18/2006 $41,350 $104,789
Dennis L. Lance 35,000 4.3 % $2.63 6/18/2006 $57,890 $146,704
Donald E. Nilson 35,000 4.3 % $2.63 6/18/2006 $57,890 $146,704
Paul B. Valenti 40,000 4.9 % $2.63 6/18/2006 $66,160 $167,662
All Stockholders (1) $23,833,000 $60,396,000
Executive officers' 1.95% 1.95%
gain as a % of all
Stockholders' gain
<FN>
(1) The amounts shown for All Stockholders represent the potential
realizable value assuming appreciation at the rates indicated based on
the exercise price per share and the expiration date applicable to
grants made in 1996 and the number of outstanding shares on the date of
grant.
</FN>
</TABLE>
<PAGE>
The following table sets forth, in the aggregate, the number of shares
underlying options exercised during 1996 by each executive named in the Summary
Compensation Table, and states the value at year-end of exercisable and
unexercisable options remaining outstanding.
Aggregated Option Exercises and Fiscal Year-End Option Values
Value of Unexercised In-
Number of Unexercised the-Money Options at
Options at FY-End (#) FY-End ($)
Exercisable/ Exercisable/
Unexercisable Unexercisable
Name
Donald P. Bellum 75,000 / -
100,000 -
James A. Knox 190,000 / -
50,000 -
Dennis L. Lance 68,334 / -
51,666 -
Donald E. Nilson 38,334 / -
51,666 -
Paul B. Valenti 58,334 / -
56,666 -
Compensation of Directors. All directors who are not employed either by
USMX or by Pegasus Gold are paid a fee of $350 for each meeting of the Board
attended. In addition, each director who is not a full-time employee of USMX
receives a fee of $500 per month. These directors also receive additional
compensation plus reasonable expenses for any additional services performed.
Robert Scullion is paid an additional $4,000 per year as chairman of the Audit
Committee. During 1996, certain directors were paid a total of $6,973 for
consulting fees and out of pocket expenses pertaining to various USMX projects.
Employment and Change-in-Control Arrangements. USMX has no employment
agreements with any of its officers or directors. USMX has entered into change
in control agreements with Donald P. Bellum, John R. Haigh, Dennis L. Lance,
Donald E. Nilson, Thomas M. Smagala and Paul B. Valenti. Each agreement (other
than the agreement with Mr. Bellum) provides that if the officer's employment is
terminated without "cause" after a change in control, he will be entitled to
receive the balance, if any, due as salary for the month in which termination
occurs, plus salary for that number of months which is the greater of: (i) six,
or (ii) the number of complete years of employment by the officer with USMX. The
officers are also entitled to a continuation of medical insurance coverage with
the premium paid by USMX for six months after termination. Mr. Bellum's
agreement provides that he will receive the equivalent of twelve month's salary.
Cause is defined in the agreements as wilful misconduct, fraudulent conduct,
felonious behavior or acting in a manner which is materially injurious to USMX,
monetarily or otherwise. The proposed merger with Dakota would be deemed a
change in control under these agreements.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions. George J. Allen, Donald P. Bellum and Gregory Pusey served as members
of the Compensation Committee during 1996. Mr. Pusey is a former officer of
USMX. In April 1996, Mr. Bellum resigned as a member of the Compensation
Committee and Werner G. Nennecker was elected to serve as a member of the
Compensation Committee. Effective May 1, 1996, Mr. Bellum became Chairman of the
<PAGE>
Board of Directors and Chief Executive Officer of USMX.
Board Compensation Committee's Report on Executive Compensation. The
compensation policies of the Compensation Committee applicable to USMX's
executive officers are based on the continuing need to attract and retain a
management team capable of guiding the growth of USMX over the long term.
Compensation of executive officers paid during 1996 is based on the
qualifications and experience of the individuals officers, competitive market
conditions for executive talent, and the contributions of the individuals to the
long term growth and stability of USMX and to maximizing the long term value of
stockholders' investment in USMX. Factors considered by the Compensation
Committee to be important in the long term growth and stability of USMX and to
maximizing the long term value of the stockholders' investment including
increasing the quantity and quality of USMX's portfolio of exploration
properties, development of these properties into producing mines where
justified, acquisition and improvement of producing properties, increasing the
amount and timeliness of internal and external financial reporting and building
and maintaining a complement of well trained and highly motivated employees. The
Compensation Committee also compared salaries and bonuses with those paid by
other gold mining companies.
USMX's Compensation Committee did not make its determinations based
specifically upon objective measures of corporate performance in 1996 such as
revenue or net income, nor did that Committee set any targets of performance
using such objective measures. The Committee believes that, for a growing
exploration and mining company, primary emphasis should be placed on the
exploration and development of mining properties with superior potential that
will ultimately result in the achievement of improved financial results, through
mineral production or property sale. The Committee considered the performance of
USMX's CEO and other executive officers during 1996 as well as other factors
discussed above in making its compensation decisions.
George J. Allen
Donald P. Bellum
Werner G. Nennecker
Gregory Pusey
Shareholder Return Performance Graph.
[GRAPH TO BE PLACED HERE]
<TABLE>
<CAPTION>
Base Year
1991 Dec 1992 Dec 1993 Dec 1994 Dec 1995 Dec 1996
<S> <C> <C> <C> <C> <C> <C>
USMX $100 $195.42 $305.34 $190.84 $150.29 $121.66
Nasdaq $100 $116.38 $133.59 $130.59 $184.67 $227.16
S & P Gold and Precious
Metals Mining Index $100 $93.37 $171.05 $138.20 $155.55 $154.39
</TABLE>
The above graph assumes an initial investment of $100 as of the close
of trading December 31, 1991. Each of the data points gives the dollar value of
the investment from December 31, 1991, forward assuming dividends, where paid,
are reinvested monthly plus any price change in the investment.
<PAGE>
USMX SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Information regarding USMX Common Stock owned by each director, by each
executive officer named in the Summary Compensation Table, by all executive
officers and directors as a group, and by each person known by USMX to be the
beneficial owner of more than 5% of USMX Common Stock is set forth in the
following table:
Shares of $0.001 Par Value
Common Stock
Name Beneficially Owned Percent of Class
George J. Allen 37,000(1) *
Phillips S. Baker 4,846,000(2)(3) 29.2%
Donald P. Bellum 75,000(1)(4) *
James A. Knox 127,232 *
Dennis L. Lance 157,068(5) *
Terry P. McNulty 38,000(1) *
Werner G. Nennecker 4,856,000(6)(3) 29.3%
Donald E. Nilson 60,584(7) *
Gregory Pusey 297,274(2) 1.8%
Robert Scullion 26,750(8) *
Paul B. Valenti 114,783(9) *
All directors and executive
officers as a group (13 persons) 5,951,358(3)(10) 35.1%
Pegasus Gold, Inc.
601 West First Avenue
Suite 1500
Spokane, WA 99204 4,826,000 29.1%
North Pacific Mining Corporation
2525 C Street
Anchorage, AK 99503 1,540,663 9.3%
Van Eck Associates
Corporation
122 East 42nd Street
New York, New York 10168 1,040,000(11) 6.3%
(1) Includes 25,000 shares underlying currently exercisable options
granted pursuant to USMX's Non-Discretionary Stock Option Plan For
Non-Employee Directors.
(2) Includes 20,000 shares underlying currently exercisable options
granted pursuant to USMX's Non-Discretionary Stock Option Plan For
Non-Employee Directors.
(3) Messrs. Nennecker, Baker, and Geyer are officers and Mr. Nennecker is
a director of Pegasus Gold. As such, they can be considered to be
beneficial owners of the 4,826,000 shares held of record by Pegasus
Gold. Accordingly, the figures opposite their names reflect the
4,826,000 shares owned by Pegasus Gold.
(4) Includes 50,000 shares underlying currently exercisable options
granted pursuant to USMX's 1987 Stock Option Plan.
(5) Includes 68,334 shares underlying currently exercisable options
granted pursuant to USMX's 1987 Stock Option Plan.
(6) Includes 30,000 shares underlying currently exercisable options
granted pursuant to USMX's Non-Discretionary Stock Option Plan For
Non-Employee Directors.
(7) Includes 38,334 shares underlying currently exercisable options
granted pursuant to USMX's 1987 Stock Option Plan.
(8) Consists of 26,750 shares underlying currently exercisable options
granted pursuant to USMX's Non-Discretionary Stock Option Plan For
Non-Employee Directors.
(9) Includes 58,334 shares underlying currently exercisable options
granted pursuant to USMX's 1987 Stock Option Plan.
(10) Includes currently exercisable options to purchase 386,752 shares.
(11) Van Eck Associates Corporation has advised USMX that it is a
registered investment adviser, and that such shares are held for funds
or trusts managed by it, including 715,000 shares (4.3%) held for
Gold/Resources Fund and 275,000 shares (1.7%) held for International
Investors Incorporated and 50,000 shares (0.3%) for a private
investor. Gold/Resources Fund and International Investors Incorporated
are open end, diversified investment management companies which
concentrate investments in gold mining shares. The shares of both of
such companies are publicly held and Van Eck Associates Corporation
has advised USMX that to its knowledge no natural person owns
<PAGE>
beneficially more than 5% of the outstanding shares of either such
company. John C. Van Eck, whose business address is the same as that
of Van Eck Associates Corporation, has voting control of Van Eck
Associates Corporation.
* Represents less than 1%.
USMX SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires USMX officers and directors,
and persons who own more than 10% of a registered class of USMX's equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish USMX with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, USMX believes that,
during the fiscal year ended December 31, 1996 all filing requirements
applicable to its officers, directors, and greater than 10% beneficial owners
were complied with.
USMX CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
USMX presently owns a net profits interest in the Montana Tunnels
Property which has been operated by Pegasus Gold Inc. since 1987. Pegasus Gold
is USMX's largest stockholder. USMX is entitled to the greater of a five percent
net profits royalty interest or minimum advance royalties of $60,000 per month
until certain construction, land acquisition and associated Financing and other
costs have been recovered by Pegasus Gold ("Payback"), and a 50 percent net
profits royalty interest thereafter. See "Business and Properties of USMX."
Payback has not been achieved.
In order to obtain additional funding for its operations and to
partially fund the cost overruns experienced at the Illinois Creek Project, USMX
borrowed $2.5 million from Pegasus Gold in May 1996. The obligation is secured
by USMX's royalty interest in the Montana Tunnels Property. In June 1996 USMX
and Pegasus Gold agreed to the sale of USMX's interest in the Montana Tunnels
Property to Pegasus Gold for $4.5 million. The transaction is subject to the
approval of USMX's Stockholders. Pending completion of the transaction, Pegasus
Gold provided USMX an additional $2 million which was deemed an amendment to the
terms of the outstanding $2.5 million loan. Upon the closing of the transaction,
USMX will transfer to Pegasus Gold its interest in the Montana Tunnels Property,
and will be relieved of its obligation to repay these loans.
As of December 31, 1996, USMX had provided collateral in the form of
Certificates of Deposit totaling approximately $283,000 to secure repayment of
bank loans to four employees of USMX including three officers (John R. Haigh -
$78,856, Paul B. Valenti - $114,398 and Donald E. Nilson - $52,776). The
employees have pledged a total of 134,349 shares of USMX Common Stock to USMX to
secure repayment of these obligations.
In March 1995, USMX acquired all of the outstanding capital stock of
Mega Minerals S.A., an Ecuadorian company. USMX assumed obligations of
approximately $120,000, and agreed to pay the seller a 10% net proceeds royalty
on any production from the concessions after recovery of all capital
expenditures. Gregory Pusey, a director and principal shareholder of the seller,
is also a director of USMX. The assets of Mega Minerals S.A. consist of eight
exploration concessions and the rights to acquire four additional exploration
concessions, all located in the Nambija-Zamora gold belt of southern Ecuador.
APPROVAL OF MONTANA TUNNELS ROYALTY AGREEMENT
The Montana Tunnels property is located in the Colorado Mining
District, Jefferson County, Montana, 22 miles south of Helena. Montana Tunnels
consists of approximately 9,300 acres of patented ground plus about 1,000 acres
of other mineral rights. This property was developed and is operated by Pegasus
Gold pursuant to an agreement with USMX. Mine and mill construction commenced in
March 1986, milling operations began in March 1987, and full operating status
was achieved by Pegasus Gold in October 1987.
<PAGE>
The Montana Tunnels Mine involves open pit mining operations and
conventional milling technology. The Montana Tunnels ore is processed through a
circuit which incorporates crushing, grinding, and selective flotation to
produce lead and zinc concentrates, and a gravity circuit for recovery of free
gold. The majority of gold and silver value is associated with the base metal
concentrates. As of December 31, 1996, Pegasus Gold estimated that the Montana
Tunnels Mine has proven and probable ore reserves of approximately 17,095,000
tons.
Pending completion of the sales transaction described below, USMX owns
a net profits interest in the Montana Tunnels Mine. USMX is entitled to the
greater of a five percent net profits royalty interest or minimum advance
royalties of $60,000 per month until certain construction, land acquisition and
associated financing and other costs have been recovered by Pegasus Gold
("Payback"), and a 50 percent net profits royalty interest thereafter. Payback
is defined in the agreement with Pegasus Gold to occur when 90 percent of net
profits equals the sum of $250,000, plus the project costs incurred subsequent
to January 1, 1986, plus interest costs imputed on these costs until September
30, 1987, the date of full operation status. Net profits, as defined, include
deduction from revenues of such costs as direct operating and administration
expenses, allowable new capital expenditures, property payments, management
fees, interest on debt and equity financing, repayment of gold loans, repayment
of certain debt obligations, and taxes other than income taxes. Based on
information provided by Pegasus Gold, USMX estimates that, as of December 31,
1995, the remaining net profit recoverable costs were $26,539,000. Accordingly,
Payback has not been achieved, and it is unclear whether Payback will ever be
achieved. Since inception of the contract USMX has only received the minimum
advance royalties.
In order to obtain additional funding for its operations and to
partially fund the cost overruns experienced at the Illinois Creek Project, USMX
borrowed $2.5 million from Pegasus Gold in May 1996. The obligation is secured
by USMX's royalty interest in the Montana Tunnels Property. In June 1996 USMX
and Pegasus Gold agreed to the sale of USMX's interest in the Montana Tunnels
Property to Pegasus Gold for $4.5 million, subject to the approval of USMX's
Stockholders. Pending completion of the transaction, Pegasus Gold provided USMX
an additional $2 million which was deemed an amendment to the terms of the
outstanding $2,500,000 loan (the "Loan"). The $60,000 per month minimum advance
royalty has been applied for payment of the principal and accrued interest on
the Loan.
In March 1997, Pegasus Gold and USMX entered into a Formal Purchase and
Sale Agreement (the "Montana Tunnels Royalty Agreement"). A closing is to be
held within five days after USMX Stockholder approval. At closing of the
transaction, Pegasus Gold will cancel and forgive all unpaid principal and
interest on the Loan, and the security interests granted by USMX to Pegasus Gold
and the net profits royalty interest will be deemed to be terminated. At the
closing, USMX will deliver all of its right, title and interest in and to the
royalty interest and Pegasus Gold will deliver an acknowledgment of repayment of
the Loan. The Montana Tunnels Royalty Agreement is attached as Appendix F to
this joint Proxy Statement / Prospectus.
In determining to sell the net profits royalty interest, the USMX Board
of Directors evaluated the history of payment of the minimum advance royalties,
terms of current and future smelter contracts, estimated variables in metal
prices, site visits conducted by employees of USMX and USMX's outside consultant
and interviews with key staff members of the Montana Tunnels Mine and employees
of Pegasus Gold. Based on the scheduled production termination at the Montana
Tunnels Mine in the year 2000, it was determined that the net present value of
the minimum advance royalties was $2.7 million. The USMX Board concluded that
the purchase price was reasonable in view of its determination that it was
unlikely that USMX would receive royalty payments substantially greater than the
purchase price.
THE USMX BOARD UNANIMOUSLY RECOMMENDS THAT USMX STOCKHOLDERS VOTE TO
APPROVE AND ADOPT THE MONTANA TUNNELS ROYALTY AGREEMENT.
<PAGE>
USMX SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial information for the
periods described below has been derived from the USMX consolidated financial
statements which are prepared in accordance with U.S. GAAP. The following
summary financial information should be read in conjunction with the USMX
consolidated financial statements and related notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
Summary Consolidated Financial Information
(dollars in thousands, except per share amounts and operating data)
Years Ended December 31,
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue (gold sales plus net other
income)............................... $2,323 $3,922 $14,866 $24,252(1) $18,043
Gross profit (loss)................... -- (605) 1,641 880 1,658
Prospecting costs..................... 643 684 739 667 651
Abandonment and impairment of
mineral properties.................... 1,416 4,431 261 938 21
Income (loss from continuing
operations............................ (3,302) (6,906) 204 2,602 37
Net income (loss)..................... (3,302) (6,906) 204 2,602 37
Net income (loss per share............ $(0.22) $(0.47) $0.01 $0.17 $0.00(2)
Operating Data:
Ounces of gold sold................... -- 7,000 35,575 50,429 47,356
Average realized price per ounce -- $383 $383 $360 $360
Average market price per ounce $388 $384 $384 $360 $344
Ounces of gold produced:
Alligator Ridge are(3).............. -- -- -- 23,454 41,120
Green Springs -- -- -- -- 2,353
Goldstrike(4)....................... -- 6,266 34,486 31,934 4,496
-------------- --------- -------- -------- -------
Total............................ -- 6,266 34,486 55,388 47,969
-------------- --------- ======== ====== ======
Cash costs per ounce:
Alligator Ridge area (3)............ -- -- -- $268 $285
Green Springs -- -- -- -- 198
Goldstrike(4)....................... -- $233 $229 305 270
-------------- --------- -------- ---------- --------
Combined......................... -- $233 $229 $289 $280
-------------- --------- ======== ========= =======
<PAGE>
Total cost per ounce:
Alligator Ridge area (3)............ -- -- $328 $328 $336
Green Springs -- -- -- -- 162
Goldstrike(4)....................... $233 $233 326 326 282
---------- ---------- --------- --------- --------
Combined......................... $233 $233 $327 $327 $331
========== ========== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Financial Condition Data:
Working capital....................... ($27,132) $5,094 $14,105 $19,362 $12,903
Current assets........................ $2,261 $5,834 $14,923 $21,573 $16,427
Total assets.......................... $50,155 $17,469 $24,190 $28,808 $28,741
Current liabilities................... $29,393 $740 $818 $2,211 $3,524
Long term liabilities................. $ 4,221 $885 $361 $1,074 $3,290
Stockholders' equity.................. $16,541 $15,844 $23,011 $25,523 $21,927
<FN>
(1) Includes gain from the sale of USMX's Alligator Ridge assets totaling
$5,000.
(2) Less than $0.01
(3) Sold August 27, 1993
(4) The Goldstrike Mine was acquired effective November 1,1992.
</FN>
</TABLE>
<PAGE>
USMX MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Going Concern Uncertainty
USMX has suffered recurring losses and cash flow deficits from
operations and currently has no mines in operation. At December 31, 1996, USMX
has an accumulated deficit of approximately $3,056,000, a working capital
deficiency of approximately $27,132,000 and is not in compliance with certain
covenants of its long term debt agreements. In addition, significant additional
funds will be required to bring USMX's Illinois Creek Mine into production.
USMX's auditors have included an explanatory paragraph in their opinion that
states that these matters raise substantial doubt about USMX's ability to
continue as a going concern and that the financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
USMX has entered into a Merger Agreement with Dakota. The Merger is
subject to approval by the TSE, stockholder and creditor approval, review by
other regulatory authorities, and other customary conditions. In connection with
the Merger, Dakota has loaned to USMX $5 million to be used to pay for work
completed and ongoing work at the Illinois Creek Mine prior to the Merger. In
connection with the Merger, USMX's principal lender, agreed with Dakota not to
accelerate the due date of any loans to USMX or to exercise any rights it may
have to collateral security (except for payment or bankruptcy defaults) until
the earlier of the consummation of the Merger, the termination of the Merger
Agreement in accordance with its terms, or June 30, 1997.
Should USMX be unable to complete the Merger with Dakota, the ability
of USMX to continue as a going concern is dependent on the continued forbearance
of Rothschild, obtaining sufficient additional financing to complete the
Illinois Creek Mine, and the commencement of profitable operations at the mine.
Future profitability of the mine is dependant on USMX's ability to produce gold
from the mine in quantities and at costs consistent with those projected by
USMX.
Liquidity and Capital Resources
Working capital at December 31, 1996, was negative $12.5 million. Cash
and cash equivalents amounted to $238,000. Cash and cash equivalents decreased
during 1996 by $5 million primarily as a result of investment in property, plant
and equipment of approximately $25.7 million, including deferred exploration
costs of $0.5 million and development costs of $25.2 million ($23.9 million at
Illinois Creek, Alaska and $1.2 million at Thunder Mountain, Idaho), investment
in reclamation surety and restricted cash accounts of $2.5 million and cash used
in operations of $3.9 million. These costs were partially offset by $1.3 million
in proceeds from the sale of USMX's holdings in Alta Gold Co. common stock.
In addition, USMX obtained $4.5 million in loans from Pegasus Gold
secured by USMX's interest in the Montana Tunnels property and a $22.0 million
financing facility from Rothschild for the construction of the Illinois Creek
Mine and related facilities, including working capital. At December 31, 1996,
USMX had drawn approximately $21.4 million against the facility. See "Business
and Properties of USMX" for a detailed discussion of this financing.
USMX completed its feasibility study of the Illinois Creek Project in
February 1996. After approval of the project by USMX's Board of Directors,
clearing and grubbing activities began in March 1996. Upon receipt of a
commitment for the $22 million financing facility from Rothschild, and required
permits and regulatory approvals in May, construction of the mine and related
facilities was begun.
The original Illinois Creek development budget was $22.6 million, including
$4.7 million in estimated working capital. In the process of obtaining bids from
construction contractors, USMX determined that the forecast needed to be
increased by approximately $2.8 million to $25.4 million. As a result of weather
induced delays and other problems arising from the complexities of developing a
mine using only air transport USMX had incurred costs at December 31, 1996, of
approximately $30.7 million related to the development of the property,
including approximately $2.8
<PAGE>
million of working capital. At December 31, 1996, USMX had unpaid obligations to
suppliers and contractors of approximately $5.7 million for work completed in
1996. It is estimated that an additional $8.8 million, including $4.9 million of
working capital, will be required to bring the mine to production. Subject to
receipt of additional financing as described below, gold production at Illinois
Creek is scheduled for Summer, 1997.
One of the construction contractors on the Illinois Creek Property in
Alaska working under an approximately $3 million contract with USMX has
submitted invoices and claims totaling approximately $7 million for work
completed in 1996. At December 31, 1996, USMX had paid the contractor $1,772,000
and has recorded an additional liability to the contractor, based on USMX's
estimate of its obligation under the contract of $2,414,000. The unpaid invoices
and claims are currently being reviewed, and it is likely that a significant
portion of the invoices and claims will be disputed by USMX. The contractor has
threatened legal proceedings if the dispute is not informally resolved. USMX and
its representatives are currently reviewing the relevant facts and until that
review is complete USMX cannot estimate the magnitude of any potential
liability, possible counterclaims by USMX or the outcome of arbitration or
litigation if the dispute cannot be resolved by negotiation. On November 8,
1996, the construction contractor also filed a lien on the Illinois Creek
Property for certain unpaid invoices and claims submitted through that date.
In addition to construction and working capital requirements at
Illinois Creek, USMX is required by the terms of the credit agreements with
Rothschild to maintain minimum balances in a Proceeds Account for use only in
connection with the Project and to maintain certain financial ratios related to
the Project and to USMX. Per the terms of the Rothschild Credit Agreements, USMX
agreed to deposit $1.5 million in the Proceeds Account by September 30, 1996.
USMX was unable to comply with this requirement and Rothschild agreed to waive
this and certain financial ratio requirements until December 31, 1996,
conditional upon USMX's agreements to, among other things, (A) file a prospectus
with the appropriate Canadian securities regulatory authorities by November 1,
1996, and complete an offering by December 31, 1996, (B) adjust the price at
which Rothschild may elect to convert the $2.5 million loan into USMX Common
Stock to the price at which the shares are sold in an offering, or if no sale,
at the average trading price for the last ten trading days of 1996 and (C) to
pay the Lender a fee of US$100,000 which fee is payable upon the first to occur
of (i) a date upon which such payment can be made without materially reducing
the working capital reasonably required by USMX for continued operations or (ii)
April 15, 1997. At December 31, 1996, USMX had not completed the offering and
was unable to comply with the requirement that it deposit $1.5 million in the
Proceeds Account. As a result of the covenant violations, at December 31, 1996,
the loans from Rothschild have been classified as a current liability. USMX has
determined not to proceed with the offering.
On January 3, 1997, USMX entered into an agreement in principle to
merge with Dakota. On February 5, 1997, USMX signed the Merger Agreement with
Dakota whereby USMX Stockholders will receive one Dakota Common Share for every
1.1 shares of USMX Common Stock and USMX will become a wholly-owned subsidiary
of Dakota.
In February 1997, Dakota offered by way of private placement 25,000
Special Warrants at a price of Cdn. $1,000 per Special Warrant resulting in
gross proceeds of Cdn. $25 million. Each Special Warrant entitles the holder to
receive one 7.5% unsecured subordinated convertible debenture in the amount of
Cdn. $1,000. Of the proceeds, U.S. $5 million have been released and the
remaining proceeds have been deposited in escrow pending completion of the
Merger and approval by the Dakota Shareholders of the issuance of the Common
Shares underlying the Debentures. This offering was a condition of USMX's
obligation to proceed with the Merger. A substantial portion of the proceeds
will be used to pay suppliers and contractors for work completed at the Illinois
Creek Mine and to complete construction and provide working capital at the
Illinois Creek Mine.
The line of credit is evidenced by two promissory notes with similar terms
but different amounts and different security. The $2 million promissory note
("Note 1") is secured by a second priority position in all of the capital stock
of USMX of Alaska, Inc. owned by USMX. USMX of Alaska, Inc. holds title to the
Illinois Creek Mine. The second promissory note for $3 million ("Note 2") is
secured by a first position on all of the capital stock of MXUS S.A. de C.V.,
USMX's Mexican Subsidiary, and a first position on USMX's interest in the
Thunder Mountain property in Idaho. USMX and Dakota agreed to grant Rothschild a
second priority security position in the security for Note 2. Funding for the
<PAGE>
line of credit was provided from a portion of the proceeds of a Special Warrant
offering by Dakota described above.
As part of the Merger Agreement, Dakota and USMX agreed that Dakota
would provide a $5 million line of credit to USMX to provide interim working
capital to sustain USMX operations until the Merger is consummated. Reference is
made to the heading "Terms of the Merger-Other Agreements-$5,000,000 Loan
Agreement." The proceeds are to be used to pay certain ongoing operating
expenses primarily in connection with start-up activities associated with the
Illinois Creek Mine and to partially pay trade creditors.
USMX has filed a Notice of Intent to Operate with the Idaho Department
of Lands describing USMX's proposed gold and silver mining activities in the
Thunder Mountain Project. Management estimates that the project would require
substantial capital to place it into production, including working capital. If
the project is sufficiently attractive to warrant continued development and the
necessary permits are obtained, construction could begin in 1998. Production
could begin in 1998 or 1999 depending on the construction schedule. Management
believes that USMX will need to obtain additional capital to put Thunder
Mountain into production.
USMX's balance sheet at December 31, 1996 reflects a total of $0.8
million in accrued reclamation liabilities associated with its acquisition and
operation of the Goldstrike Mine. Reclamation activities in 1996 have focused
primarily on recontouring, topsoiling and planting heap number one and
completion of rinsing of heap number two. Commencement of recontouring and
topsoiling of heap number two as well as the dismantling of the process plant
and reclamation of the plant site will begin once USMX has obtained acceptance
by the State of Utah of USMX's final closure. The goal is to achieve closure by
the end of 1997. This reclamation is expected to be financed with internally
available cash balances, cash generated from the sale of gold produced as a by
product of heap rinsing and approximately $1.7 million cash previously provided
to the State of Utah as reclamation surety.
Results of Operations
USMX realized a net loss for the year ended December 31, 1996, of
$3,302,000 compared with a $6,906,000 loss for 1995 and net income of $204,000
for 1994. The loss for 1996 includes mineral property abandonments and
impairments of $1,416,000 compared to $4,431,000 for 1995 and $261,000 for 1994.
General and administrative costs increased to $3,621,000 in 1996 from $2,548,000
in 1995 and $2,185,000 in 1994, as the result of added office space and related
expenses arising from increased staffing requirements to develop the Illinois
Creek and Thunder Mountain properties. The 1996 results include a gain of
approximately $936,000 from the sale of common stock held for investment
purposes and an unrealized gain of $884,000 resulting from the roll forward of
four gold forward sales contracts and the sale of various silver call options.
The 1994 results include a $497,000 income tax credit resulting from the
difference between the estimated 1993 federal income tax provision and the
actual liability reflected on the 1993 income tax returns.
Fluctuations in USMX's results of operations from year to year arise
primarily from four factors: (1) changes in the volume of gold sold and the
selling price of gold, (2) changes in the cost of gold sold, (3) the cost of
mineral properties abandoned during any given period, and (4) asset
dispositions.
Change in the Volume of Gold Sold and Selling Price of Gold
The following table analyzes the variance in gold sales revenue for the
years ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Revenue Variance Analysis
Year Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Ounces of gold sold................................. -- 6,900 35,575
Average price realized per ounce.................... $ - $ 388 $ 383
Change in revenue attributable to:
<PAGE>
Less ounces sold.................................... $ (2,678,000) $ (10,972,000) $ (5,342,000)
Higher (lower) price................................ -- 35,000 820,000
Decrease in gold sales revenue compared to the
preceding year.................................... $ (2,678,000) $ (10,937,000) $ (4,522,000)
</TABLE>
Change in Costs Applicable to Sales
Cost of Gold Sold. No gold was sold in 1996 compared to the cost of
gold sold of $2,890,000 or approximately $419 per ounce in 1995, and $11,203,000
or approximately $315 per ounce in 1994. The fluctuation in the cost of gold
sold is a result of the change in the cost of production throughout the life of
each mine as illustrated in the table below.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Cash production costs incurred............................. -- $ 233 $ 229
Depreciation, depletion, amortization and reclamation
accruals................................................... 48
Production cost per ounce produced......................... $ - $ 233 $ 277
---- ----- -----
Gold sales revenue $ - $ 388 $ 383
==== ===== =====
Production cost per ounce sold............................. -- $ 212 $269
Change in inventories and deferred......................... -- 207 46
---- ---
Cost of gold sold.......................................... -- 419 315
Mining taxes............................................... -- 2 3
Production royalties....................................... $ - 55 19
---- --- ---
Costs applicable to sales.................................. $ - 476 337
---- ---- ----
Gross profit (loss)........................................ $ - $ (88) $ 46
==== ===== ====
</TABLE>
Cash production costs per ounce of gold produced at USMX's Goldstrike
Mine increased to $233 for 1995 from $229 for 1994 despite the fact that no
mining, crushing or pad loading costs were incurred after October 1994 because a
significant portion of processing costs are fixed and, therefore, do not
decrease as production decreases. As the result of a reduction of the estimated
remaining recoverable ounces of gold at the Goldstrike Mine, change in
inventories and deferred production costs increased to $207 per ounce sold for
1995 from $46 in 1994.
Mining Taxes and Royalties. During 1995, USMX incurred $14,000 in
mining taxes compared to $106,000 in 1994. The decrease in mining taxes in 1995
and 1994 is attributable to the decrease in ounces sold compared to the previous
year as a result of declining production at the Goldstrike Mine. Also, USMX
incurred $379,000 in royalty expense for 1995 compared to $665,000 in 1994. The
increase in production royalties per ounce of gold sold is attributable to the
monthly minimum royalty paid at Goldstrike through January of 1996.
Cost of Mineral Properties Abandoned and Provisions for Impairments of
Investments in Mineral Properties
USMX periodically reviews the carrying values of its properties. In
1996, management determined that properties with an aggregate historical cost of
$674,000 no longer held sufficient promise to justify the cost of maintenance.
The properties abandoned in 1996 were Goldstrike ($345,000), Elk Creek
($93,000), Baggs Creek ($69,000), Putu Chile ($61,000), two other properties in
the United States ($17,000) and six small properties in Mexico ($89,000).
Property abandonments were $758,000 and $261,000 in 1995 and 1994, respectively.
The properties abandoned in 1995 were Tule Canyon ($65,000), Divide ($63,000)
and three other properties in the United States ($202,000) and La Cienega
($111,000), Jalisco Copper ($164,000) and four other properties in Mexico
($153,000). The properties abandoned in 1994 were the Ancho Canyon, New Mexico
($221,000) and the South Pass, Wyoming placer properties ($40,000), both of
which were acquired during that year.
During 1996 USMX wrote down the carrying value of the Nambija property
in Ecuador and the Amargosa and La Reserva properties in Mexico by $335,000,
$326,000 and $81,000 respectively. The carrying value of each of the properties
<PAGE>
was reduced to zero. Although the three properties appear to have geological
potential, to date, no significant economic mineralization has been encountered.
The La Reserva property is currently being explored in joint venture with
another mining company. The Nambija and Amargosa properties are being held for
possible future joint venture exploration. In the fourth quarter of 1995, the
carrying value of the Amargosa polymetallic prospect in Chihuahua, Mexico was
reduced by $1.0 million.
In 1995, the Commonwealth of Puerto Rico adopted legislation which
amended the mining law to prohibit future mining of metallic deposits by open
pit methods. Although USMX is considering various strategies and responses, the
effect of the mining law, as currently amended, is to render USMX's plan for
development of the Cala Abajo deposit uneconomic. As a result, in 1995 USMX
reduced the carrying value of this property to zero and recorded an impairment
loss of $1.1 million.
Gold production at USMX's Goldstrike Mine in Utah declined sharply in
August and September of 1995. This decline in gold recovery triggered a
reevaluation of the estimated remaining recoverable gold ounces in the heaps. As
a result, the carrying value of deferred mining and processing costs was reduced
to the fair market value of the remaining gold bullion and dore at the refinery
and USMX recorded an impairment loss of $1.6 million.
Asset Dispositions and Gain on Sale of Common Stock
In April 1994, USMX sold its interest in the Kinsley Mountain Project
in Elko County, Nevada to Alta Gold Co. ("Alta"). In addition to the $20,000
previously received, USMX received $380,000 in cash and Alta restricted common
stock with a then market value of $200,000. In April 1995, USMX received a final
cash payment of $400,000 and additional Alta restricted common stock with a then
market value of $200,000. USMX received, and retained at December 31, 1995, a
total of 352,711 shares of Alta restricted common stock. The cash proceeds and
discounted value of the stock received were recorded as a reduction to the
carrying value of the property on USMX's books. In 1995, USMX recorded a loss on
this transaction of $1,000. During 1996 USMX sold all of the outstanding shares
of Alta common stock for $1,281,000 and recorded a gain on the sale of $936,000.
Other Costs and Expenses
General and administrative costs increased to $3,621,000 in 1996 from
$2,548,000 in 1995, as the result of added office space and related expenses
arising from increased staffing requirements to develop the Illinois Creek and
Thunder Mountain properties. General and administrative expenses were higher in
1995 than 1994 principally due to legal and other professional fees paid
relative to the Cala Abajo project and to salaries and related expenses of
additional corporate staff. Legal and professional consultants were engaged to
evaluate the impact of a change in Puerto Rican mining law and USMX's
alternatives concerning the Cala Abajo Project.
Prospecting costs in 1996 were comparable to Prospecting costs in 1995.
Prospecting costs in 1995 were lower than 1994 as a result of the concentrated
effort by USMX's exploration staff to complete development drilling at the
Illinois Creek, Alaska property.
Interest income decreased to $275,000 in 1996 compared to $525,000 in
1995, as the result of decreasing cash balances during 1996. Interest income for
1995 was comparable to 1994.
Interest expense increased to $511,000 in 1996 compared to $14,000 in
1995, as the result of long term debt incurred during 1996 related to
development of the Illinois Creek property and a $4.5 million loan received from
Pegasus Gold, a stockholder of USMX. Interest expense for 1995 was comparable to
1994.
Income tax expense primarily represents current and deferred federal
income taxes. The entire income tax benefits for 1996 and 1995 are related
primarily to net operating losses carried back to prior years. The 1994 benefit
results primarily from the difference between the estimated 1993 federal income
tax provision and the actual liability reflected on the 1993 income tax returns.
See Note 10 to the Consolidated Financial Statements for a reconciliation of the
<PAGE>
provision for income taxes for 1996, 1995 and 1994 to the statutory federal
income tax rate.
Trends Which May Affect Future Results of Operations. As previously
stated, fluctuations in USMX's results of operations arise primarily from four
factors: (1) changes in the volume and cost of gold sold, (2) changes in the
selling price of gold, (3) the cost of mineral properties abandoned during any
given period and (4) asset dispositions. The following is management's view of
trends in these factors.
Changes in the Volume and Cost of Gold Sold. USMX's ability to achieve
forecasted gold production will be dependent upon many factors, some of which,
such as the price of gold and climate conditions, are beyond the control of
USMX.
Estimates of mineralization, metallurgical recovery, and cash operating
costs are to a large extent based on the interpretation of geologic data
obtained from drill holes and other sampling techniques and feasibility reviews
which derive estimates of cash operating costs based on 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. Accordingly,
actual volumes of gold produced and actual cash operating costs may differ from
the volumes and costs initially estimated.
USMX's operations will be subject to all of the operating hazards and
risks normally incident to operation of mineral properties, such as unusual or
unexpected geological formations, environmental hazards, industrial accidents,
labor disputes, equipment incapability or failures, and inclement weather
conditions. 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. Moreover, USMX's mining operations will be subject to extensive
federal, state and local laws and regulations governing production, taxes, labor
standards, occupational health, waste disposal, protection and remediation of
the environment, reclamation, mine safety, toxic substances and other matters.
Compliance with such laws and regulations has increased the cost of
planning, designing, drilling, developing, constructing, operating and closing
other mines and facilities previously operated by USMX. In addition, USMX has
expended significant resources, both financial and managerial, to comply with
environmental protection regulations and permitting requirements and anticipates
that it will continue to do so in the future. Although USMX believes that it has
made adequate provision to comply with such regulations, there can be no
assurance that additional significant costs and liabilities will not be incurred
to comply with current and future environmental protection regulations.
Moreover, it is possible that future developments, such as increasingly strict
environmental protection laws, regulations and enforcement policies, and claims
for damages to property and persons resulting from USMX's operations, could
result in substantial costs and liabilities in the future.
Changes in the Selling Price of Gold. Another significant uncertainty
facing USMX which could potentially impact its financial position, profitability
and liquidity in the short term is the price of gold. The gold price is a
function of a number of factors including investors' expectations with respect
to inflation, the strength of world currencies, decisions by central banks
regarding their gold reserves, and supply and demand factors, none of which is
under the control of USMX's management. During 1996 gold reached a six year high
of $415 per ounce early in the year and a three year low of $369 per ounce late
in the year. The average market price of gold was $388 an ounce during 1996
compared to $384 per ounce during 1995 and 1994.
In order to protect itself from possible declining gold prices, USMX,
from time to time, enters into hedging agreements with major financial
institutions. As of December 31, 1996, USMX had entered into forward sales
contracts for 140,900 ounces of gold deliverable at various dates through
December 31, 1999 at an average selling price of $409 per ounce. Delivery under
these spot deferred contracts can be deferred at USMX's option up to forty
months depending on the individual contract. The aggregate unrealized excess of
the net market value of USMX's forward sales contracts over the spot gold price
of $368 per ounce as of December 31, 1996, is approximately $5,875,000.
<PAGE>
USMX has also written silver call options expiring at various dates
over the next forty months, which if exercised, would become spot deferred
contracts with delivery deferred as previously described. At December 31, 1996,
USMX had sold 825,300 ounces of silver call option contracts all at a strike
price of $5.50 per ounce expiring on dates ranging from September 28, 1997
through December 29, 1999. Call options premiums received amounted to
approximately $424,000.
Cost of Mineral Properties Abandoned. The cost of mineral properties
abandoned in any period is a function of the results of USMX's exploration
efforts and economic considerations. USMX makes every effort to maximize the
results of its exploration efforts. However, exploration for economically
recoverable metals involves significant risk. Accordingly, while it is probable
there will be abandonment losses in the future, it is not possible to predict
either the timing or amount.
BUSINESS AND PROPERTIES OF USMX
Introduction
USMX was founded in 1979, and has engaged in exploration for precious
metal properties. In 1988 when USMX developed the Green Springs Mine in east
central Nevada. During the period 1988 through 1995, USMX produced approximately
273,000 ounces of gold from Green Springs and three additional mines and
successfully closed and reclaimed the Green Springs Mine. USMX was the recipient
of awards for its performance in the areas of environmental protection,
reclamation and safety. Mining was completed in October 1995 at USMX's remaining
production unit, the Goldstrike Mine, in southwestern Utah. USMX expects to
complete reclamation of the Goldstrike Mine in 1997.
USMX views exploration as an important means of growth, and
historically explored several projects annually. During 1996, USMX continued its
exploration efforts outside of the United States, principally in Mexico.
USMX's principal focus in 1996 was the development of its Illinois
Creek Project (the "Project") in west central Alaska. In February 1996 USMX
completed its feasibility study of the Project and received a commitment for
project financing. In May 1996 key permits necessary for mining, heap leaching
and dam construction were received and USMX commenced construction of the mine
and related facilities. The Air Quality Permit was received in June. Effective
July 11, 1996, USMX acquired leasehold and other property interests in the
Project from North Pacific Mining Corporation ("NPMC"), a subsidiary of Cook
Inlet Region ("CIRI"), in exchange for 1,540,663 shares of USMX Common Stock. As
a result of this transaction, NPMC owns approximately 9.5% of USMX's issued and
outstanding Common Stock. In addition, NPMC received a 5% net returns royalty on
production from the Illinois Creek Upland Mining Lease. Also effective July 11,
1996, USMX entered into the Rothschild Credit Agreements for a $22,000,000
facility to finance the development and construction costs of the Project.
During 1996 USMX substantially completed construction of a 90-person man
camp, a 6.5 mile road to connect the camp with the deposit area and the site of
the process facility, a double synthetic, modified valley fill heap leach pad, a
rotary kiln to produce calcined line and a carbon gold recovery plant. In
addition, approximately 115,000 tons of overliner material and run-of-mine ore
has been placed on the leach pad. Minor construction and a leak test of the
leach pad will have to be completed before start-up in 1997. Leaching is
scheduled to commence during mid-May upon completion of the leakage testing of
the liner system and loading ore on the first leach cell. If the leak test is
successful and normal weather prevails, the first gold production is anticipated
by early Summer of 1997.
History of Operations
USMX's first producing mine, the Green Springs Mine, commenced
production in June 1988. USMX completed mining crushing and stacking operations
at Green Springs in June 1990. Reclamation of pits, haul roads and waste dumps
commenced in 1990 and continued through 1993. Rinsing of the heaps was initiated
during 1992 to meet final closure requirements. During 1993, rinsing of the
heaps and reclamation of the plantsite were completed. During the life of the
<PAGE>
Green Springs Mine, USMX received environmental and safety awards for this
operation while producing a total of 69,331 ounces of gold. USMX received the
1992 State of Nevada Governor's Award for Excellence in Mine Reclamation in
connection with several of USMX's Nevada mines which included the Green Springs
Mine. The Governor's award, made jointly by the State of Nevada, U.S. Bureau of
Land Management and U.S. Forest Service was awarded to USMX in recognition of
outstanding achievement in innovative design, superior mine planning and
commitment to reclamation from project commencement to closure.
USMX commenced open pit mining at the Casino Mine in Nevada in June
1990 and completed mining in May 1991. In July 1991, USMX commenced mining at
the Winrock Mine. Mining and crushing were completed at the Winrock Mine in June
1992. The Casino and Winrock Mines shared a common heap leaching facility. USMX
produced a total of 48,953 ounces of gold from the Casino/Winrock project prior
to its sale on August 27, 1993.
In May 1990, USMX completed the purchase of the Alligator Ridge Mine in
Nevada, which included partially leached gold ore on heaps, gold recovery
facilities, a mining fleet, a mill, and approximately 26,000 acres of mineral
interests in the Alligator Ridge trend. During its tenure at the Alligator Ridge
Mine, USMX produced 50,188 ounces of gold. Construction of the crushing and gold
recovery facilities at a satellite facility, designated the Yankee Mine, was
completed during the first quarter of 1992. USMX produced 26,220 ounces of gold
at the Yankee Mine between the time of initial gold production in June 1992 and
its sale on August 27, 1993. USMX's Casino/Winrock, Alligator Ridge and Yankee
Mines, together with surrounding exploration prospects, were sold in two
separate transactions in 1993 for a total of $20 million cash, plus the
assumption by the buyer of related obligations, including reclamation
liabilities.
Effective November 1, 1992, USMX acquired from Tenneco Corporation
"Tenneco," the stock of Tenneco Minerals Company-Utah "TMC-Utah," owner and
operator of the Goldstrike Mine located approximately 35 miles northwest of St.
George, Utah. Soon after the acquisition, the name of this wholly owned
subsidiary was changed to USMX of Utah, Inc. Gold production from the Goldstrike
Mine since November 1, 1992, has been 77,182 ounces, including 6,266 ounces of
gold produced in 1995. During 1995, USMX was recognized for its reclamation
efforts at the Goldstrike Mine when it received the 1995 Earth Day Award from
the State of Utah Department of Natural Resources and Division of Oil, Gas and
Mining.
Access to the Goldstrike Mine is by State Highway 212 to a point
approximately 21 miles northwest of St. George, then by well-maintained gravel
road over a distance of approximately 14 miles. Mining operations at the
Goldstrike Mine were completed in October 1994. Leaching was completed in
December 1995. Disturbed areas at the Goldstrike Mine were largely reclaimed
during 1995 except for the heaps and the plant site. Reclamation of the two
remaining heaps was begun during 1995 with rinsing of the second heap commenced
in January 1996, and expected to continue through 1997. A pilot test utilizing a
bio-reactor for the passive treatment of heap effluent was initiated in mid-1996
and is expected to be completed in early 1997. Once rinsing of the second heap
is complete and a closure plan has been approved by the regulatory agencies, the
heap will be recontoured, covered with topsoil and seeded with various native
plant species. In addition, the process plant will be dismantled and the plant
site reclaimed.
USMX's investment in the Goldstrike Mine as of December 31, 1996, was
approximately $________ in undepreciated property, plant and equipment and
approximately $1,700,000 in cash provided to the State of Utah as reclamation
surety. The primary lease covering the mine permit area has been terminated;
however, a post termination agreement, dated July 16, 1996, provides for USMX's
continued occupancy during ongoing reclamation activities.
The Illinois Creek Project
History. The Illinois Creek Project is moderate grade, near surface
gold-silver deposit. It consists of two State of Alaska Mining Leases, totaling
62,480 acres. The Illinois Creek Project is part of a large polymetallic
district covering 400 square miles in the southern Kaiyuh Mountains. The area
was first explored by Anaconda Minerals as part of a joint venture with Cook
Inlet Region Inc. ("CIRI") in 1980. Subsequent to Anaconda Minerals' activities,
the area was explored by Goldmor Group, Ltd., NPMC, and Echo Bay in association
with North Pacific Mining Corporation, CIRI's mineral development subsidiary
("NPMC"). USMX commenced its exploration activities in August 1994. USMX has
<PAGE>
drilled 61 core holes and 89 reverse circulation holes, totalling approximately
32,000 feet. This drilling succeeded in increasing the minable reserve to about
442,000 contained equivalent ounces of gold and provided geotechnical
information necessary for pit design and engineering.
USMX made payments to NPMC totalling $100,000 in 1994 to evaluate the
Illinois Creek property and subsequently entered into an agreement with NPMC
effective December 16, 1994, which was amended on February 6, 1996 (the "NPMC
Agreement"). Pursuant to the NPMC Agreement, USMX agreed to make a $1,000,000
non-refundable payment to NPMC in cash or shares of USMX Common Stock. USMX
elected to make the payment in Common Stock, and based upon the average market
price of the Common Stock on Nasdaq as provided in the NPMC Agreement, USMX was
required to issue to NPMC 449,754 Shares of Common Stock. USMX also agreed that,
upon obtaining the necessary permits and if no material adverse economic change
had occurred, USMX would make a production decision and issue to NPMC an
additional $3,000,000 in cash or Common Stock. USMX received the key permits
related to the Project in May 1996, and determined that no material adverse
economic change had occurred with respect to the Project economics. USMX made a
production decision and agreed to issue to NPMC an additional 1,090,909 shares
of Common Stock. The calculation of the number of shares was based on the
average market price of the Common Stock on Nasdaq as provided in the NPMC
Agreement.
Effective July 11, 1996, USMX issued the aggregate of 1,540,663 Common
Stock to NPMC. As a result of this transaction, NPMC owns approximately 9.5% of
USMX's issued and outstanding Common Stock. USMX also granted a security
interest to NPMC in the property, which is subject to a subordination
arrangement with Rothschild on the Project (see below). USMX had also agreed
with NPMC to file a Registration Statement relating to the resale of these
shares, which Registration Statement has been filed and declared effective by
the Securities and Exchange Commission. USMX has agreed to use its best efforts
to keep the Registration Statement effective until NPMC has sold these shares or
until June 1999, whichever occurs sooner.
In addition to the Common Stock, NPMC had the right to enter into a
mining venture agreement with USMX pursuant to which USMX would transfer to NPMC
an undivided 25% interest in the Illinois Creek Mining Leases, or to receive a
5% net returns royalty. NPMC chose to receive a 5% net returns royalty on
production from the Illinois Creek Upland Mining Lease. No decision has been
made regarding the property covered by the Roundtop Upland Mining Lease, as USMX
has not completed significant exploration work there.
If USMX delineates the existence of additional ore reserves on the
lease known as the Illinois Creek Upland Mining Lease, which increases the total
proven ore reserves to at least 1,000,000 ounces of equivalent gold ore reserves
beyond the mineralization stated in USMX's February 1996 feasibility report,
then NPMC will have the right to elect to participate in subsequent mining
operations with respect to those additional reserves for a 25% working interest
by reimbursing USMX 120% of NPMC's 25% share of exploration, development and
capital costs incurred by USMX subsequent to February 1996 which are directly
related to delineation and/or production of the additional reserves.
Pursuant to the NPMC Agreement, USMX has until December 16, 1997 to
achieve "Commercial Production" which is defined as the delivery to a bona fide
purchaser of minerals produced for a minimum period of 45 consecutive days at
not less than 70% of the pro forma production capacity as set forth in the
Project feasibility report. This period may be extended at the option of USMX
for two additional one-year periods upon payment by USMX of a $300,000 advance
royalty, adjusted for inflation, for each one-year extension. The NPMC Agreement
terminates on December 16, 1999 if USMX has not achieved commercial production
by that date.
Location, Access, Terrain and Climate. The Illinois Creek Project site
is located in the southern Kaiyuh Mountains in the western interior of Alaska.
The project is located approximately 57 miles southwest of Galena and 23 miles
east of the Yukon River. It is equidistant from Fairbanks and Anchorage which
lie approximately 320 miles to the east and southeast of the Project
respectively.
Access to the site is by air. Equipment and supplies are transported to
the site by land, sea and air. The most economical way to transport freight to
the site is from Seattle, Washington to Anchorage, Alaska by barge. From
<PAGE>
Anchorage, it travels by truck or rail to Nenana. From Nenana, it is moved down
river on barge to Galena. From Galena, it is transported by air to the site. The
mine site is connected to the personnel camp and airstrip by a 6.5 mile road.
The climate is sub-arctic and characterized by large, seasonal extremes
in temperature and daylight. Average Winter temperatures are -7(degree) F to
20(degree)F; mean Summer temperatures range from 35(degree)F to 67(degree)F.
Regional extremes are -63(degree)F to 93(degree)F. Precipitation averages 15 to
18 inches annually, including 81 inches of snow. Snow depth at the site ranges
from 24 to 36 inches during a typical Winter. Historically, August is the
heaviest rainfall month with an average of 5.3 inches.
Freeze-up of the Yukon River normally occurs in late October to early
November and breakup normally occurs in early to mid May. Accordingly, the
shipping schedule on the Yukon River will typically be limited to a period
between approximately May 25 and September 25.
Proven and Probable Mineral Reserves. The following table sets forth
the proven and probable mineable gold ore reserves located on the Illinois Creek
Project as of September 24, 1996. These reserves are based on a cutoff grade of
0.025 ounce of gold equivalent per ton of ore.
Proven and probable mineable ore reserves are estimates of quantities
and grades of ore which can be economically recovered based on assumptions of a
$400 per ounce future gold price. These reserves have been prepared by USMX and
have been reviewed by Roscoe Postle Associates ("RPA") which is an independent
mining consulting firm. In the opinion of RPA, the reserves at Illinois Creek
are estimated in accordance with standard engineering methods and the reserve
estimation methods and procedures used are in keeping with standard industry
practice. However, the ore reserves presented in this Joint Proxy
Statement/Prospectus are estimates only and may require revisions based on
actual production experience. In particular, RPA has noted some issues which may
impact on the average grade and RPA believes that most of the reserves should be
classified as probable. Fluctuations in the market price of gold, as well as
increased production costs or reduced recovery rates, may render reserves
containing relatively lower grades of mineralization uneconomical to recover and
may ultimately result in a restatement of reserves. See "Risk Factors."
<TABLE>
<CAPTION>
Contained
Gold Gold
Contained Equivalent Equivalent
Ore Tons Gold Grade Gold Ounces Silver Grade Grade Ounces
<S> <C> <C> <C> <C> <C>
6,219,470(1) .064 oz/ton 398,046 (1.422 oz/ton) 0.069 oz/ton(2) 429,143
<FN>
(1) In addition there are approximately 575,000 tons of material with grades
between 0.015 oz/ton and the cut-off grade of 0.025 oz/ton which must be
stripped and may be placed on the heap if economics warrant it.
(2) Gold Equivalent grade is calculated using a gross recovery for silver of
25% and a gold to silver price ratio of 80.
</FN>
</TABLE>
Metallurgy. Metallurgical recovery from the run-of-mine ore is
projected to be approximately 80% of contained gold and 25% of contained silver.
Seasonal leaching of gold is currently planned; however, year round leaching
will be conducted if operations prove this to be effective.
Geology. The deposit occurs as a large gossan zone striking
east-northeast and dipping 40(degree) to 70(degree) to the southeast, hosted
within a thick sequence of quartzites which are carbonate rich. The gossan has
been intersected by drilling over a strike length of 12,000 feet and to a depth
of greater than 1,500 feet. Oxidation of the mineralization is complete to a
depth of at least 1,100 feet below the present surface. Economic gold-silver
mineralization is present in portions of the gossan, and is associated with
elevated levels of copper and/or lead, hydrothermal or remobilized silica,
earthy hematite, and poorly defined structural features. Supergene enrichment of
both gold and silver in near surface locations is also apparent.
<PAGE>
Plan of Operations. USMX has constructed a 90-person camp north of an
airstrip which is 6.5 miles by road from the mine site. Water for ore processing
comes from a source located near the mid-point of the main access road from the
airfield to the mine site and electrical power is generated using diesel powered
generator sets. Waste heat from the generators will be used to heat the process
building. In addition to the process building, a modular assay laboratory, a
truck maintenance shop and a modular administration building have been
constructed. Communications are by satellite phone systems.
The deposit has been developed as a conventional open-pit mine. USMX
currently plans to conduct mining during May through October. Depending on
weather conditions, USMX may attempt to extend this season. Trucks and front-end
loaders will be used to mine, haul and stack the ore in a valley fill lined
impoundment. Heap leaching followed by carbon
adsorption/desorption/electrowinning will be used to extract the gold. The
process system is designed to recover the annual scheduled amount of gold
production in eight months. Lime is used to condition the ore and is produced
on-site utilizing a local source of limestone. The burnt lime is calcined in a
diesel-fired rotary kiln, which has been erected at the site. This locally
produced lime is less expensive than purchasing and transporting calcined lime
to the site.
The mine operating schedule will be ten hours per shift, two shifts per
day, six days per week. Present plans provide for three crews which will rotate
on a four-week on, two-week off schedule. USMX expects to employ approximately
54 people at Illinois Creek, with a like number of personnel to be employed by
the mine contractor.
Total pre-production capital costs, including approximately $7.6
million in working capital, are currently estimated at about $43.9 million,
exclusive of property acquisition costs of $4 million paid to NPMC as outlined
above. As of December 31, 1996, USMX's investment in Illinois Creek was
approximately $33.7 million including $4.0 million of property acquisition
costs.
Project Financing. Effective July 11, 1996, USMX entered into the
Rothschild Credit Agreements for a $22,000,000 facility to finance the
development and construction costs of the Project. USMX transferred its interest
in the Project to its wholly-owned subsidiary, USMX of Alaska, Inc. ("AK") which
is the borrower of $19.5 million of the $22 million facility. Under certain
circumstances, the loan to AK may be in the form of a gold loan, in which event
the maximum credit amount would be the number of ounces of gold equal to
$19,500,000 divided by the price of gold in London. However, USMX has agreed
with NPMC that it will not convert the loan to a gold loan until such time as
the Project has achieved Commercial Production as defined in the NPMC Agreement.
Advances are made by Rothschild solely to an account dedicated to the
Project operations and only if certain conditions related principally to Project
operations are satisfactory to Rothschild. In addition, AK is required to
maintain a minimum balance in the Proceeds Account equal to the sum of (i) the
greater of $1,500,000 or a formula amount based on the present value of future
net cash flow from the Project, (ii) the lesser of $250,000 or interest payable
to Rothschild for the following three months, and (iv) any other payments due to
Rothschild for the following three months. As more fully discussed below in
connection with the October 1996 letter agreement with Rothschild, USMX and
Rothschild have agreed on disbursement procedures for the balance of the credit
facility.
AK is not permitted to make withdrawals from the Proceeds Account for
its general corporate purposes or to pay dividends until "Completion" has
occurred. The requirements for completion include the construction of the
Project facilities, which facilities and the equipment thereon must be
mechanically complete and electrically operable ("Mechanical Completion"), the
achievement of production amounts and grades, costs and reserves similar to the
development plan, and the absence of any default in the credit agreement. The
note evidencing the $19.5 million obligation bears interest, payable quarterly,
at 2.25% above LIBOR until Completion and 1.879% thereafter for the remainder of
the approximate four-year term of the loan. Principal payments will be made in
seven amortized installments on September 30 and December 31, of each year.
Subject to satisfaction of the requirements for maintenance of the
Proceeds Account, advances will be made by Rothschild to AK until the first to
occur of September 30, 1997, or Mechanical Completion. AK paid an establishment
<PAGE>
fee of $292,500 to Rothschild. AK will also be required to pay a commitment fee
of one-half of one percent of the difference between the principal amount
outstanding and the maximum credit amount.
The balance of the facility is represented by a $2.5 million note made
by USMX which originally provided for conversion into Common Shares at the
conversion price of $3.40 per share at the option of Rothschild at any time
during the approximate four-year term of the note. USMX may also require
conversion if the note is in default and the daily closing price of the USMX
Common Stock on Nasdaq exceeds $4.75 for 30 consecutive trading days. As a
result of the October 1996 amendment, the conversion price has been reduced to
$1.74. USMX has also agreed to register the USMX Common Stock for resale under
certain circumstances. The $2.5 million loan bears interest at 2% above LIBOR,
payable no less frequently than semi-annually.
In accordance with the requirements of the related credit agreements,
USMX deposited the entire proceeds of the $2.5 million loan into the Proceeds
Account and such proceeds are not available for general corporate purposes.
Payments may be made to USMX from the Proceeds Account in an amount sufficient
for USMX to make interest payments. AK will not be permitted to repay the $2.5
million to USMX or other advances by USMX in the approximate amount of $3.4
million unless certain conditions are satisfied, principally related to
repayment of the notes to Rothschild and satisfactory operation of the Project.
USMX has pledged to Rothschild its shares in AK as well as its notes from AK for
advances made by USMX. Rothschild and Dakota have agreed to terminate the $2.5
million note for payment of $1.5 million and transfer of the balance due to the
$19.5 million note. See "Terms of the Merger-Other Agreements-$5,000,000 Loan
Agreement."
USMX is also a guarantor of the $19.5 million loan to AK until it has
demonstrated that the Project is operating in a manner satisfactory to
Rothschild. In addition, USMX will be a continuing guarantor of AK's covenant to
comply with environmental laws.
AK must deliver to Rothschild, among other things, financial
information, reserve, hedging and operating reports, and must use all
commercially reasonable efforts to maintain, develop and operate the Project in
accordance with the present development plan and prudent mining industry
practices. AK must comply with applicable laws and maintain its property rights
in the Project, including payment of royalties which may become due to NPMC. In
addition, except for limited circumstances, without Rothschild's consent, AK may
not incur any additional indebtedness, permit any liens on the Project, assume
or guarantee indebtedness of others, invest in others, merge or change its
capital structure, sell the assets of the Project, or permit Project reserves or
future net cash flows to decline materially from the present development plan.
AK must also achieve Mechanical Completion by July 31, 1997, and Completion by
November 30, 1997.
USMX has also agreed with Rothschild that, so long as the $2.5 million
note made by USMX is unpaid, or any other obligation of USMX remains
unsatisfied, including USMX's guarantee of the loan to AK, USMX will, among
other things, comply with all applicable laws, provide Rothschild with financial
reports and continue to engage principally in the mining business. In addition,
except for limited circumstances, without Rothschild's consent, USMX may not
incur indebtedness (other than indebtedness after Completion to develop mining
properties where the sole recourse of the lender is the mining property being
developed), permit any liens on the Project, assume or guarantee indebtedness of
others, invest in others, merge (unless after Completion and USMX is the
survivor of the merger) or change its capital structure, pay any dividends or
sell the assets of the Project.
USMX has also agreed with Rothschild that it shall not permit its (a)
current ratio to be less than 2.0 to 1.0; (b) consolidated tangible
shareholders' equity to be less than $17,500,000; and (c) total consolidated
liabilities to exceed 175% of its consolidated tangible shareholders' equity,
and that it would deposit $1,500,000 in the Proceeds Account by September 30,
1996, which it was unable to do. In October 1996 Rothschild agreed with USMX to
waive these conditions and to not take any actions until December 31, 1996,
conditioned upon USMX's agreements to, among other things, file a prospectus for
a public offering by November 1, 1996 with appropriate securities regulatory
authorities and complete the offering by December 31, 1996, adjust the price at
which Rothschild may elect to convert the $2.5 million loan into USMX's Common
Stock to the offering price in the public offering (or in a private placement)
<PAGE>
are sold or if no sale, at the average trading price of the Common Stock for the
last ten trading days of 1996 and to pay to Rothschild a fee of $100,000 which
fee is payable upon the first to occur of (i) a date upon which such payment can
be made without materially reducing the working capital reasonably required by
USMX for continued operations or (i) April 15, 1997. In addition, USMX agreed
that of the $7.5 million then on deposit in the Proceeds Account, approximately
$2.4 million would be distributed to pay accounts payable, approximately $4.5
million would be transferred back to Rothschild and available to be advanced in
accordance with the credit agreements and approximately $0.6 million would
remain in the Proceeds Account and available for disbursement in accordance with
the credit agreements. USMX determined to proceed with the Merger instead of a
public offering. USMX has entered into a loan agreement with Dakota and
Rothschild and Dakota have entered into an agreement which provides for, among
other things, forbearance by Rothschild under certain circumstances of the
exercise of Rothschild's rights under the Rothschild Credit Agreements with
USMX. See "Terms of the Merger-Other Agreements-$5,000,000 Loan Agreement."
USMX has also agreed that it will establish an additional proceeds
account with its presently available cash and disburse these funds in accordance
with a budget agreed to by Rothschild. USMX will also establish arrangements for
the monitoring by Rothschild of completion of the Project and payment of
associated costs.
The Thunder Mountain Project
Introduction. USMX proposes to conduct gold and silver mining
activities at the Dewey Mine in the Thunder Mountain Mining District in eastern
Valley County, Idaho, approximately 100 miles northeast of Boise, Idaho. The
proposed Dewey mining operations are part of the Thunder Mountain Project and
consist of the development of a gold and silver ore deposit located on patented
mining claims administered by the Idaho Department of Lands. In January 1996,
USMX submitted a Notice of Intent to Operate ("NOI") with the Idaho Department
of Lands, which is currently being reviewed. Preparation of a feasibility study
is expected to be ongoing throughout 1997 to refine the project design and
economics.
History. Gold was discovered in the Thunder Mountain area in 1894 at the
site of what is now known as the Dewey Mine. During the period from the initial
discovery until 1942, various operators reportedly produced approximately 31,000
ounces of gold and 16,000 ounces of silver from both underground lode and
surface placer workings. Renewed interest in the district began in earnest
during the early 1970's due to rising gold prices. After exploration by several
major mining companies, a portion of the property, the Sunnyside Mine area, was
placed into production by Coeur d'Alene Mines Corporation (Coeur d'Alene,) as an
open pit, heap leach operation in 1986. Between 1986 and 1990, Coeur d'Alene
reportedly produced 120,000 ounces of gold and 240,000 ounces of silver from the
combined Sunnyside, Goldbug and Lightning Peak pits. After reclaiming the
property, Coeur d'Alene terminated its leases with Thunder Mountain Gold, Inc.
in December 1990. At the adjacent Dewey Mine, the Dewey Mining Company
constructed a 450 ton per day mill and the property was operated as an open pit
mine (Golden Reef Joint Venture) during 1981. In the mid 1980's, the Dewey Mine
became the subject of litigation which was resolved in favor of the Dewey Mining
Company late in 1991.
Effective July 9, 1993, USMX entered into an Exploration and Option to
Purchase Agreement ("Thunder Mountain Agreement") with Dewey Mining Company,
Thunder Mountain Gold, Inc. and two individuals (the foregoing companies and
individuals described below collectively as "Owners"). The Owners control
approximately 5,500 acres in the Thunder Mountain Mining District consisting of
both patented and unpatented mining claims. Pursuant to the terms of the Thunder
Mountain Agreement, USMX was granted the sole and exclusive right to explore for
and develop minerals on the property in exchange for advance royalty payments
totaling $100,000. In addition, USMX committed to spend, and did spend, a
minimum of $500,000 evaluating the property prior to April 1, 1995.
The Thunder Mountain Agreement requires that, before USMX can put the
property into commercial production, it must prepare and deliver to the owners a
feasibility study regarding the project. USMX has extended the term of the
agreement through April 30, 1997. The Thunder Mountain Agreement further
provides USMX with the option for a final extension until April 30, 1998, in
exchange for an additional advance royalty payment of $250,000. The advance
royalty payments made may be recovered by USMX for seven years after payment
<PAGE>
should the Owners elect to receive royalties under options (a) or (c) below. The
Thunder Mountain Agreement terminates if USMX fails to deliver a feasibility
study to the Owners by the end of the last year's extension under the Agreement
or if USMX exercises its right to terminate the Thunder Mountain Agreement at
any time.
Within 90 days after USMX provides the Owners with a feasibility study,
the Owners may elect to (a) participate in subsequent efforts to the extent of a
30% working interest, plus receive a 1.5% royalty, or (b) receive a 30% net
profits interest, or (c) receive a 5% net returns royalty from production. If
the Owners elect to receive a 5% net return royalty, USMX will be obligated to
make advance royalty payments of: (1) $200,000 within thirty days after
commencement of Commercial Production (as defined in the Thunder Mountain
Agreement), and (2) $250,000 each year thereafter. If the Owners fail to notify
USMX of their election prior to the end of the 90 day election period they will
be deemed to have made an election to receive a 5% net returns royalty.
The Thunder Mountain Agreement provides that once the Owners have made
their election, USMX shall have one year within which to achieve Commercial
Production. If USMX fails to achieve Commercial Production within one year, USMX
must either reconvey the property to the Owners or extend by one year the time
period within which Commercial Production must commence by paying an advance
royalty of $200,000 to the Owners. If Commercial Production has not begun by the
end of the extension period, USMX may obtain a final extension of one year
within which to achieve Commercial Production by paying the Owners the
additional advance royalty of $250,000.
In addition to the advance royalty payments and the work commitments
outlined above, USMX is obligated to pay all fees necessary to maintain the
unpatented mining claims through August 31 of the calendar year in which the
extension year expires.
The area of USMX's primary activity lies approximately 4,000 feet west
of the Sunnyside deposit previously mined by Coeur d'Alene. The results of
USMX's drilling in 1993 were favorable, including a number of intersections that
exceed 100 feet in thickness and average in excess of 0.10 ounces of gold per
ton. USMX was also successful in extending the deposit along strike into an area
that was not previously drilled. During 1994, USMX drilled a total of 104
exploration and development holes on the property, helping to define the margins
and high grade core of the Dewey deposit. As of December 31, 1996, USMX has
expended a total of $3.7 million on the property.
Location, Access, Terrain and Climate. The Dewey Mine lies within the
Thunder Mountain District in eastern Valley County, Idaho. Access to the
District is obtained via U.S. Highway 95 to Cascade, Idaho, then east 42 miles
to Landmark, Idaho on Forest Highway 22, then north and east approximately 57
miles on U.S. Forest Service roads to the property. The Thunder Mountain Mining
District is currently accessible by vehicle about seven months out of the year
from late May to late November.
Local elevations range from approximately 7,300 to 9,000 feet. The
District forms an enclave of patented and federal lands within the Frank Church
Wilderness Area administered by the Krassel District of the Payette National
Forest.
Due to the location of the property, and based on the experience of
operations previously conducted at the Dewey Mine and at nearby existing
operations, future mining operations of USMX would be seasonal, except that
processing can be conducted year around.
Plan of Operations. The Dewey Mine deposit is a bulk tonnage,
heap-leachable ore body located on patented lode mining claims in the central
portion of the Thunder Mountain Mining District. USMX is currently conducting a
feasibility study to determine the optimum design to exploit this deposit. It is
presently anticipated that conventional open pit/heap leach techniques will be
used with the fluid management system to be designed as a zero discharge system.
Due to the remote location of the deposit USMX would be required to generate its
own electrical power.
USMX plans to use a contract miner to develop and operate the open pit
mine. The preliminary production schedule is for a six to eight month per year
mining system, two shifts per day, seven days per week. The number of mine
<PAGE>
operating days is estimated at 210 to 240, depending on weather. Processing
would occur at least 250 days per year, and perhaps would run throughout the
year. USMX would expect to use approximately 75 to 100 people at the Dewey Mine,
including mining contractor personnel.
Geology. The Thunder Mountain Mining District is localized in the
central portion of a caldera complex underlain by Challis volcanics as well as
graben-fill, pyroclastic-derived sediments. The Dewey Mine ore deposit is hosted
by pyroclastic sediments, while the Sunnyside, Goldbug and Lightning Peak
deposits previously mined by Coeur d'Alene were hosted by the volcanics. Known
concentrations of economic gold mineralization are controlled by a combination
of structure and stratigraphy.
Permitting. During 1995 and 1996, geotechnical and baseline
environmental work was conducted and USMX re-evaluated the project using the
heap leach process for the recovery of gold. On January 31, 1996, USMX submitted
a Notice of Intent to Operate ("NOI") with the Idaho Department of Lands ("IDL")
and U.S. Forest Service-Payette National Forest ("PNF").
Permits, plans and approvals from federal, state and local agencies are
to be obtained utilizing the Idaho Joint Review Program, details of which are
published in a February 1996 State of Idaho publication titled "Joint Review
Program." This program was initiated on January 31, 1996 with the publication of
the NOI which was forwarded to the IDL. A joint review of the NOI by the IDL and
the PNF determined that a Federal Environmental Impact Statement and Record of
Decision would be required for the Project prior to initiation of development. A
third-party consultant, Science Applications International Corporation, was
selected by the agencies to develop the EIS.
Subsequently, meetings were organized by the IDL and the PNF in which
permit requirements, baseline data requirements and design standards were
discussed on air, climate, soils and subsoils, geology, engineering for the
waste rock facility, roads and heap leach facility. Baseline data requirements
were completed in the Summer of 1996 and a draft environmental impact statement
is in preparation. Since permitting has only recently commenced, it is difficult
to predict when necessary permits might be received.
Feasibility Study. Substantially all the field work for the feasibility
study has been completed and it is USMX's intention to complete an internal
feasibility study during 1997. To the extent that production at USMX's Illinois
Creek Project is delayed and/or USMX's estimates of capital resources to be
devoted to the Illinois Creek Project are not adequate, work on the feasibility
study and permitting at Thunder Mountain may not proceed as presently
anticipated.
Montana Tunnels
The Montana Tunnels property is located in the Colorado Mining
District, Jefferson County, Montana, 22 miles of Helena. Montana Tunnels
consists of approximately 9,300 acres of patented ground plus about 1,000 acres
of other mineral rights. The Montana Tunnels Mine is operated by Pegasus Gold,
the principal stockholder of USMX. USMX owns a net profits royalty interest in
the Montana Tunnels. USMX borrowed $2.5 million from Pegasus Gold in May 1996.
In June 1996, USMX and Pegasus Gold agreed to the sale of USMX's interest in the
Montana Tunnels to Pegasus Gold for $4.5 million. Pending completion of the
transaction, Pegasus Gold provided USMX an additional $2 million which was
deemed an amendment to the terms of the outstanding $2.5 million loan. In March
1997, USMX and Pegasus Gold entered into a Purchase and Sale Agreement
concerning the purchase and sale of the royalty interest (the "Montana Tunnels
Royalty Agreement"). Closing of the sale is subject to stockholder approval at
the USMX Meeting. See "Approval of Montana Tunnels Royalty Agreement."
Exploration
Due to continued threat of adverse amendment to or replacement of the
U.S. mining laws as well as to other existing regulations, USMX continued to
direct its exploration activity to the evaluation of private lands in the United
States, and opportunities in Latin America. Exploration for minerals,
particularly for gold, is highly speculative in nature, involves many risks and
frequently is non-productive. There can be no assurance that USMX's mineral
<PAGE>
exploration efforts will be successful. Once mineralization is discovered, it
usually takes a number of years from the initial phases of exploration until
production is possible, during which time the economic feasibility of production
may change. Substantial expenditures are required to establish ore reserves
through drilling, to determine metallurgical processes to extract the metal from
the ore and, in the case of new properties, to construct mining and processing
facilities. As a result of these uncertainties, no assurance can be given that
USMX's exploration programs will result in the expansion or replacement of
existing reserves.
Ophir. This property is located in western Alaska, approximately 250
miles northwest of Anchorage. In July 1996 USMX was granted the right to explore
approximately 13,000 acres in the Ophir Mining District pursuant to an Exclusive
Mineral Exploration Permit with the State of Alaska Mental Health Trust Unit, a
division of the Alaska Department of Natural Resources. Access to the property
is by charter air service from Anchorage to public or private airstrips, then
over state maintained roads to the property. Alternative transport is by barge
up the Kuskokwim River to Sterling Landing, the eastern terminus of the current
road system.
Placer gold production from the District has been significant and is
estimated at greater than 600,000 troy ounces, including over 200,000 troy
ounces from streams proximal to the property. Production is continuing from five
drainages in the District.
In the District, Cretaceous graywackes and mudstones have been intruded
by late Cretaceous to early Tertiary gold-mineralized granite porphyry sills,
dikes, and small stocks. These intrusive rocks and/or their alteration zones are
the source of gold in the placer deposits. The exploration objective will be to
define ore in bedrock with sufficient size potential and gold grade to justify
development.
During August 1996, USMX conducted preliminary geological mapping,
geochemical sampling and geophysics, with additional exploration activities
planned for 1997. USMX's investment in this property was approximately $99,800
at December 31, 1996.
Cala Abajo, Puerto Rico. During 1992, 1993 and 1994, USMX acquired an
equity interest currently totaling approximately 80% of the outstanding common
stock of Southern Gold Resources (USA), Inc. ("Southern Gold"), a Colorado
corporation. On October 5, 1992, Southern Gold was granted an exclusive
exploration permit by the Puerto Rican government covering 2,170 acres that
include the Cala Abajo copper/gold deposit in western-central Puerto Rico. The
prospecting permit may be extended year to year for a maximum 10 year period and
gives Southern Gold the exclusive right to conduct exploration and environmental
studies and to negotiate a mining lease covering the permit area. In September
1996 the permit was extended by the Puerto Rican government through September
1997. Through 1995, USMX incurred approximately $1.0 million in drilling,
metallurgical test work, engineering and base line environmental studies.
In 1995, the Commonwealth of Puerto Rico amended its mining law to
prohibit open pit mining of metal deposits on the island. The effect of the
mining law, as currently amended, was to render Southern Gold's plan for
development of the Cala Abajo deposit uneconomic. Accordingly, USMX's investment
was written off in 1995. Southern Gold has notified the Puerto Rican government
of its belief that the government's action was unjustified and harmful to
Southern Gold. Southern Gold is considering whether any other action is
warranted.
Other United States Mineral Properties. USMX has additional mineral
properties, located in Utah, Montana, Wyoming, Alaska and Nevada in the United
States. These additional properties are currently being explored solely by USMX.
<PAGE>
<TABLE>
<CAPTION>
Investment as of
Property State Status December 31, 1995
- -------- ----- ------ -----------------
<S> <C> <C> <C>
Goldstrike Area Utah Drilling proposed $358,000
Baggs Creek/Hidden Hand Montana Has small resource 69,000
Roundtop Alaska Part of Illinois Creek 45,000
Jack Springs Nevada Has small resource -0-
Mexico
</TABLE>
USMX is currently investigating several opportunities located primarily
in the northern Mexican states of Sonora, Chihuahua and Coahuila. The more
significant projects USMX is currently evaluating are described below.
Amargosa. This property is located approximately 95 kilometers
southeast of Juarez in the state of Chihuahua. The property is accessible from
Juarez on Highway 2, southeast for 90 kilometres to El Porvenir, then via poorly
maintained dirt roads to the project. USMX controls by denouncement
approximately 15,100 acres. USMX must meet certain minimum work requirements
arising from Mexican mining law to maintain its rights to the properties. In
addition, if the properties are placed into production, USMX will be obligated
to pay a net smelter return royalty of 2.75% on production from most of the
properties.
A significant amount of exploration was conducted on the Amargosa
polymetallic massive sulfide targets in 1994. Results of this drilling at
Amargosa were geologically interesting; however, continuity of mineralization
between holes was not demonstrated.
A strong magnetic anomaly has been partially defined at the edge of a
ground geophysical survey, caused by a pyrrohite body. Massive sulfide
mineralization is associated with and adjacent to the anomaly. Although this
property continues to hold a great deal of geologic interest, no economic
mineralization has yet been identified. Accordingly, management recorded an
impairment loss of $1.0 million in 1995 and USMX's carrying value in this
property was reduced to zero in 1996.
Boludo Goldfields. Early in 1994, USMX acquired by lease and purchase
option approximately 5,400 acres in the Boludo Goldfields placer district
located approximately 121 kilometres southwest of Nogales in northwest Sonora.
Access to the property is via paved highway and well maintained dirt road.
During 1994, 328 backhoe pits were dug at Boludo by USMX to test for placer
gold. In addition, several drill holes were put down in the hard rock targets.
This drilling failed to identify significant mineralization. In 1995, USMX
entered into an agreement with Resource Trend Pty Ltd, an Australian mining
company, which firm has informed USMX that it intends to commence production in
1997. USMX retains a royalty interest on future production from the property.
USMX's investment in this project was approximately $487,000 as of December 31,
1996.
Noche Buena. The Noche Buena Project was acquired by USMX in 1992. USMX
controls by denouncement of concessions, approximately 18,800 acres, subject to
Mexican mineral property taxes and work obligations.
The property is located in northwestern Sonora approximately 45
kilometres northwest of the city of Caborca in the state of Sonora. Access from
Caborca is via Highway 2 north for 60 kilometres then west via dirt roads for
approximately 10 kilometres.
USMX conducted exploration on the concessions in 1993 and 1994
outlining a drill indicated gold resource of 70,000 ounces, which is open in all
directions. The project was joint ventured to Minera Kennecott, the Mexican
entity of RTZ-CRA, on July 15, 1995, under terms whereby Kennecott can earn
majority interest in the project by paying USMX $850,000 spending $2,500,000
over a period of five years and delivering to USMX a feasibility study. Upon
delivery of a feasibility study USMX has the option to participate in the joint
venture at 35% or elect a 4 to 4.5% net smelter royalty depending on gold price.
<PAGE>
Kennecott has expanded on the drilling conducted by USMX as well as
completed geochemical and geophysical surveys over the property. Based on the
encouraging results of this work, it is expected that Kennecott will conduct
additional drilling on this property in 1997. As of December 31, 1996, USMX's
investment in Noche Buena was approximately $257,000.
Samalayuca. Samalayuca is located approximately 40 kilometres south of
Juarez in the state of Chihuahua, and is accessed via Highway 45 to the town of
Samalayuca then via dirt roads west a few kilometres to the property. USMX
controls by lease agreement and denouncement approximately 19,000 acres. The
lease, executed on August 12, 1992, provides for a twenty year term. If the
exploration work is successful, the owners will be paid a 3% net smelter return
royalty on base metals and a 4% net smelter return royalty on precious metals
produced and sold from the property. USMX or its joint venture partner must make
annual advance royalties of $25,000 and must meet certain minimum work
requirements.
The property is a sediment hosted, stratabound copper/silver property
with primary chalcocite mineralization. In the past (pre 1975), local miners
shipped copper bearing quartzite to the El Paso smelter as flux. These miners
were paid for the copper content of this material which ranged from one to three
percent. Previous mining ceased when copper prices fell in the mid 1970's.
USMX has conducted short hole air track drilling as well as limited
rotary and core drilling since acquisition of the property. Results of this work
have been inconclusive due to structural complexity and associated oxidation and
the depletion of copper values in the near surface environment.
During 1995, the property was joint ventured with a subsidiary of
Phelps Dodge Corporation. Phelps Dodge has conducted geophysical surveys over
the property and has recently completed a first phase drilling program. As of
December 31, 1996, USMX had invested a total of $508,000 in the property.
Sierra Mojada. This property is located approximately 200 kilometres
north of Torreon in the state of Coahuila. Access is via improved dirt road
north from Torreon or by railroad from Monclova. USMX controls by denouncement
approximately 15,900 acres in the district.
Production from the district in the past has been significant,
consisting of copper, zinc, lead and silver. The district was discovered in 1878
with most of the past production occurring between 1890 and 1945.
On July 26, 1996 USMX entered into a joint venture agreement with
Metalline Mining Company to further explore and develop the property. USMX may
elect to participate for a 35% working interest or receive a net smelter royalty
after earn-in by Metalline. USMX's investment in this project was approximately
$34,000 as of December 31, 1996.
Other Mexican Mineral Properties. USMX has additional mineral properties in
Mexico as follows.
Investment as of
Property State Status December 31, 1996
- -------- ----- ------ -----------------
Altar, Los Apaches Sonora Joint Venture $240,000
El Ocuca, Las Rastras Sonora Joint Venture $146,000
San Miguel Sonora Available for Lease $ 36,000
Ecuador
In 1995, USMX acquired all of the outstanding capital stock of Mega
Minerals S.A., an Ecuadorian company. The assets of the Ecuadorian company at
the time of acquisition consisted of title to eight exploration concessions
comprising approximately 80,600 acres and the right to acquire title to four
<PAGE>
additional exploration concessions comprising approximately 5,900 acres. The
twelve concessions are located in the Nambija-Zamora gold belt of southern
Ecuador. Initial exploration on these concessions has yielded encouraging
results. Follow-up geological mapping and geochemical sampling of stream
sediments anomalous in base and precious metals have identified a two kilometer
by three kilometer zone of skarn type alteration with associated base metals and
gold mineralization. An exploration program is being planned to further evaluate
the discovery. USMX is seeking to interest other mining companies in
participating in a joint venture. USMX's investment in Ecuador as of December
31, 1996 totaled $335,000.
DESCRIPTION OF USMX CAPITAL STOCK
USMX's authorized capital consists of 45,000,000 shares of Common
Stock, par value $.001 per share, and 20,000,000 shares of preferred stock,
$.001 par value (the "Preferred Stock"). As of December 31, 1996, there were
16,184,182 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding.
Dividends may be declared and paid from the Common Stock out of legally
available surplus. Such dividends may be paid in cash, property or shares of
Common Stock. The Board of Directors of USMX may set aside reserves out of funds
available for dividends for any purpose the Board of Directors of USMX
determines in USMX's best interest. At present, USMX is restricted pursuant to
loan covenants in the payment of dividends. USMX has no present plans to pay
dividends in the foreseeable future.
Each share of Common Stock is entitled to share equally in dividends
from sources legally available therefore when, as, and if declared by the Board
of Directors of USMX and, upon liquidation or dissolution of USMX, whether
voluntary or involuntary, to share equally in the assets of USMX available for
distribution to the holders of the Common Stock. Each holder of Common Stock is
entitled to one vote per share for all purposes.
The holders of Common Stock have no preemptive rights and there is no cumulative
voting, redemption right or right of conversion with respect to the Common
Stock.
No shares of Preferred Stock have been issued. However, the Board of
Directors of USMX has the right to fix the rights, privileges and preferences,
including preference upon liquidation, of any class of Preferred Stock to be
issued in the future out of authorized but unissued shares of Preferred Stock.
The Board of Directors of USMX may issue these shares after adopting and filing
a certificate of designations with the Secretary of State of the State of
Delaware.
Certain Potential Anti-Takeover Effects
USMX currently has certain provisions in its Certificate of
Incorporation and Bylaws which may be viewed as having "anti-takeover" affects.
These provisions may make it more difficult and time-consuming to change
majority control of USMX and of the Board of Directors of USMX and could reduce
the vulnerability of USMX to an unsolicited offer to "take over" USMX. These
measures could have an adverse impact on the market value of the Common Stock.
Stockholders of USMX do not have cumulative voting rights in the election of
directors. USMX currently has authorized but unissued shares of both Common
Stock and Preferred Stock that could be issued in such a way as to have
anti-takeover effects. The Board of Directors of USMX could create an issue of
shares of Preferred Stock with such voting or conversion rights which would make
divestment of USMX more difficult or costly.
In addition, the Certificate of Incorporation and/or Bylaws may be
deemed to have anti-takeover effects in that they provide for: (i) the Board of
Directors to be divided into three classes of directors, each with a term of
three years, (ii) 66 2/3% stockholder vote to remove directors other than for
cause, and (iii) a 66 2/3% stockholder vote to amend certain provisions of the
Certificate of Incorporation and Bylaws.
Trading History
USMX Common Stock is listed for trading on the TSE under the symbol
"USM" and is quoted through Nasdaq under the symbol "USMX." The following table
sets forth, for the periods indicated, the high and low sale prices per share of
USMX Common Stock as reported by Nasdaq. On January 2, 1997, the day preceding
<PAGE>
the date of the public announcement of the Merger, the closing sale price on
Nasdaq was U.S. $1.75 per share. No information has been furnished with respect
to the sales prices on the TSE as trading of USMX Common Stock on that exchange
has been limited and sporadic in nature. For current price information,
stockholders are encouraged to consult publicly available sources.
<TABLE>
<CAPTION>
Nasdaq
Volume
High Low (000's)
(U.S.$)
TOTAL BLOCK
<S> <C> <C> <C> <C>
1995
First quarter............ $2.75 $2.06 1,080,515 80,000
Second quarter........... 2.94 2.13 1,648,662 328,200
Third quarter............ 2.63 1.97 1,881,695 411,450
Fourth quarter........... 2.06 1.75 1,347,137 174,500
1996
First quarter............ 3.25 1.94 2,576,586 514,000
Second quarter........... 3.13 2.44 837,129 47,000
Third quarter............ 2.75 2.06 1,057,138 224,000
Fourth quarter........... 2.44 1.44 1,672,758 164,200
1997
January.................. 1.62 1.47 591,586 34,900
February................. 1.50 1.32 927,351 56,020
</TABLE>
Dividend Policy
USMX has not paid any cash dividends since its inception. USMX anticipates
that earnings would be retained for the development of its business and that no
cash dividends on its Common Stock will be paid in the foreseeable future. In
addition, USMX is restricted from the payment of dividends pursuant to its
lending arrangements with Rothschild on the Illinois Creek Project. See
"Business and Properties of USMX."
LEGAL MATTERS
Parcel, Mauro, Hultin & Spaanstra, P.C., Denver, Colorado, is acting as
U.S. counsel, and McCarthy Tetrault, Vancouver, B.C., Canada, is acting as
Canadian counsel for Dakota in connection with certain legal matters in
connection with the Merger.
Bearman Talesnick & Clowdus Professional Corporation, Denver, Colorado, is
acting as counsel for USMX in connection with certain legal matters in
connection with the Merger. Attorneys employed by Bearman Talesnick & Clowdus
Professional Corporation beneficially own approximately 27,000 shares of USMX
Common Stock.
EXPERTS
The consolidated financial statements of Dakota Mining Corporation as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996 have been included herein and in the Registration
Statement in reliance upon the report of KPMG, chartered accountants, appearing
elsewhere herein and in reliance upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of USMX, INC. and subsidiaries as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996 have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
<PAGE>
USMX's Illinois Creek Project reserves have been reviewed by Roscoe Postle
Associates Inc. and information regarding their Report has been included herein
and in the Registration Statement in reliance upon their Report and upon the
authority of such firm as experts in mining, geology and reserves determination.
SHAREHOLDERS PROPOSALS
Proposals by Shareholders of Dakota to be presented at the next Annual
Meeting of Dakota Shareholders must be received by Dakota a reasonable amount of
time prior to such meeting to be included in Dakota's Proxy Statement and proxy
for that meeting. The proponent must be a record or beneficial owner entitled to
vote on his or her proposal at the next Annual Meeting and must continue to own
such security entitling him or her to vote through that date on which the
Meeting is held. The proponent must own 1% or more of the outstanding shares, or
$1,000 in market value, of Dakota's Common Shares and must have owned such
shares for one year in order to present a shareholder proposal to Dakota.
Proposals by USMX Stockholders to be presented at the next Annual Meeting
of USMX Stockholders must be received by USMX a reasonable amount of time prior
to such meeting to be included in USMX's Proxy Statement and proxy for that
meeting. The proponent must be a record or beneficial owner entitled to vote on
his or her proposal at the next Annual Meeting and must continue to own such
security entitling him or her to vote through that date on which the Meeting is
held. The proponent must own 1% or more of the outstanding shares, or $1,000 in
market value, of USMX's Common Stock and must have owned such shares for one
year in order to present a shareholder proposal to USMX.
ANNUAL REPORT ON FORM 10-K
Copies of the Annual Report Form 10-K concerning the operations of Dakota
during the fiscal year ended December 31, 1996, including audited financial
statements for the year then ended, may be obtained upon written request of the
Secretary of the Company at 410 17th Street, Suite 2450, Denver, Colorado 80202.
Copies of the Annual Report Form 10-K concerning the operations of USMX
during the fiscal year ended December 31, 1996, including audited financial
statements for the year then ended, may be obtained upon written request of the
Secretary of the Company at 141 Union Boulevard, Suite 100, Lakewood, Colorado
80228.
<PAGE>
<PAGE>
GENERAL GLOSSARY
"AMEX" means the American Stock Exchange.
"BSE" means the Berlin Stock Exchange.
"Canaccord" means Canaccord Capital Corporation.
"Canadian GAAP" means generally accepted accounting principles in Canada.
"Canadian Securities Acts" mean the securities acts and regulations of each of
the provinces of Canada in which there are Dakota Shareholders.
"Canadian Tax Act" means the Income Tax Act (Canada).
"Closing" means the closing of the Merger on the Effective Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Transaction"means any acquisition of, or business combination with,
USMX or any of its Subsidiaries or any material portion of its or their shares
of capital stock or assets by any Person other than Dakota or any of its
Subsidiaries, or any firm proposal to make such an acquisition or combination.
"Dakota" means Dakota Mining Corporation, a corporation continued under the laws
of Canada, and where the context so requires means Dakota and its Subsidiaries.
"Dakota Common Shares" means the common shares, no par value, in the capital of
Dakota.
"Dakota Group" means Dakota and its Subsidiaries.
"Dakota Meeting" means the annual and special meeting of the Dakota Shareholders
to be held on May 22, 1997 at 4:00 p.m., local time, in Toronto, Ontario.
"Dakota Record Date" means April 14, 1997.
"Dakota Shareholders" means the holders of record of Dakota Common Shares as of
the Dakota Record Date.
"Debentures" means the Cdn.$.25 million aggregate principal amount of 7.5%
unsecured convertible debentures of Dakota described under the heading "Dakota
Mining Corporation - Description of Dakota Share Capital and Debentures
Debentures."
"DGCL" means the General Corporation Law of the State of Delaware.
"Effective Date" means the effective date of the Merger.
"Effective Time" means the effective time of the Merger on the Effective Date.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Agent" means Montreal Trust Company of Canada.
<PAGE>
"IRS" means the United States Internal Revenue Service.
"Joint Proxy Statement/Prospectus" means this Prospectus, Management Information
Circular and Proxy Statement of Dakota, and Management Information Circular and
Proxy Statement of USMX.
"Laws" means all statutes, codes, ordinances, decrees, rules, regulations,
municipal by-laws, judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards, or
any provisions of the foregoing, including general principles of common and
civil law and equity, binding on or affecting the Person referred to in the
context in which such word is used; and "Law" means any one of them.
"Merger" means the merger of USMX and Merger Corp. whereby USMX becomes the
Surviving Corporation as contemplated in the Merger Agreement.
"Merger Agreement" means the agreement dated February 5, 1997 between Dakota,
Merger Corp. and USMX relating to the Merger annexed to the Joint Proxy
Statement/Prospectus as Appendix A.
"Merger Corp." means Dakota Merger Corporation, a Delaware corporation and a
wholly-owned subsidiary of Dakota.
"Merger Consideration" means the number of Dakota Common Shares issued to USMX
Stockholders pursuant to the Merger.
"Montana Tunnels Royalty Agreement" means the agreement dated March 17, 1997
among USMX, USMX of Montana, Inc., and Pegasus Gold.
"Nasdaq" means the Nasdaq National Market System.
"Newcrest" means Newcrest Capital, Inc.
"Option Agreement" means the agreement dated for reference the 4th day of
February, 1997 between Dakota and USMX providing for the option described under
"Terms of The Merger - Other Agreements - Option Agreement."
"Pegasus Gold" means Pegasus Gold Corporation a Nevada company, which is a
principal stockholder of USMX.
"Person" means any individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including a
domestic or foreign government or political subdivision or any agency or
instrumentality thereof.
"Rothschild" means N.M. Rothschild & Sons, Limited.
"Rothschild Credit Agreements" mean those certain Credit Agreements dated July
11, 1996 between USMX, USMX of Alaska, Inc. and Rothschild, and all instruments
and documents delivered in connection therewith, and all modifications,
extensions and renewals thereof.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the United States Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Securities Act Affiliates" means affiliates of a Person for purposes of Rule
145 under the Securities Act.
"Series B Special Warrants" means the Series B Special Warrants described under
the heading "Financing."
<PAGE>
"Share Exchange Ratio" means the ratio of 1.1 shares of USMX Common Stock for
each one Dakota Common Share.
"Subsidiary" means, with respect to any Person, a corporation the voting
securities of which sufficient to elect at least a majority of its Board of
Directors are owned directly or indirectly by such Person and includes a
subsidiary of such corporation that is that Person's subsidiary.
"Surviving Corporation" means USMX in its capacity as that corporation whose
separate corporate existence will not cease upon the merger of Merger Corp. with
and into USMX pursuant to the terms and conditions of the Merger Agreement.
"Termination Fee" means the fee which may be paid by USMX as described under
"Terms of The Merger Termination of the Merger Agreement."
"TSE" means The Toronto Stock Exchange.
"U.S. GAAP" means the generally accepted accounting principles in the United
States.
"U.S. Person" means any (a) citizen or resident of the United States; (b) United
States corporation or partnership; or (c) estate or trust subject to United
States federal income tax on its worldwide income.
"USMX" means USMX, Inc., a corporation formed under the laws of Delaware, and
where the context so requires means USMX and its Subsidiaries.
"USMX Common Stock" means the shares of the common stock, par value $.001 per
share of USMX.
"USMX Group" means USMX and its Subsidiaries.
"USMX Meeting" means the annual and special meeting of the stockholders of USMX
to be held on May 20, 1997 in Lakewood, Colorado at 10:00 a.m. local time.
"USMX Options" means all warrants, options or other rights to acquire USMX
Common Stock.
"USMX Record Date" means April 16, 1997.
"USMX Securities" means the USMX Common Shares and USMX Options, collectively.
"USMX Stockholders" means the holders of record of USMX Common Stock as of the
USMX Record Date.
"USRPI" mean a United States real property interest as defined in Section
897(c)(1) of the Code.
<PAGE>
GLOSSARY OF CERTAIN MINING TERMS
The following is a glossary of some of the terms used in the mining industry and
referenced herein:
"Adsorption" A process in which soluble complexes of gold and silver physically
adhere without chemical reaction to activated carbon particles.
"Contained Gold" The total measurable gold or gold equivalent in grams or ounces
estimated to be contained within a mineral deposit. A calculation or estimate of
contained gold makes no allowance for mining dilution or recovery losses.
"Cutoff grade" The grade of mineralization, established by reference to economic
factors, above which material is included in mineral deposit reserve/resource
calculations and below which the material is considered waste. May be either an
external cutoff grade which refers to the grade of mineralization used to
control the external or design limits of an open pit based upon the expected
economic parameters of the operation, or an internal cutoff grade which refers
to the minimum grade required for blocks of mineralization present within the
confines of an open pit to be included in mineral deposit estimates.
"Desorption" A process in which gold and silver physically adhered to carbon
particles in the adsorption process are stripped from the carbon particles using
a weak acid solution.
"Gold Deposit" A mineral deposit mineralized with gold but without reference to
its potential economics.
"Gold Equivalent" A method of presenting combined gold and silver concentrations
or weights for comparison purposes. Commonly involves expressing silver as its
proportionate value in gold based on the relative values of the two metals. When
gold equivalent is used to express metal sold, the calculation is based on
actual prices received. When grades are expressed in gold equivalent, the
relative recoveries of the two metals are also taken into account.
"Grade" The amount of valuable mineral in each ton of mineralized material,
expressed as troy ounces (or grams) per ton or tonne of gold or as a percentage
of copper and other base metals.
"Heap Leaching" A method of gold and silver extraction in which mineralized
material is heaped on an impermeable pad and sodium cyanide solution is applied
to the material. The gold and silver are dissolved out of the material as the
solution percolates down through the heap, the pregnant solution is collected
from below the heap and the gold and silver are precipitated from the pregnant
solution in vessels or columns containing activated carbon or zinc powder.
"Leach Pad" A large, impermeable foundation or pad used as a base for ore during
heap leaching. The pad prevents the leach solution from escaping out of the
circuit.
"Lode Mining Claim" A mining claim located on a vein or lode of quartz or other
rock in place, bearing gold, silver, cinnabar, tin, lead, copper, or other
valuable deposits.
"Mineral Deposit, Deposit, or Mineralized Material" A mineralized body which has
been physically delineated by sufficient drilling, trenching, and/or underground
work, and found to contain a sufficient average grade of metal or metals to
warrant further exploration and/or development expenditures. Such a deposit does
not qualify under SEC standards as a commercially mineable ore body or as
containing ore reserves, until final legal, technical, and economic factors have
been resolved.
"Net Smelter Return Royalty" A royalty payment made by a producer of metals,
usually to a previous property owner or Governmental authority, based on the
value of gross metal production from the property, less deduction of certain
limited costs including smelting, refining, transportation and insurance costs.
<PAGE>
"Net Profits Interest Royalty" A royalty payment made by the producer of metals,
usually to a property owner or Governmental authority, based on the value of
gross metal production from the property, less deduction of certain costs
including smelting, refining, transportation and insurance costs (often referred
to as realization costs) plus direct operating costs associated with the mining
and treatment of ore and the mining of associated waste.
"Open Pit Mining" The process of mining ore body from the surface in
progressively deeper steps. Sufficient waste rock adjacent to the ore body is
removed to maintain mining access and to maintain the stability of the resulting
pit.
"Ore" A natural aggregate of one or more minerals which, at a specified time and
place, may be mined and sold at a profit, or from which some part may be
profitably separated.
"Ounce (Oz)" Troy ounce.
"Oxidized Ore (Also Referred to as "Oxide Ore")" Mineralized rock which can be
profitably mined and in which some of the original minerals have been oxidized
by natural processes. Oxidation tends to make the ore more porous and permits a
more complete permeation of cyanide solutions so that minute particles of gold
in the interior of the rock will be more readily dissolved.
"Oz/ton (Opt)" Troy ounces per short ton.
"Patented Mining Claim" A mining claim on the public land of the United States,
under the mining laws, for which a patent has been issued conveying the title of
the United States to the patentees.
"Porphyritic" A rock texture in which one mineral has a larger grain size than
the accompanying minerals.
"Probable Reserves" 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.
"Proven/probable Reserves" A term used if the difference in degree of assurance
between the proven and probable categories cannot be reliably defined.
"Proven Reserves" Reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes; grade and/or quality
are computed from the results of detailed sampling; and (b) the sites for
inspection, sampling and measurement are spaced so closely and the geological
character is so well defined that size, shape, depth and mineral content of
reserves are well established.
"Reserve" That part of a mineral deposit which can be economically and legally
extracted or produced at the time of the reserve determination. Reserves are
customarily stated in terms of "ore" when dealing with metalliferous minerals.
"Reverse Circulation Holes" Exploration drill holes in which the fine and coarse
rock chips created during drilling are rapidly flushed to the surface so that a
representative sample can be obtained.
"Stock" A body of intrusive rock that covers less than 40 square miles, has
steep dips and is generally discordant with surrounding rock.
"Strike Length" The longest horizontal dimensions of a body or zone of
mineralization.
"Stripping Ratio" The ratio of waste material to ore that is experienced in
mining an ore body.
"Unpatented Mining Claim" A mining claim located on the public lands of the
United States,for which a patent has not been issued. An unpatented mining
<PAGE>
claim is a possessory interest only, subject to the paramount title of the
United States. The validity of an unpatented mining claim depends upon the
existence of a valuable mineral deposit within the boundaries of the claim and
compliance with mining codes.
GEOLOGICAL STANDARDS
When used in this Joint Proxy Statement/Prospectus, the mineralized material in
the proven and probable categories were used to calculate the mining or mineable
reserves by application of minimum mining widths, dilution, recovery factors,
operating costs and metal prices. With respect to open pit mining, optimized
pits were generated, followed by detailed pit design and engineering in
establishment of mining/mineable reserves. The term "mining or mineable
reserves" used in this Joint Proxy Statement/Prospectus correspond to proven and
probable reserves.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
dated February 5, 1997
among
DAKOTA MINING CORPORATION,
DAKOTA MERGER CORPORATION,
and
USMX, INC.
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated February 5, 1997 (this "Agreement") among the
following parties (sometimes referred to herein individually as a "Party" and
collectively as the "Parties"):
(a) Dakota Mining Corporation, a corporation continued
under the Canada Business Corporation Act ("Dakota");
(b) Dakota Merger Corporation, a Delaware corporation and
wholly-owned subsidiary of Dakota ("Merger Corp"); and
(c) USMX, INC., a Delaware corporation ("USMX").
Capitalized terms used in this Agreement shall have the meanings ascribed to
such terms on Schedule A, unless otherwise defined herein.
RECITALS
WHEREAS, the common stock, par value US$.001 per share, of USMX ("USMX Shares")
is publicly traded in the United States and Canada and is quoted on the Nasdaq
National Market System and The Toronto Stock Exchange;
WHEREAS, the common shares, no par value, of Dakota ("Dakota Shares") are
publicly traded in Europe, Canada, and the United States and are quoted on the
Berlin Stock Exchange, The Toronto Stock Exchange, and the American Stock
Exchange;
WHEREAS, the respective Boards of Directors of Dakota, Merger Corp, and USMX
have approved and declared fair and advisable to, and in the best interests of,
their respective stockholders the Merger, upon the terms and subject to the
conditions set forth herein, whereby all of the issued and outstanding USMX
Shares will be converted into Dakota Shares;
WHEREAS, for federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Tax
Code; and
WHEREAS, Dakota, Merger Corp, and USMX desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual benefits to be derived and the
representations and warranties, conditions and promises herein contained, and
intending to be legally bound hereby, the Parties agree as follows:
ARTICLE I
GENERAL
I.1 Merger. In accordance with the terms and provisions of this Agreement, the
GCL, and other applicable Law, Merger Corp shall be merged with and into USMX
(the "Merger"), and USMX shall be, and is hereinafter sometimes referred to as,
the "Surviving Corporation." Merger Corp and USMX shall be, and are hereinafter
sometimes referred to as, the "Constituent Corporations."
I.2 Charter and By-laws; Directors and Officers. From and after
the Effective Time:
(a) the Certificate of Incorporation and the By-laws of Merger Corp shall
continue in full force and effect as the Certificate of Incorporation and the
By-laws of the Surviving Corporation; and
(b) the directors and officers of Merger Corp shall be the
directors and officers of the Surviving Corporation.
I.3 No Separate Identity. Except as hereinafter specifically set forth, the
identity, existence, corporate organization, purposes, powers, objects,
franchises, privileges, rights and immunities of Merger Corp shall be merged
with and into USMX, and USMX, as the Surviving Corporation, shall be fully
vested therewith. The separate existence and the corporate organization of
Merger Corp, except insofar as they may continue by statute, shall cease as of
the Effective Time.
I.4 Effectiveness. The Merger shall not become effective until, and shall become
effective at, the point in time at which Certificate of Merger (the "Certificate
of Merger") in accordance with the terms of this Agreement and in substantially
the form attached as Exhibit 1.4, and in accordance with Section 251 of the GCL,
shall have been executed by the Constituent Corporations and filed with the
Secretary of State of the State of Delaware. The time when the Merger shall
become effective as aforesaid is herein called the "Effective Time." The Parties
shall cause the Certificate of Merger to be executed and filed as aforesaid on
the Closing Date upon the satisfaction or waiver of the conditions contained in
Articles VIII, IX, and X.
I.5 Conversion of Shares. As of the Effective Time, all outstanding USMX Shares
shall be converted automatically into the right to receive Dakota Shares in the
ratio of 1.10 USMX Shares to one Dakota Share; and each share of the common
stock of Merger Corp shall be converted automatically into the right to receive
one share of common stock of the Surviving Corporation.
I.6 Treasury Shares, Etc. Each USMX Share which, immediately prior to the
Effective Time, is held by (a) USMX as treasury stock, (b) any other member of
the USMX Group, or (c) any member of the Dakota Group, shall be canceled and no
consideration shall be delivered with respect thereto.
I.7 Warrants, Options, Etc. Each warrant, option, or other right to acquire USMX
Shares as of the Effective Time shall be converted into a warrant, option, or
other right to acquire Dakota Shares based on the conversion ratio set forth in
Section 1.5, with the exercise price associated therewith, if any, being
adjusted proportionately.
I.8 No Fractional Shares. Fractional Dakota Shares shall not be issued in
exchange for USMX Shares. Except for operation of this Section, if the
conversion of shares pursuant to Section 1.5 would result in any stockholder of
USMX being entitled to receive a fractional interest in a Dakota Share, such
stockholder shall receive a single whole Dakota Share in lieu of such fractional
interest.
I.9 Stock Transfer Books. The stock transfer books of USMX shall be closed as of
the Effective Time, and no transfer of USMX Shares shall be made or consummated
thereafter except by the Surviving Corporation.
I.10 Exchange of Certificates.
(a) Dakota and USMX shall authorize Montreal Trust Company of Canada (or
such other Person as shall be reasonably acceptable to Dakota and USMX) to act
as Exchange Agent hereunder (the "Exchange Agent"). As soon as practicable after
the Effective Time, Dakota shall deposit with the Exchange Agent for the benefit
of the holders of certificates which immediately prior to the Effective Time
represented USMX Shares (the "Certificates") certificates representing Dakota
Shares (together with any dividends or distributions with respect thereto
payable as provided in Section 1.10(c), the "Exchange Fund") issuable pursuant
to Section 1.5 in exchange for outstanding USMX Shares.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of a Certificate whose shares were converted
pursuant to Section 1.5 into Dakota Shares a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual and proper delivery of the
Certificates to the Exchange Agent, shall contain instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing Dakota Shares, and shall be in such form and contain such other
provisions as Dakota and USMX may reasonably specify). Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of whole
Dakota Shares which such holder has the right to receive pursuant to this
Article, and the Certificate so surrendered shall forthwith be canceled. Until
surrendered as contemplated by this Section, each Certificate shall, at and
after the Effective Time, be deemed to represent only the right to receive, upon
surrender of such Certificate, the certificate representing the appropriate
number of Dakota Shares and certain dividends and other distributions as
contemplated by Section 1.10(c).
(c) No dividends or other distributions that are declared on or after the
Effective Time on Dakota Shares or are payable to the holders of record thereof
on or after the Effective Time will be paid to persons entitled by reason of the
Merger to receive certificates representing Dakota Shares until such persons
surrender their Certificates, as provided in Section 1.10(b). Subject to the
effect of applicable Law, there shall be paid to such record holders of the
certificates representing such Dakota Shares (1) at the time of such surrender
or as promptly as practicable thereafter, the amount of any dividends or other
distributions theretofore paid with respect to whole Dakota Shares and having a
record date on or after the Effective Time and a payment date prior to such
surrender and (2) at the appropriate payment date or as promptly as practicable
thereafter, the amount of dividends or other distributions payable with respect
to whole Dakota Shares and having a record date on or after the Effective Time
but prior to surrender and a payment date subsequent to surrender. In no event
shall the person entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions. If any
cash or certificate representing Dakota Shares is to be paid to or issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such Dakota Shares in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
(d) Any portion of the Exchange Fund which remains undistributed to the
former stockholders of USMX for one year after the Effective Time shall be
delivered to Dakota, upon demand of Dakota, and any former stockholders of USMX
who have not theretofore complied with this Section shall thereafter look only
to Dakota for payment of their claim for Dakota Shares and any dividends or
distributions with respect to Dakota Shares. Neither Dakota nor USMX shall be
liable to any holder of USMX Shares for Dakota Shares (or dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat, or similar Law.
I.11 Directors of Dakota. Immediately following the Effective Time, Dakota shall
increase the number of directors comprising its Board of Directors to nine;
Dakota shall allow USMX to designate three directors and Pegasus Gold Inc. to
designate one director to fill the vacancies created by increasing the board
size, subject to Dakota's approval, with Donald P. Bellum as one of the three
USMX designated directors and the Chairman of the Board.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF USMX
USMX makes the following representations and warranties to Dakota and Merger
Corp. However, certain matters disclosed on any Exhibit hereto may not be
required to be disclosed therein, but may be stated therein for information
purposes only, and no such disclosure shall constitute an indication or
admission of the materiality thereof or create a standard of disclosure, and no
representation or warranty shall be deemed to have been made by USMX by reason
of the inclusion of such matters. Further, no representation or warranty shall
be deemed to have been made by USMX by virtue of any disclosures made on, or
contained in, any Exhibit hereto except to the extent expressly made in this
Article II.
II.1 Organization and Good Standing.
(a) Each of the USMX Group Members is a corporation duly organized, validly
existing, and in good standing under the Laws of the jurisdiction of its
incorporation and is qualified to transact business and is in good standing as a
foreign corporation in the jurisdictions (which are listed in Exhibit 2.1) where
it is required to qualify in order to conduct its business as presently
conducted, and where the failure to be so qualified would have a Material
Adverse Effect. Except as listed in Exhibit 2.1, there are no subsidiaries of
USMX, none of USMX's subsidiaries has any subsidiaries, and since December 31,
1991, neither USMX nor any of its subsidiaries has had any subsidiaries.
(b) Each USMX Group Member has the corporate power and authority to own,
lease, or operate its properties and to carry on its business as now conducted.
(c) USMX has heretofore delivered or made available to Dakota and Merger
Corp complete and correct copies of USMX's and its subsidiaries' respective
Certificate or Articles of Incorporation (or like charter document) and By-laws,
as each has been amended and is in effect on the date hereof.
II.2 Consents, Authorizations, and Binding Effect.
(a) USMX may execute, deliver, and perform this Agreement without the
necessity of any USMX Group Member obtaining any consent, approval,
authorization, or waiver, or giving any notice or otherwise, except for such
consents, approvals, authorizations, waivers, and notices:
(1) disclosed in Exhibit 2.2;
(2) which, with respect to consents, approvals, authorizations, and
waivers, have been obtained, are unconditional, and are in full force and
effect, and which, with respect to notices, have been given; or
(3) approval of the USMX stockholders in accordance with the GCL to be
obtained pursuant to Section 5.10.
(b) USMX has the full corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Transactions.
(c) This Agreement and the Transactions have been duly authorized by the
board of directors of USMX. This Agreement has been duly executed and delivered
by USMX and constitutes the legal, valid, and binding obligation of USMX,
enforceable against USMX in accordance with its terms, except
(1) as may be limited by bankruptcy, reorganization, insolvency, and
similar Laws of general application relating to or affecting the enforcement of
creditors' rights or the relief of debtors; and
(2) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(d) The execution, delivery, and performance of this
Agreement by USMX will not
(1) constitute a violation of the respective Certificates or Articles
of Incorporation (or like charter documents) or By-laws, each as amended, of any
USMX Group Member;
(2) with respect to the USMX Group, subject to obtaining any consent,
approval, authorization, or waiver described in Exhibit 2.2, conflict with,
result in the breach of or constitute a default under any Contract which would
have a Material Adverse Effect;
(3) constitute a material violation of any Law
applicable or relating to any USMX Group Member or the businesses
of the USMX Group; or
(4) with respect to the USMX Group, subject to obtaining any consent,
approval, authorization, or waiver described in Exhibit 2.2, result in the
creation of any Lien upon any of the assets of any USMX Group Member.
II.3 Minute and Stock Transfer Books. The minute books of each USMX Group Member
fairly reflect the corporate actions of the respective boards of directors and
the stockholders of each such USMX Group Member. The stock transfer books of
each USMX Group Member are correct, complete, and current, and all documentary
and stock transfer tax stamps required in connection with the issuance and
transfer of shares of the capital stock of each USMX Group Member, if any, have
been duly paid, affixed, and canceled.
II.4 Financial Statements and Financial Condition.
(a) The USMX Group has maintained its accounting books and records in all
material respects in compliance with the Foreign Corrupt Practices Act, as
amended.
(b) Except as described in Exhibit 2.4(b), the accounting books and records
of the USMX Group during the periods covered by the 1995 USMX Financial
Statements and the Interim USMX Financial Statements fairly reflect in all
material respects the items of income and expense and the assets and liabilities
of the USMX Group, including the nature thereof and the transactions giving rise
thereto (to the extent normally reflected in the accounting books and records of
the USMX Group Members) and provided a fair basis for the preparation of the
1995 USMX Financial Statements and the Interim USMX Financial Statements.
(c) Attached as Exhibit 2.4(c) are the Interim USMX
Financial Statements.
(d) The 1995 USMX Financial Statements have been prepared
in accordance with U.S. GAAP.
(e) The 1995 USMX Financial Statements and the Interim USMX Financial
Statements are correct and complete in all material respects and present fairly
in accordance with U.S. GAAP (except that the Interim USMX Financial Statements
may not contain notes and may be subject to year-end adjustments) the financial
position of the USMX Group as of the dates of such financial statements and the
results of operations and cash flows of the USMX Group for the periods covered
by such financial statements.
(f) The USMX Group has no liabilities (absolute, contingent, or otherwise)
required under U.S. GAAP to be set forth on a consolidated balance sheet (or in
the notes thereto) of the USMX Group, other than:
(1) those set forth, reserved against, or described on or in the 1995
USMX Balance Sheet (or in the notes thereto) or the Interim USMX Financial
Statements;
(2) those incurred by the USMX Group in the ordinary course of
business since the date of the Interim USMX Balance Sheet;
(3) obligations to be performed after the date hereof based on the
operations of any USMX Group Member after the date hereof under any Contract of
such USMX Group Member; and
(4) those described or disclosed on, or which may arise out of or with
respect to the matters or Contracts described or disclosed on, the Exhibits to
this Agreement, or those which may arise out of or with respect to matters or
Contracts that would be required to be disclosed on such Exhibits but for the
limitations on such disclosure contained in the representations and warranties
relating to such Exhibits.
II.5 Title and Condition of Assets.
(a) Exhibit 2.5(a) lists all of the real property owned by the USMX Group
in fee simple and all unpatented mining claims, real property leases, and
concessions in which any USMX Group Member has a right or interest.
(b) To the knowledge of USMX, except as described in
Exhibit 2.5(b),
(1) the USMX Group has good and sufficient title to all real property
owned by it in fee simple, and is in exclusive possession thereof, free and
clear of Liens other than Permitted Liens and statutory Liens not yet
delinquent;
(2) the USMX Group has good and sufficient title to all material
tangible personal property owned by it free and clear of Liens other than
Permitted Liens and statutory Liens not yet delinquent;
(3) with respect to the unpatented mining claims in
which any USMX Group Member has a right or interest,
(A) such claims were properly laid out and staked and properly
recorded and filed with appropriate Governmental agencies and, subject to the
paramount title of the United States, are free and clear of Liens other than
Permitted Liens and statutory Liens not yet delinquent;
(B) all required assessment work has been performed and all
affidavits of assessment work and other filings required to maintain such claims
in good standing have been properly and timely recorded and filed with
appropriate Governmental agencies;
(C) all claim maintenance and claim rental fees and all taxes
assessed against such claims have been timely paid; and
(D) there are no conflicting claims;
provided that USMX makes no representation that there has been a discovery of
minerals on each of the unpatented mining claims; and
(4) with respect to concessions in which the USMX Group has an
interest, all acts and payments necessary to obtain and maintain such
concessions in good standing have been timely made or performed.
(c) To the knowledge of USMX, all mineral production rights or other
royalties of any sort whatsoever which are payable with respect to any real
property in which any USMX Group Member has a right or interest are described in
Exhibit 2.5(c).
(d) To the knowledge of USMX, no improvement or structure on any real
property owned or leased by any USMX Group Member encroaches to any material
extent on any adjacent property or conflicts with the rights of any owner
thereof.
(e) The material improvements, fixtures, and appurtenances on or to the
property and the material tangible assets, owned or leased and used by any USMX
Group Member, are in substantially good operating condition, order, and repair,
subject to ordinary wear and tear, except as described in Exhibit 2.5(e). Since
December 31, 1996, none of the assets of any USMX Group Member has been affected
by any fire, accident, act of God, or any other casualty that has had a Material
Adverse Effect. All of the material assets used by any USMX Group Member in its
businesses are owned or leased by such USMX Group Member.
(f) The businesses of the USMX Group as conducted by the USMX Group Members
in any jurisdiction are not conducted under any material restriction imposed in
any such jurisdiction upon the USMX Group Members (but not imposed upon other
persons conducting similar businesses or operating similar assets for similar
purposes in the same jurisdictions where the businesses and assets of the USMX
Group are located) by any zoning, anti-pollution, health, or other Law.
II.6 Insurance.
(a) Exhibit 2.6 contains a list of all material policies of insurance
maintained by the USMX Group, including insurance providing benefits for
employees, in effect on the date hereof and generally describing the coverage
thereby.
(b) Except for amounts deductible under the policies of insurance
described, or as otherwise disclosed, in Exhibit 2.6, no USMX Group Member is or
has been at any time since December 31, 1994, subject to any Liability as a
self-insurer of the businesses and assets of the USMX Group, in respect of
insurance of the type customarily carried by businesses of the type engaged in
by the USMX Group in the jurisdictions where the USMX Group maintains offices,
which could have a Material Adverse Effect.
(c) There are no material coverage disputes with underwriters pending or,
to the knowledge of USMX, threatened, and all premiums due and payable have been
timely paid and all such material policies are in full force and effect in
accordance with their respective terms (however, no representation or warranty
is made as to the solvency or financial condition of any underwriter or issuer
of such policy).
II.7 Litigation and Compliance.
(a) Except as to the matters described in Exhibit 2.7(a), and except for
actions, suits, claims, and proceedings where the damages asserted by the
plaintiff in such actions, suits, claims, or proceedings (together with the
damages claimed in the matters described in Exhibit 2.7(a)) would not have a
Material Adverse Effect or where insurance proceeds will be actually available
for such actions, suits, claims, and proceedings:
(1) as of the date of this Agreement, there are no actions, suits,
claims, or proceedings, whether in equity or at law, or Governmental
investigations pending or, to the knowledge of USMX, threatened against any USMX
Group Member or with respect to any asset or property owned, leased, or used by
any USMX Group Member; and
(2) there are no actions, suits, claims, or proceedings, whether in
equity or at law, or Governmental investigations pending or, to the knowledge of
USMX, threatened which question or challenge the validity of this Agreement or
any action taken or to be taken pursuant to this Agreement.
(b) Each USMX Group Member is in compliance with, and is not in default or
violation under, any Law applicable to the businesses or operations of the USMX
Group, including without limitation all safety and health Laws (but excluding
any Environmental Law), except for noncompliances, defaults, and violations
which would not, in the aggregate, have a Material Adverse Effect, and no USMX
Group Member has received any notice of the same.
(c) Except as described in Exhibit 2.7(c), no USMX Group Member, no
material assets of any USMX Group Member, nor the Transactions are subject to
any judgment, order, or decree entered in any lawsuit or proceeding which has
had, or which is reasonably likely to have, a Material Adverse Effect or which
would prevent USMX from performing its obligations under this Agreement. Each
USMX Group Member subject to any such judgment, order, or decree is in
compliance in all material respects with, and is not in default or violation in
any material respect under, any such judgment, order, or decree.
(d) Except as described in Exhibit 2.7(d), and except as may be required
under any Environmental Law, each USMX Group Member has duly filed all reports
and returns required to be filed by it with any Government and obtained all
Governmental permits and licenses and other Governmental consents which are
required in connection with the businesses and operations of the USMX Group, the
failure of which would have a Material Adverse Effect. All of such material
permits, licenses, and consents are in full force and effect, and to the
knowledge of USMX, no proceedings for the suspension or cancellation of any of
them are pending or threatened.
(e) Neither USMX nor, to the knowledge of USMX, any other USMX Group
Member, either on its own behalf or on behalf of any of its respective officers,
agents, consultants, or employees, has
(1) made or agreed to make any contributions, payments, or gifts of
their funds or property to any Governmental official, employee, or agent where
the payment of such contribution, payment, or gift was illegal under any
applicable Law;
(2) established or maintained any unrecorded fund or asset for any
such purpose, or made any intentional false or artificial entry on any of its
books or records in connection with any such activity; or
(3) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other person, to candidates for
public office, whether federal, state, local, or foreign, where such
contribution was a violation of applicable Law by any USMX Group Member.
II.8 Taxes.
(a) The USMX Group has paid in all material respects on or before the due
date thereof, or accrued in all material respects on the 1995 USMX Financial
Statements, all federal, state, local, and foreign Taxes for all periods ending
on or prior to December 31, 1996. The USMX Group has made provision (subject to
year-end audit adjustments) in all material respects on its accounting books and
on the Interim USMX Balance Sheet for all federal, state, local, and foreign
Taxes accruing since the date of the 1995 USMX Financial Statements. As of the
Effective Time, the USMX Group will have duly and timely filed all Tax reports
and returns required to be filed by any USMX Group Member on or before such date
(subject to extensions which have been granted to such USMX Group Member or
extensions to which such USMX Group Member is entitled under then applicable
Laws); and all such Tax reports and returns were, or will be, complete and
correct in all material respects.
(b) Since December 31, 1991, the taxable income of the USMX Group has been
included in the consolidated federal income tax returns of USMX to the extent
required to be included under the Tax Code; and all such federal income tax
returns as they relate to the USMX Group were complete and correct in all
material respects.
(c) Except as described in Exhibit 2.8, no USMX Group Member has received
notice of any material Tax deficiency, claim, or dispute outstanding, proposed,
or assessed against any USMX Group Member (which has not been satisfied or for
which provision has not been made on the books and records of the USMX Group),
nor has any USMX Group Member executed any waiver of any statute of limitations
on the assessment or collection of any material Taxes or executed or filed with
the Internal Revenue Service or any other Taxing authority (including foreign
Taxing authorities) or executed any agreement now in effect extending the period
for assessment or collection of any material Taxes.
(d) There are no Tax Liens (other than Permitted Liens) upon, pending
against or, to the knowledge of USMX, threatened against any asset of any USMX
Group Member, which Tax Lien would have a Material Adverse Effect.
(e) No USMX Group Member is a party to any pending or, to the knowledge of
USMX, threatened action or proceeding, assessment or collection of Taxes by any
Taxing authority, foreign or domestic, relating to the business and operation of
any USMX Group Member.
(f) The USMX Group Members are not parties to any Tax
sharing agreement.
(g) No election under 341(f) of the Tax Code has been or shall hereafter be
made to treat any USMX Group Member as a "consenting corporation" as defined in
341(f).
(h) Since December 31, 1991, no USMX Group Member has ever been a
"Subchapter S" or an "S" corporation within the meaning of the Tax Code.
(i) No representation or warranty is made by USMX with respect to whether
any deferred tax benefit accrued on the books of the USMX Group or reflected in
the 1995 USMX Financial Statements or Interim USMX Financial Statements will
ultimately be usable by any USMX Group Member.
II.9 Intangible Assets. Neither USMX nor any USMX Group Member owns or has any
proprietary interest in any domestic or foreign patents, patent applications,
trademarks, trademark registrations, applications for trademark registrations,
trade names, or copyrights.
II.10 Employees. USMX has delivered to Dakota and Merger Corp a list of all
employees of each USMX Group Member and each such employee's date of hire and
annual rate of compensation as of the date hereof.
II.11 Pension and Other Employee Plans and Agreements.
(a) Exhibit 2.11 sets forth all Employee Plans maintained by each USMX
Group Member, and USMX has furnished or made available to Dakota and Merger Corp
true and complete copies of all such Employee Plans as amended and in effect on
the date hereof.
(b) To the knowledge of USMX,
(1) the execution and delivery of this Agreement by USMX and the
consummation of the Transactions do not constitute and will not result in any
"prohibited transaction" within the meaning of ERISA or 4975 of the Tax Code;
(2) each Employee Plan of the USMX Group and any related trust
agreements, annuity contracts, insurance contracts, or other funding instruments
are currently, and have been in the past, in compliance in all material respects
with the requirements of applicable Laws as to the form, operation, and
administration of such plans;
(3) all reports, notices, and applications relating thereto required
by any Governmental agency have been in all material respects timely filed;
(4) all contributions required to be made on or before the date hereof
to each such Employee Plan under the terms of such plan, ERISA, the Tax Code or
other applicable law have been in all material respects timely made;
(5) no USMX Group Member has incurred, or will incur as a result of
the Transactions, any Liability (except for premiums) to the Pension Benefit
Guaranty Corporation; and
(6) none of the Employee Plans of the USMX Group is a
"Multi-employer Plan" (as such term is defined in 3(37) of
ERISA); and
(c) There are no actions, suits, claims or proceedings, whether in equity
or at law, or Governmental investigations pending or, to the knowledge of USMX,
threatened against or with respect to any Employee Plan of the USMX Group or any
assets of any such Employee Plan.
II.12 Labor Relations.
(a) Except as described in Exhibit 2.12, no employees of any USMX Group
Member are covered by any collective bargaining agreement.
(b) Except as described in Exhibit 2.12:
(1) each USMX Group Member has complied with all applicable Laws
(including without limitation ERISA and Laws governing foreign employee benefit
and pension plans) relating to the employment of labor, including without
limitation those relating to wages, hours, unfair labor practices,
discrimination, payment of social security, and similar Taxes, where the failure
to be in compliance would have a Material Adverse Effect;
(2) no USMX Group Member is engaged in any unfair labor practice which
would have a Material Adverse Effect;
(3) there are no complaints against any USMX Group Member pending as
of the date hereof before the National Labor Relations Board or any similar
foreign, state, or local labor agency by or on behalf of any employee of any
USMX Group Member which would have a Material Adverse Effect; and
(4) there are no representation questions, arbitration proceedings,
labor strikes, slow-downs or stoppages, material grievances, or other labor
troubles pending or, to the knowledge of USMX, threatened as of the date hereof
with respect to the employees of any USMX Group Member which would have a
Material Adverse Effect.
II.13 Contracts, Etc.
(a) Except as set forth in Exhibit 2.13, all Contracts to which any USMX
Group Member is a party or by which any USMX Group Member is bound are valid and
in full force and effect and constitute the legal, valid, and binding
obligations of such USMX Group Member and, to the knowledge of USMX, the other
parties thereto; and there are no existing defaults by any USMX Group Member or,
to the knowledge of USMX, by any other party thereunder; and no event, act, or
omission has occurred which (with or without notice, lapse of time, or the
happening or occurrence of any other event) would result in a default thereunder
which has had, or which is reasonably likely to have, a Material Adverse Effect.
To the knowledge of USMX, no other party to any such Contract has asserted the
right to renegotiate the material terms or conditions of any such Contract.
(b) Except as set forth in Exhibit 2.13, to the knowledge of USMX, all
Contracts of the USMX Group are listed in the USMX SEC Reports except the
following:
(1) employment agreements terminable at will and Contracts for
miscellaneous services terminable at will, in each case without the necessity of
payment of any material penalty, bonus, severance payment, or additional
compensation (other than liabilities accruing to the effective date of such
termination);
(2) Contracts with customers, distributors, and
suppliers; and
(3) other Contracts involving aggregate liabilities under all such
Contracts providing for future payments by any USMX Group Member of not more
than US$50,000 individually and of not more than US$250,000 in the aggregate.
(c) USMX has heretofore delivered or made available to Dakota and Merger
Corp true, correct, and complete copies of all Contracts required to be listed
pursuant to Section 2.13.
II.14 Absence of Certain Changes, Etc. Except as described
in Exhibit 2.14, and except for any actions required to be
performed by USMX or otherwise permitted pursuant to this
Agreement, since December 31, 1996
(a) there has been no Material Adverse Change in the results of operations
or financial condition of the USMX Group (taken as a whole) from that reflected
in the Interim USMX Financial Statements;
(b) no USMX Group Member has:
(1) sold, transferred, distributed, or otherwise
disposed of any of its assets, or agreed to do any of the
foregoing, except in the ordinary course of business;
(2) made or agreed to make any capital expenditure or commitment for
additions to property, plant, or equipment, except for expenditures and
commitments in accordance with budgets heretofore approved by the USMX Group or
otherwise not in excess of US$50,000 in the aggregate;
(3) experienced any damage, destruction, or loss to or
of any of its assets, whether or not covered by insurance,
exceeding US$50,000 in the aggregate;
(4) made or agreed to make any increase in the compensation payable to
any employee, except for increases made in the ordinary course of business and
consistent with presently existing policies or agreements;
(5) conducted its operations otherwise than in due
course;
(6) entered into any transaction or Contract, or amended or terminated
any transaction or Contract, except transactions or Contracts entered into in
the ordinary course of business in arm's-length transactions;
(7) effected any material change in the practices followed by the USMX
Group in calculating bad debts, contingencies, or other reserves from that
reflected in the Interim USMX Financial Statements; or
(8) agreed or committed to do any of the foregoing.
II.15 Subsidiaries.
(a) Exhibit 2.15(a) sets forth with respect to each
subsidiary of USMX
(1) the date and jurisdiction of its incorporation;
(2) the number and class of shares of its equity
securities;
(3) its equity securities owned, directly or
indirectly, by USMX;
(4) the number of its equity securities owned,
directly or indirectly, by any person other than USMX;
(5) a description of any limitations on USMX's ability
to vote, pledge or alienate such equity securities; and
(6) a description of any agreements containing any right of first
negotiation or refusal, options, or warrants with respect to the equity
securities of such subsidiary owned by any person other than USMX.
(b) Except as set forth in Exhibit 2.15(b), all of the outstanding shares
of capital stock of each USMX Group Member (other than USMX) owned of record and
beneficially by USMX are so owned free and clear of all Liens. Except with
respect to the subsidiaries listed in Exhibit 2.15(a), USMX does not own,
directly or indirectly, any equity securities or interests of or in any entity
or enterprise organized under the Laws of the United States, any state thereof,
the District of Columbia, Canada, any province thereof, or any other domestic or
foreign jurisdiction.
(c) All outstanding shares of the capital stock of or other equity
interests in each USMX Group Member (other than USMX) have been duly authorized
and are validly issued, fully paid, and nonassessable, and no Liability attaches
to the ownership thereof (except Liabilities imposed by Law).
(d) Except as described in Exhibit 2.15(d), there are no
authorized, outstanding, or existing
(1) proxies, voting trusts, or other agreements or understandings with
respect to the voting of any capital stock of any USMX Group Member (other than
USMX);
(2) securities convertible into or exchangeable for
any capital stock of any USMX Group Member (other than USMX);
(3) options, warrants, or other rights to purchase or subscribe for
any capital stock of, or securities convertible into or exchangeable for any
capital stock of, any USMX Group Member (other than USMX);
(4) agreements of any kind relating to the issuance of any capital
stock of any USMX Group Member (other than USMX), any such convertible or
exchangeable securities or any such options, warrants, or rights;
(5) agreements of any kind which may obligate any USMX Group Member
(other than USMX) to issue or purchase any of its securities; or
(6) agreements containing any right of first negotiation or refusal
with respect to the equity securities of any USMX Group Member (other than
USMX).
(e) Exhibit 2.15(e) lists the name of each subsidiary of USMX since January
1, 1990 not listed on Exhibit 2.15(a). The USMX Group has no Liabilities with
respect to the ownership or disposition of any such subsidiaries.
II.16 Capitalization and Title to Shares.
(a) The authorized capital stock of USMX consists of 45,000,000 USMX
Shares, of which 16,184,182 shares were outstanding as of December 31, 1996, and
20,000,000 shares of preferred stock, par value $.001 per share, of which no
shares are outstanding as of the date hereof.
(b) The USMX Shares constitute all of the outstanding shares of all classes
of the capital stock of USMX.
(c) The USMX Shares have been duly authorized and are validly issued, fully
paid, and nonassessable, and no Liability attaches to the ownership thereof.
(d) Except as described in Exhibit 2.16, there are no
authorized, outstanding, or existing:
(1) voting trusts or other agreements or understandings with respect
to the voting of any USMX Shares, or to the knowledge of USMX, proxies;
(2) securities convertible into or exchangeable for
any USMX Shares;
(3) options, warrants, or other rights to purchase or subscribe for
any USMX Shares or securities convertible into or exchangeable for any USMX
Shares;
(4) agreements of any kind relating to the issuance of any USMX
Shares, any such convertible or exchangeable securities, or any such options,
warrants, or rights; or
(5) agreements of any kind which may obligate USMX to
issue or purchase any of its securities.
II.17 Environmental Matters. Except as to the matters
described in the environmental reports and other documents
described in Exhibit 2.17, if any:
(a) there exists no Environmental Condition which is reasonably likely to
result in any Liability to, or would have a Material Adverse Effect on, the USMX
Group; and
(b) each of the USMX Group Members has duly filed all material reports,
returns, and filings required to be filed by it with any Government, and has
obtained all material Governmental permits and licenses and other Governmental
consents which are required in connection with the businesses of the USMX Group
relating to an Environmental Condition and Environmental Laws.
II.18 Brokers. Except for fees and expenses payable to Newcrest Capital Corp. in
an amount mutually agreeable to the Parties, the USMX Group, their Affiliates,
and their respective Advisers have not retained any broker or finder in
connection with the Transactions, nor have any of the foregoing incurred any
Liability to any broker or finder by reason of the Transactions.
II.19 Officers and Directors. Exhibit 2.19 is a list of the names and addresses
of all officers and directors of each USMX Group Member.
II.20 Fairness of Transaction. USMX believes that the transaction contemplated
by this Agreement is fair to, and in the best interests of, USMX and its
stockholders.
II.21 Valid Issuance of New Stock. Upon consummation of the Transactions, the
shares of common stock of the Surviving Corporation issued hereunder will be
duly and validly authorized and, when issued and delivered in accordance with
the terms and provisions of this Agreement and the Certificate of Merger as
provided for in Article I, will be fully paid and nonassessable. At the Closing,
USMX will have the power to issue the new shares of Common Stock of the
Surviving Corporation free and clear of all liens, encumbrances, security
agreements, equities, options, claims, charges, and restrictions, except for
generally applicable restrictions imposed under applicable securities laws.
II.22 No Misstatements or Omissions. The representations, warranties, and
statements made by USMX in this Agreement, the Exhibits, and the documents and
information furnished by USMX to Dakota or Merger Corp in connection with the
Transactions, when considered both in the aggregate and individually, and both
in light of the circumstances under which those representations, warranties, and
statements were made and in light of the circumstances as of the date of this
Agreement, did not and do not contain any untrue statement of a material fact,
and did not fail to state any material facts that are necessary in order to make
the statements contained in this Agreement, the Exhibits, and the documents and
information furnished to Dakota or Merger Corp pursuant to the terms and
conditions of this Agreement, not misleading. There are no facts known to USMX
which, either individually or in the aggregate, could have a Material Adverse
Effect which have not been disclosed in this Agreement, the Exhibits, or
otherwise in writing to Dakota and Merger Corp.
II.23 USMX SEC Reports.
(a) USMX has delivered to Dakota the following: (1) its Annual Report on
Form 10-K for the year ended December 31, 1995, (2) all of its Quarterly Reports
on Form 10-Q for 1996, (3) all of its Current Reports on Form 8-K filed with the
SEC since October 1, 1996, and (4) its Registration Statement on Form S-2, as
filed with the SEC in November, 1996 (in each case, with all amendments thereto
and documents incorporated by referenced therein, excluding preliminary
materials, the "USMX SEC Reports").
(b) Except as set forth in Exhibit 2.23, as of its respective filing date,
each USMX SEC Reports complied in all material respects with the requirements of
the laws, rules, and regulations applicable to such USMX SEC Report, including,
without limitation, the Securities Act and the Exchange Act.
(c) Except as set forth in Exhibit 2.23, as of its respective filing date,
no USMX SEC Report contained any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(d) Except as set forth in Exhibit 2.23, each USMX SEC Report, as amended
or supplemented, if applicable, as of the date of such USMX SEC Report or
amendment became effective, did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
II.24 Information in Disclosure Documents. None of the information with respect
to any USMX Group Member to be included or incorporated by reference in the
Joint Proxy/ Registration Statement will (a) at the respective times such
documents are filed with the SEC and (b)(1) in the case of the Joint Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Joint Proxy Statement and any amendments or supplements thereto
and at the times of the USMX Stockholders' Meeting and the Dakota Shareholders'
Meeting or (2) in the case of the Registration Statement or any amendments
thereof or supplements thereto, at the time it becomes effective and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, or necessary to correct any statement in any earlier filing with
the SEC of the Joint Proxy/Registration Statement or any amendment thereof or
supplement thereto or any earlier communication to stockholders of USMX or
shareholders of Dakota with respect to the Transactions; provided, however, that
this provision shall not apply to statements or omissions in the Joint
Proxy/Registration Statement based upon information furnished by Dakota or
Merger Corp for use therein. The Joint Proxy Statement will comply as to form in
all material respects with the applicable provisions of the Exchange Act and the
Securities Act relating to the USMX Stockholders' Meeting and the issuance of
the Dakota Shares.
II.25 No Knowledge of Breach of Representations and Warranties of Merger Corp.
USMX has no knowledge of any breach by Dakota or Merger Corp of any of the
representations and warranties contained in Article III.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DAKOTA AND MERGER CORP
Dakota and Merger Corp make the following representations and warranties to
USMX. However, certain matters disclosed on any Exhibit hereto may not be
required to be disclosed therein, but may be stated therein for information
purposes only, and no such disclosure shall constitute an indication or
admission of the materiality thereof or create a standard of disclosure, and no
representation or warranty shall be deemed to have been made by Dakota or Merger
Corp by reason of the inclusion of such matters. Further, no representation or
warranty shall be deemed to have been made by Dakota or Merger Corp by virtue of
any disclosures made on, or contained in, any Exhibit hereto except to the
extent expressly made in this Article III.
III.1 Organization and Good Standing.
(a) Each Dakota Group Member is a corporation duly organized, validly
existing, and in good standing under the Laws of the jurisdiction of its
incorporation and is qualified to transact business and is in good standing as a
foreign corporation in the jurisdictions (which are listed in Exhibit 3.1) where
it is required to qualify in order to conduct its business as presently
conducted, and where the failure to be so qualified would have a Material
Adverse Effect. Except as listed in Exhibit 3.1, there are no subsidiaries of
Dakota, none of Dakota's subsidiaries has any subsidiaries, and since December
31, 1991, neither Dakota nor any of its subsidiaries has had any subsidiaries.
(b) Each Dakota Group Member has the corporate power and authority to own,
lease, or operate its properties and to carry on its business as now conducted.
(c) Dakota has heretofore delivered or made available to USMX complete and
correct copies of Dakota's and its subsidiaries' respective Certificates or
Articles of Incorporation (or like charter document) and By-laws, as each has
been amended and is in effect on the date hereof.
III.2 Consents, Authorizations, and Binding Effect.
(a) Dakota and Merger Corp may execute, deliver, and perform this Agreement
without the necessity of any Dakota Group Member obtaining any consent,
approval, authorization, or waiver, or giving any notice or otherwise, except
for such consents, approvals, authorizations, waivers, and notices:
(1) disclosed in Exhibit 3.2;
(2) which, with respect to consents, approvals, authorizations, and
waivers, have been obtained and are unconditional, and are in full force and
effect, and which, with respect to notices, have been given; or
(3) approval of the Dakota shareholders in accordance with applicable
Law to be obtained pursuant to Section 6.9.
(b) Each of Dakota and Merger Corp has the full corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the Transactions.
(c) This Agreement and Transactions have been duly authorized by the
respective boards of directors of Dakota and Merger Corp, as applicable. This
Agreement has been duly executed and delivered by Dakota and Merger Corp and
constitutes the legal, valid, and binding obligation of Dakota and Merger Corp,
enforceable against each in accordance with its terms, except
(1) as may be limited by bankruptcy, reorganization, insolvency and
similar Laws of general application relating to or affecting the enforcement of
creditors' rights or the relief of debtors; and
(2) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(d) The execution, delivery, and performance of this
Agreement by Dakota and Merger Corp will not
(1) constitute a violation of the respective Certificates or Articles
of Incorporation (or like charter documents) or By-laws, each as amended, of any
Dakota Group Member;
(2) subject to obtaining any consent, approval, authorization, or
waiver described in Exhibit 3.2, conflict with, result in the breach of, or
constitute a default under any Contract which would have a Material Adverse
Effect;
(3) constitute a material violation of any Law
applicable or relating to any Dakota Group Member or the
businesses of the Dakota Group; or
(4) subject to obtaining any consent, approval, authorization, or
waiver described in Exhibit 3.2, result in the creation of any Lien upon any of
the assets of any Dakota Group Member.
III.3 Minute and Stock Transfer Books. The minute books of each Dakota Group
Member fairly reflect the corporate actions of the respective boards of
directors and the shareholders of each such Dakota Group Member. The stock
transfer books of each Dakota Group Member are correct, complete, and current,
and all documentary and stock transfer tax stamps required in connection with
the issuance and transfer of shares of the capital stock of each Dakota Group
Member, if any, have been duly paid, affixed, and canceled.
III.4 Financial Statements and Financial Condition.
(a) The Dakota Group has maintained its accounting books and records in all
material respects in compliance with the Foreign Corrupt Practices Act, as
amended.
(b) Except as described in Exhibit 3.4(b), the accounting books and records
of the Dakota Group during the periods covered by the 1995 Dakota Financial
Statements and the Interim Dakota Financial Statements fairly reflect in all
material respects the items of income and expense and the assets and liabilities
of the Dakota Group, including the nature thereof and the transactions giving
rise thereto (to the extent normally reflected in the accounting books and
records of the Dakota Group) and provided a fair basis for the preparation of
the 1995 Dakota Financial Statements and the Interim Dakota Financial
Statements.
(c) Attached as Exhibit 3.4(c) are the Interim Dakota
Financial Statements.
(d) The 1995 Dakota Financial Statements have been prepared in accordance
with Canadian GAAP.
(e) The 1995 Dakota Financial Statements and the Interim Dakota Financial
Statements are correct and complete in all material respects and present fairly
in accordance with Canadian GAAP (except that the Interim Dakota Financial
Statements may not contain notes and may be subject to year-end adjustments) the
financial position of the Dakota Group as of the dates of such financial
statements and the results of operations and cash flows of the Dakota Group for
the periods covered by such financial statements.
(f) The Dakota Group has no liabilities (absolute, contingent, or
otherwise) required under Canadian GAAP to be set forth on a consolidated
balance sheet (or in the notes thereto) of the Dakota Group, other than:
(1) those set forth, reserved against, or described on or in the
Interim Dakota Balance Sheet (or in the notes thereto) or the Interim Dakota
Financial Statements;
(2) those incurred by the Dakota Group in the ordinary course of
business since the date of the Interim Dakota Balance Sheet;
(3) obligations to be performed after the date hereof based on the
operations of any Dakota Group Member after the date hereof under any Contract
of such Dakota Group Member; and
(4) those described or disclosed on, or which may arise out of or with
respect to the matters or Contracts described or disclosed on, the Exhibits to
this Agreement, or those which may arise out of or with respect to matters or
Contracts that would be required to be disclosed on such Exhibits but for the
limitations on such disclosure contained in the representations and warranties
relating to such Exhibits.
III.5 Title and Condition of Assets.
(a) Exhibit 3.5(a) lists all of the real property owned by the Dakota Group
in fee simple and all unpatented mining claims, real property leases, and
concessions in which any Dakota Group Member has a right or interest; provided
that Exhibit 3.5 (a) does not list any real property interests in which the
Dakota Group has any right or interest pursuant to The Golden Reward Mining Co.,
L.P. or The Cactus Gold Mines Company Joint Venture, and Dakota and Merger Corp
make no representation or warranty with respect thereto.
(b) To the knowledge of Dakota and Merger Corp, except as
described in Exhibit 3.5(b),
(1) the Dakota Group has good and sufficient title to all real
property owned by it in fee simple, and is in exclusive possession thereof, free
and clear of Liens other than Permitted Liens and statutory Liens not yet
delinquent;
(2) the Dakota Group has good and sufficient title to all material
tangible personal property owned by it free and clear of Liens other than
Permitted Liens and statutory Liens not yet delinquent;
(3) with respect to the unpatented mining claims in
which any Dakota Group Member has a right or interest,
(A) such claims were properly laid out and staked and properly
recorded and filed with appropriate Governmental agencies and, subject to
paramount title of the United States, are free and clear of Liens other than
Permitted Liens and statutory Liens not yet delinquent;
(B) all required assessment work has been performed and all
affidavits of assessment work and other filings required to maintain such claims
in good standing have been properly and timely recorded and filed with
appropriate Governmental agencies;
(C) all claim maintenance and claim rental fees and all taxes
assessed against such claims have been timely paid; and
(D) there are no conflicting claims;
provided that Dakota and Merger Corp make no representation that there has been
a discovery of minerals on each of the unpatented mining claims; and
(4) with respect to concessions held by the Dakota Group, if any, all
acts and payments necessary to obtain and maintain such concessions in good
standing have been timely made or performed.
(c) To the knowledge of Dakota and Merge Corp, all mineral production
rights or other royalties of any sort whatsoever which are payable with respect
to any real property in which any Dakota Group Member has a right or interest
are described in Exhibit 3.5(c).
(d) To the knowledge of Dakota and Merger Corp, no improvement or structure
on any real property owned or leased by any Dakota Group Member encroaches to
any material extent on any adjacent property or conflicts with the rights of any
owner thereof.
(e) The material improvements, fixtures, and appurtenances on or to the
property and the material tangible assets, owned or leased and used by any
Dakota Group Member, are in substantially good operating condition, order, and
repair, subject to ordinary wear and tear, except as described in Exhibit
3.5(e). Since December 31, 1996, none of the assets of any Dakota Group Member
has been affected by any fire, accident, act of God, or any other casualty that
has had a Material Adverse Effect. All of the material assets used by any Dakota
Group Member in its businesses are owned or leased by such Dakota Group Member.
(f) The businesses of the Dakota Group as conducted by the Dakota Group
Members in any jurisdiction are not conducted under any material restriction
imposed in any such jurisdiction upon the Dakota Group Members (but not imposed
upon other persons conducting similar businesses or operating similar assets for
similar purposes in the same jurisdictions where the businesses and assets of
the Dakota Group are located) by any zoning, anti-pollution, health, or other
Law.
III.6 Insurance.
(a) Exhibit 3.6 contains a list of all material policies of insurance
maintained by the Dakota Group, including insurance providing benefits for
employees, in effect on the date hereof and generally describing the coverage
thereby.
(b) Except for amounts deductible under the policies of insurance
described, or as otherwise disclosed, in Exhibit 3.6, no Dakota Group Member is
or has been at any time since December 31, 1994, subject to any Liability as a
self-insurer of the businesses and assets of the Dakota Group, in respect of
insurance of the type customarily carried by businesses of the type engaged in
by the Dakota Group in the jurisdictions where the Dakota Group maintains
offices, which could have a Material Adverse Effect.
(c) There are no material coverage disputes with underwriters pending or,
to the knowledge of Dakota threatened, and all premiums due and payable have
been timely paid and all such material policies are in full force and effect in
accordance with their respective terms (however, no representation or warranty
is made as to the solvency or financial condition of any underwriter or issuer
of such policy).
III.7 Litigation and Compliance.
(a) Except as described in Exhibit 3.7(a), and except for actions, suits,
claims, and proceedings where the damages asserted by the plaintiff in such
actions, suits, claims, or proceedings would not have a Material Adverse Effect
or where insurance proceeds will be actually available (subject to applicable
deductibles) for such actions, suits, claims, and proceedings:
(1) as of the date of this Agreement, there are no actions, suits,
claims or proceedings, whether in equity or at law, or Governmental
investigations pending or, to the knowledge of Dakota or Merger Corp, threatened
against any Dakota Group Member or with respect to any asset or property owned,
leased, or used by any Dakota Group Member; and
(2) there are no actions, suits, claims, or proceedings, whether in
equity or at law, or Governmental investigations pending or, to the knowledge of
Dakota or Merger Corp, threatened which question or challenge the validity of
this Agreement or any action taken or to be taken pursuant to this Agreement.
(b) Each Dakota Group Member is in compliance with, and is not in default
or violation under, any Law applicable to the businesses or operations of the
Dakota Group, including without limitation all safety and health Laws (but
excluding any Environmental Law), except for noncompliances, defaults, and
violations which would not, in the aggregate, have a Material Adverse Effect,
and no Dakota Group Member has received any notice of the same.
(c) Except as described in Exhibit 3.7(c), no Dakota Group Member, no
material assets of any Dakota Group Member, nor the Transactions are subject to
any judgment, order, or decree entered in any lawsuit or proceeding which has
had, or which is reasonably likely to have, a Material Adverse Effect or which
would prevent Dakota or Merger Corp from performing its obligations under this
Agreement. Each Dakota Group Member subject to any such judgment, order, or
decree is in compliance in all material respects with, and is not in default or
violation in any material respect under, any such judgment, order, or decree.
(d) Except as described in Exhibit 3.7(d), and except as may be required
under any Environmental Law, each Dakota Group Member has duly filed all reports
and returns required to be filed by it with Governmental authorities and
obtained all Governmental permits and licenses and other Governmental consents
which are required in connection with the businesses and operations of the
Dakota Group, the failure of which would have a Material Adverse Effect. All of
such material permits, licenses, and consents are in full force and effect, and
to the knowledge of Dakota or Merger Corp no proceedings for the suspension or
cancellation of any of them are pending or threatened.
(e) Neither Dakota nor Merger Corp nor, to the knowledge of Dakota or
Merger Corp, any other Dakota Group Member, either on its own behalf, or on
behalf of any of its respective officers, agents, consultants, or employees, has
(1) made or agreed to make any contributions, payments, or gifts of
their funds or property to any Governmental official, employee, or agent where
the payment of such contribution, payment, or gift was illegal under any
applicable Law;
(2) established or maintained any unrecorded fund or asset for any
such purpose, or made any intentional false or artificial entry on any of its
books or records in connection with any such activity; or
(3) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other person, to candidates for
public office, whether federal, state, local, or foreign, where such
contribution was a violation of applicable Law by any Dakota Group Member.
III.8 Taxes. The Dakota Group has paid in all material respects on or before the
due date thereof, or accrued in all material respects on the 1995 Dakota
Financial Statements, all federal, state, local, and foreign Taxes for all
periods ending on or prior to December 31, 1996. The Dakota Group has made
provision (subject to year-end audit adjustments) in all material respects on
its accounting books and on the Interim Dakota Balance Sheet for all federal,
state, local, and foreign Taxes accruing since the date of the 1995 Dakota
Financial Statements. As of the Effective Time, the Dakota Group will have duly
and timely filed all Tax reports and returns required to be filed by any Dakota
Group Member on or before such date (subject to extensions which have been
granted to such Dakota Group Member or extensions to which such Dakota Group
Member is entitled under then applicable Laws); and all such Tax reports and
returns were, or will be, complete and correct in all material respects.
III.9 Intangible Assets. Neither Dakota nor any Dakota Group Member owns or has
any proprietary interest in any domestic or foreign patents, patent
applications, trademarks, trademark registrations, applications for trademark
registrations, trade names, or copyrights.
III.10 Pension and Other Employee Plans and Agreements.
(a) Exhibit 3.10 sets forth all Employee Plans maintained by each Dakota
Group Member, and Dakota has furnished or made available to USMX true and
complete copies of all such Employee Plans as amended and in effect on the date
hereof.
(b) To the knowledge of Dakota and Merger Corp,
(1) the execution and delivery of this Agreement by Dakota and the
consummation of the Transactions do not constitute and will not result in any
"prohibited transaction" within the meaning of ERISA or 4975 of the Tax Code;
(2) each Employee Plan of the Dakota Group and any related trust
agreements, annuity contracts, insurance contracts, or other funding instruments
are currently, and have been in the past, in compliance in all material respects
with the requirements of applicable Laws as to the form, operation, and
administration of such plans;
(3) all reports, notices, and applications relating thereto required
by any Governmental agency have been in all material respects timely filed;
(4) all contributions required to be made on or before the date hereof
to each such Employee Plan under the terms of such plan, ERISA, the Tax Code or
other applicable law have been in all material respects timely made;
(5) no Dakota Group Member has incurred, or will incur as a result of
the Transactions, any Liability (except for premiums) to the Pension Benefit
Guaranty Corporation; and
(6) none of the Employee Plans of the Dakota Group is
a "Multi-employer Plan" (as such term is defined in 3(37) of
ERISA); and
(c) There are no actions, suits, claims or proceedings, whether in equity
or at law, or Governmental investigations pending or, to the knowledge of Dakota
or Merger Corp, threatened against or with respect to any Employee Plan of the
Dakota Group or any assets of any such Employee Plan.
III.11 Labor Relations.
(a) No employees of any Dakota Group Member are covered by
any collective bargaining agreement.
(b) Each Dakota Group Member has complied with all applicable Laws
(including without limitation ERISA and Laws governing foreign employee benefit
and pension plans) relating to the employment of labor, including without
limitation those relating to wages, hours, unfair labor practices,
discrimination, payment of social security, and similar Taxes, where the failure
to be in compliance would have a Material Adverse Effect.
(c) No Dakota Group Member is engaged in any unfair labor practice which
would have a Material Adverse Effect.
(d) There are no complaints against any Dakota Group Member pending as of
the date hereof before the National Labor Relations Board or any similar
foreign, state, or local labor agency by or on behalf of any employee of any
Dakota Group Member which would have a Material Adverse Effect.
(e) There are no representation questions, arbitration proceedings, labor
strikes, slow-downs or stoppages, material grievances, or other labor troubles
pending or, to the knowledge of Dakota or Merge Corp, threatened as of the date
hereof with respect to the employees of any Dakota Group Member which would have
a Material Adverse Effect.
III.12 Contracts, Etc.
(a) Except as set forth in Exhibit 3.12, all Contracts to which any Dakota
Group Member is a party or by which any Dakota Group Member is bound are valid
and in full force and effect and constitute the legal, valid, and binding
obligations of such Dakota Group Member and, to the knowledge of Dakota and
Merger Corp, the other parties thereto; and there are no existing defaults by
any Dakota Group Member or, to the knowledge of Dakota, by any other party
thereunder; and no event, act, or omission has occurred which (with or without
notice, lapse of time, or the happening or occurrence of any other event) would
result in a default thereunder which has had, or which is reasonably likely to
have, a Material Adverse Effect. To the knowledge of Dakota and Merger Corp, no
other party to any such Contract has asserted the right to renegotiate the
material terms or conditions of any such Contract.
(b) Except as listed in Exhibit 3.12, to the knowledge of Dakota and
Merger, all Contracts of the Dakota Group are listed in the Dakota SEC Reports
except the following:
(1) employment agreements terminable at will and Contracts for
miscellaneous services terminable at will, in each case without the necessity of
payment of any material penalty, bonus, severance payment, or additional
compensation (other than liabilities accruing to the effective date of such
termination);
(2) Contracts with customers, distributors, and
suppliers; and
(3) other Contracts involving aggregate liabilities under all such
Contracts providing for future payments by any Dakota Group Member of not more
than US$50,000 individually and of not more than US$250,000 in the aggregate.
(c) Dakota has heretofore delivered or made available to USMX true,
correct, and complete copies of all Contracts required to be listed pursuant to
Section 3.12(b).
III.13 Absence of Certain Changes, Etc. Except as described in Exhibit 3.13, and
except for any actions required to be performed by Dakota or Merger Corp or
otherwise permitted pursuant to this Agreement, since December 31, 1996
(a) there has been no Material Adverse Change in the results of operations
or financial condition of the Dakota Group (taken as a whole) from that
reflected in the Interim Dakota Financial Statements;
(b) no Dakota Group Member has:
(1) sold, transferred, distributed, or otherwise
disposed of any of its assets, or agreed to do any of the
foregoing, except in the ordinary course of business;
(2) made or agreed to make any capital expenditure or commitment for
additions to property, plant, or equipment, except for expenditures and
commitments in accordance with budgets heretofore approved by the Dakota Group
or otherwise not in excess of US$50,000 in the aggregate;
(3) experienced any damage, destruction or loss to or
of any of its assets, whether or not covered by insurance,
exceeding US$50,000 in the aggregate;
(4) made or agreed to make any increase in the compensation payable to
any employee, except for increases made in the ordinary course of business and
consistent with presently existing policies or agreements;
(5) conducted its operations otherwise than in due
course;
(6) entered into any transaction or Contract, or amended or terminated
any transaction or Contract, except transactions or Contracts entered into in
the ordinary course of business in arm's-length transactions;
(7) effected any material change in the practices followed by the
Dakota Group in calculating bad debts, contingencies, or other reserves from
that reflected in the Interim Dakota Financial Statements; or
(8) agreed or committed to do any of the foregoing.
III.14 Subsidiaries.
(a) Exhibit 3.14(a) sets forth with respect to each
subsidiary of Dakota,
(1) the date and jurisdiction of its incorporation;
(2) the number and class of shares of its equity
securities;
(3) its equity securities owned, directly or
indirectly, by Dakota;
(4) the number of its equity securities owned,
directly or indirectly, by any person other than Dakota;
(5) a description of any limitations on Dakota's
ability to vote, pledge, or alienate such equity securities; and
(6) a description of any agreements containing any right of first
negotiation or refusal, options, or warrants with respect to the equity
securities of such subsidiary owned by any person other than Dakota.
(b) Except as set forth in Exhibit 3.14(b), all such outstanding shares of
capital stock of each Dakota Group Member (other than Dakota) owned of record
and beneficially by Dakota are so owned free and clear of all Liens. Except with
respect to the subsidiaries listed in Exhibit 3.14(a), Dakota does not own,
directly or indirectly, any equity securities or interests of or in any entity
or enterprise organized under the Laws of the United States, any state thereof,
Canada, any province thereof, the District of Columbia or any other domestic or
foreign jurisdiction.
(c) All outstanding shares of the capital stock of or other equity
interests in each such subsidiary have been duly authorized and are validly
issued, fully paid, and nonassessable, and no Liability attaches to the
ownership thereof (except Liabilities imposed by Law).
(d) Except as described in Exhibit 3.14(d), there are no
authorized, outstanding, or existing:
(1) proxies, voting trusts, or other agreements or\understandings with
respect to the voting of any capital stock of any Dakota Group Member (other
than Dakota);
(2) securities convertible into or exchangeable for
any capital stock of any Dakota Group Member (other than Dakota);
(3) options, warrants, or other rights to purchase or subscribe for
any capital stock of any Dakota Group Member (other than Dakota) or securities
convertible into or exchangeable for any capital stock of any Dakota Group
Member (other than Dakota);
(4) agreements of any kind relating to the issuance of any capital
stock of any Dakota Group Member (other than Dakota), any such convertible or
exchangeable securities or any such options, warrants, or rights;
(5) agreements of any kind which may obligate any Dakota Group Member
(other than Dakota) to issue or purchase any of its securities; or
(6) agreements containing any right of first negotiation or refusal
with respect to the equity securities of any Dakota Group Member (other than
Dakota).
(e) Dakota has had no subsidiaries since January 1, 1990
not listed in Exhibit 3.14(a).
III.15 Capitalization and Title to Shares.
(a) The authorized capital stock of Dakota consists of an unlimited number
of Dakota Shares, of which 35,479,742 shares were outstanding as of December 31,
1996, and 20,000 preference shares, no nominal or par value, of which no shares
are outstanding as of the date hereof.
(b) The Dakota Shares constitute all of the outstanding shares of all
classes of the capital stock of Dakota.
(c) The Dakota Shares have been duly authorized and are validly issued,
fully paid, and nonassessable, and no Liability attaches to the ownership
thereof.
(d) Except as described in Exhibit 3.15, there are no
authorized, outstanding, or existing:
(1) voting trusts or other agreements or understandings with respect
to the voting of any Dakota Shares, or, to the knowledge of Dakota and Merger
Corp, proxies;
(2) securities convertible into or exchangeable for
any Dakota Shares;
(3) options, warrants, or other rights to purchase or subscribe for
any Dakota Shares or securities convertible into or exchangeable for any Dakota
Shares;
(4) agreements of any kind relating to the issuance of any Dakota
Shares, any such convertible or exchangeable securities or any such options,
warrants, or rights; or
(5) agreements of any kind which may obligate Dakota
to issue or purchase any of its securities.
III.16 Environmental Matters. Except as to the matters
described in the environmental reports and other documents
described in Exhibit 3.16, if any:
(a) there exists no Environmental Condition which is reasonably likely to
result in any Liability to, or would have a Material Adverse Effect on, the
Dakota Group; and
(b) each Dakota Group Member has duly filed all material reports, returns,
and filings required to be filed by it with any Government, and has obtained all
material Governmental permits and licenses and other Governmental consents which
are required in connection with the businesses of the Dakota Group relating to
an Environmental Condition and Environmental Laws.
III.17 Fairness of Transaction. Dakota and Merger Corp believe that the
transaction contemplated by this Agreement is fair to, and in the best interests
of Dakota, Merger Corp, and Dakota's shareholders.
III.18 Valid Issuance of New Stock. Upon consummation of the Transactions, the
Dakota Shares issued hereunder will be duly and validly authorized and, when
issued and delivered in accordance with the terms and provisions of this
Agreement and the Certificate of Merger as provided for in Article I, will be
fully paid and nonassessable. At the Closing, Dakota will have the power to
issue the new Dakota Shares free and clear of all liens, encumbrances, security
agreements, equities, options, claims, charges, and restrictions, except for
generally applicable restrictions imposed under applicable securities laws.
III.19 No Misstatements or Omissions. The representations, warranties and
statements made by Dakota and Merger Corp in this Agreement, the Exhibits, and
the documents and information furnished by Dakota and Merger Corp to USMX in
connection with the Transactions, when considered both in the aggregate and
individually, and both in light of the circumstances under which those
representations, warranties, and statements were made and in light of the
circumstances as of the date of this Agreement, did not and do not contain any
untrue statement of a material fact, and did not fail to state any material
facts that are necessary in order to make the statements contained in this
Agreement, the Exhibits, and the documents and information furnished to USMX
pursuant to the terms and conditions of this Agreement, not misleading. There
are no facts known to Dakota or Merger Corp which, either individually or in the
aggregate, could have a Material Adverse Effect which have not been disclosed in
this Agreement, the Exhibits, or otherwise in writing to USMX.
III.20 Dakota SEC Reports.
(a) Dakota has delivered to USMX the following: (1) its Annual Report on
Form 10-K for the year ended December 31, 1995, (2) all of its Quarterly Reports
on Form 10-Q for 1996, and (3) all of its Current Reports on Form 8-K filed with
the SEC since October 1, 1996 (in each case, with all amendments thereto and
documents incorporated by referenced therein, excluding preliminary materials,
the "Dakota SEC Reports").
(b) Except as set forth in Exhibit 3.20, as of its respective filing date,
each Dakota SEC Report complied in all material respects with the requirements
of the laws, rules, and regulations applicable to such Dakota SEC Report,
including, without limitation, the Securities Act and the Exchange Act.
(c) Except as set forth in Exhibit 3.20, as of its respective filing date,
no Dakota SEC Report contained any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(d) Except as set forth in Exhibit 3.20, each Dakota SEC Report, as amended
or supplemented, if applicable, as of the date of the Dakota SEC Report or
amendment became effective, did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
III.21 Information in Disclosure Documents. None of the information with respect
to any Dakota Group Member to be included or incorporated by reference in the
Joint Proxy/ Registration Statement will (a) at the respective times such
documents are filed with the SEC and (b)(1) in the case of the Joint Proxy
Statement or any amendments thereof or supplements thereto and at the time of
the mailing of the Joint Proxy Statement and any amendments or supplements
thereto, at the times of the Dakota Shareholders' Meeting and the USMX
Stockholders' Meeting or (2) in the case of the Registration Statement or any
amendments thereof or supplements thereto, at the time it becomes effective and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading, or necessary to correct any statement in any earlier
filing with the SEC of the Joint Proxy/Registration Statement or any amendment
thereof or supplement thereto or any earlier communication to stockholders of
USMX or shareholders of Dakota with respect to the Transactions; provided,
however, that this provision shall not apply to statements or omissions in the
Joint Proxy/Registration Statement based upon information furnished by USMX for
use therein. The Joint Proxy Statement will comply as to form in all material
respects with the applicable provisions of the Exchange Act and the Securities
Act relating to the Dakota Shareholders' Meeting and the issuance of the Dakota
Shares.
III.22 No Knowledge of Breach of Representations and Warranties of USMX. Neither
Dakota nor Merger Corp has no knowledge of any breach by USMX of any of the
representations and warranties contained in Article II.
ARTICLE IV
NO OTHER REPRESENTATIONS AND WARRANTIES
IV.1 No Other Representations and Warranties. None of USMX, Dakota, or Merger
Corp shall be deemed to have made to any Party, or any of their respective
Affiliates, any representation or warranty other than as expressly made in
Article II or Article III, respectively (as such representations and warranties
are supplemented by the Exhibits relating thereto).
IV.2 Projections, Etc. Without limiting the generality of the foregoing, but
subject to the express representations and warranties made by USMX in Article II
and by Dakota and Merger Corp in Article III, none of USMX, Dakota, or Merger
Corp makes any representation and warranty to any Party, or any of their
respective Affiliates, with respect to the following:
(a) any projections, estimates, or budgets heretofore delivered to or made
available to any Party, or any of their respective Affiliates or Advisers, of
future revenues, expenses, or expenditures, results of operations (or any
component thereof) or financial condition (or any component thereof) or business
and operations; or
(b) any other information or documents made available to any Party, or any
of their respective Affiliates or Advisers, with respect to business and
operations, except to the extent that such information or documents are set
forth, disclosed, or described on, or attached to, any Exhibit hereto; however,
certain matters disclosed on any Exhibit hereto may not be required to be
disclosed therein, but may be stated therein for information purposes only, and
no such disclosure shall constitute an indication or admission of the
materiality thereof or create a standard of disclosure, and no representation or
warranty is shall be deemed to have been made by reason of the inclusion of such
matters.
ARTICLE V
USMX COVENANTS
From and after the date hereof and until the Closing Date (except as hereinafter
otherwise provided), unless Dakota and Merger Corp shall otherwise agree in
writing:
V.1 Access. USMX shall permit, and shall cause each USMX Group Member to permit:
(a) Dakota, Merger Corp, and their Advisers to have reasonable access to
all properties, books, accounts, records, Contracts, files, correspondence, tax
records, and documents of or relating to the USMX Group, and to discuss such
matters with the executive officers of the USMX Group; USMX shall make available
to Dakota, Merger Corp, and their Advisers a copy of each report filed with the
SEC and all other information concerning its business and properties as Dakota
may reasonably request;
(b) Dakota and Merger Corp, at their sole cost and expense, to conduct, or
cause its agents to conduct, such reasonable reviews, inspections, surveys,
tests, and investigations of the assets of the USMX Group as Dakota or Merger
Corp deems necessary or advisable;
(c) Dakota, Merger Corp, and their Advisers to consult with the accountants
for the USMX Group, and said accountants are hereby authorized to disclose all
information in their possession to Dakota, Merger Corp, and their Advisers with
respect to the USMX Group and the businesses thereof; and
(d) Dakota, Merger Corp, and their Advisers to discuss the proposed Merger
with the employees of the USMX Group; provided that representatives of USMX may
be present during any such discussions (except that Dakota and Merger Corp shall
be free to have discussions with those persons permitted pursuant to Section
5.1(c) without representatives of USMX being present) and provided that such
discussions are coordinated with representatives of USMX as to the content of
such proposed discussions to assure that such discussions do not interfere
unreasonably with the business and operations of any USMX Group Member or harm
the relationship which any USMX Group Member has with its employees;
provided, however, any investigation pursuant to this Section shall be conducted
in such manner as not to interfere unreasonably with the businesses and
operations of the USMX Group.
V.2 Ordinary Course. Except as set forth in Exhibit 5.2, and except for any
actions required to be performed by USMX or otherwise permitted pursuant to this
Agreement, USMX shall (and shall cause each USMX Group Member to) conduct its
business only in the ordinary and usual course in all material respects and use
all reasonable efforts to preserve its business organizations intact and its
existing relations with customers, suppliers, employees, and business
associates, and USMX shall not (and shall cause each USMX Group Member not to)
do any of the following:
(a) sell or pledge or agree to sell or pledge any capital
stock owned by it in any of its Subsidiaries;
(b) amend its Certificate of Incorporation (or like charter
documents) or By-laws;
(c) subdivide, split, combine, consolidate, or reclassify
any of its outstanding shares of capital stock;
(d) declare, set aside or pay any dividend or make any other distribution
payable in cash, shares, stock, securities or property with respect to any of
its shares of capital stock;
(e) repurchase, redeem, or otherwise acquire, directly or indirectly, any
of its capital stock or any securities convertible into or exchangeable or
exercisable into any of its capital stock;
(f) enter into any material transaction not in the ordinary
course of its business consistent with past practice;
(g) issue, sell, pledge, dispose of, or encumber, or authorize or propose
the issuance, sale, pledge, disposition, or encumbrance of, any of its capital
stock, or any securities convertible into or exchangeable or exercisable for, or
options, puts, warrants, calls, commitments or rights of any kind to acquire,
any of its shares of capital stock other than debentures or notes convertible
into USMX Shares as contemplated in clause (h) below or USMX Shares issuable
pursuant to securities convertible into USMX Shares outstanding on the date
hereof;
(h) transfer, lease, license, sell, mortgage, pledge, encumber, or dispose
of any property or assets or incur, guarantee, assume, or modify any
indebtedness or other liability other than in the ordinary and usual course of
business consistent with past practice, other than convertible debentures or
notes issued by USMX or other indebtedness incurred by USMX in an aggregate
principal amount of up to US$3 Million on terms and conditions acceptable to
Dakota, acting reasonably;
(i) authorize capital expenditures other than in the
ordinary and usual course of business consistent with past
practice;
(j) make any material acquisition of, or investment in, assets, shares,
capital stock or other securities of any other person or entity other than its
wholly-owned Subsidiaries or in the ordinary and usual course of business
consistent with past practice;
(k) except as may be required to satisfy contractual obligations existing
as of the date hereof and the requirements of applicable Law, establish, adopt,
enter into, make, amend in any material respect, or make any material elections
under any collective bargaining agreement or Employee Plan;
(l) implement any change in its accounting principles,
practices, or methods, other than as may be required by generally
accepted accounting principles; and
(m) authorize or enter into any agreement to take any of
the actions referred to in this Section.
V.3 Representations and Warranties. USMX shall, and shall cause each USMX Group
Member to, refrain from doing, or causing to be done, anything which would cause
the representations and warranties set forth in Article II from being true,
complete, and accurate in all material respects on the Closing Date as if made
on such date (except to the extent that such representations and warranties are,
by their terms, made expressly as of the date of this Agreement).
V.4 Insurance. USMX shall use best efforts to continue to insure the USMX Group
and all property, real and personal, owned or leased by any USMX Group Member
substantially in accordance with the manner set forth in Exhibit 2.6, and to
use, operate, maintain, and repair all property in accordance with prior
practice.
V.5 No Breach. USMX shall, and shall cause the USMX Group Members to, refrain
from doing any act or omitting to do any act, or permitting any act or omission
to act, which will cause a material breach of any Contract or this Agreement.
V.6 Financial Statements. USMX shall furnish to Dakota within 30 days after the
end of each fiscal month ending after the date hereof an unaudited consolidated
and consolidating balance sheet and income statement of the USMX Group for each
such period.
V.7 Litigation. USMX shall promptly notify Dakota in writing of any action,
written investigation, claim, action, suit, or proceeding which is commenced
against, by or relating to any USMX Group Member or this Agreement before any
court or Governmental department, commission, board, bureau, agency, or
instrumentality.
V.8 Closing Conditions. USMX shall use best efforts to cause all of the
conditions to the obligations of Dakota and Merger Corp under this Agreement to
be satisfied on or prior to the Closing Date (to the extent the satisfaction of
such conditions is within the control of the USMX Group).
V.9 Contracts. USMX shall use best efforts to cause the USMX Group to consult
with Dakota prior to entering into any Contract not in the ordinary course of
business.
V.10 USMX Stockholders' Approval. The board of directors of USMX shall call a
stockholders' meeting ("USMX Stockholders' Meeting") to be held at the earliest
practicable date following delivery of the Joint Proxy Statement to the USMX
stockholders for the purpose of voting on the adoption of this Agreement and the
Transactions as required by the GCL and, to the extent applicable, the Nasdaq
National Market System. USMX shall use its best efforts to obtain its
stockholders' approval of the foregoing, including without limitation
specifically recommending that its stockholders vote to approve the foregoing;
provided, however, that in the event of a third-party offer (which USMX shall
not encourage or solicit), and in all other instances, USMX shall be free, with
respect to its recommendation, to exercise its fiduciary duties to its
stockholders.
V.11 Rule 145 Affiliates. Prior to the Effective Time, USMX shall cause to be
delivered to Dakota a list identifying all persons who might, at the time of the
meeting of the USMX Stockholders' Meeting, be deemed to be Securities Act
Affiliates of USMX. USMX shall use its reasonable efforts to cause each person
who is identified as a possible Securities Act Affiliate to enter into prior to
the Effective Time an agreement in the form attached hereto as Exhibit 5.11
pursuant to which each such Person acknowledges its responsibilities as such a
Securities Act Affiliate.
V.12 No Shop.
(a) From and after the date hereof until the Closing Date, USMX shall not,
and shall use its best efforts to ensure that no other USMX Group Member or
their respective directors do not, and shall not permit the respective officers,
employees, representatives, and other Advisors of the USMX Group to, directly or
indirectly, (1) solicit, initiate, or engage in discussions or negotiations with
any person, encourage submission of any inquiries, proposals, or offers by, or
take any other action intended or designed to facilitate the efforts of any
person, other than Dakota, relating to the possible acquisition of, or business
combination with, USMX or any of its Subsidiaries (whether by way of merger,
consolidation, take-over bid, tender offer, purchase of shares, purchase of
assets, or otherwise) or any material portion of its or their shares of capital
stock or assets (with any such efforts by any such person, including a firm
proposal to make such an acquisition or combination, herein referred to as a
"Competing Transaction"), (2) provide non-public information with respect to
USMX or any USMX Group Member, or afford any access to the properties, books, or
records of the same, to any Person, other than Dakota, relating to a possible
Competing Transaction by any person other than Dakota, (3) make or authorize any
statement, recommendation, or solicitation in support of any possible Competing
Transaction by any Person other than by Dakota, or (4) enter into an agreement
with any person, other than Dakota, providing for a possible Competing
Transaction. The USMX Group and their respective directors, officers, employees,
representatives, and other Advisors shall immediately cease any and all
activities, discussions, or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
(b) Notwithstanding paragraph (a) above, prior to the approval of the
Merger by the holders of USMX Shares, nothing contained in this Section shall
prevent the Board of Directors of USMX (or its agents pursuant to its
instructions) from (1) engaging in discussions or negotiations with (but not
soliciting or initiating such discussions or negotiations or encouraging
inquiries from) a party concerning an unsolicited proposal for a Competing
Transaction, (2) providing non-public information with respect to the USMX Group
that has previously been provided to Dakota, or (3) making any statement or
recommendation in support of any Competing Transaction, in each case if the USMX
Board of Directors first determines in good faith, after consultation with and
receiving written advice from its outside legal counsel (which advice need not
constitute an opinion), that such action is required by reason of the fiduciary
duties of the directors of USMX to the USMX stockholders under applicable Law;
provided that in each such event USMX first notifies Dakota of such
determination and provides Dakota with the fact that it is furnishing
information to, or entering into discussions or negotiations with, a person or
entity, and USMX keeps Dakota informed of the status of any such discussions or
negotiations. If USMX or any USMX Group Member receives any unsolicited offer or
proposal to enter negotiations relating to a Competing Transaction, USMX shall
immediately notify Dakota thereof. USMX shall be responsible for any breach of
this Section by any USMX Group Member or any of their respective directors,
officers, employees, representatives, or other Advisors or Affiliates.
(c) Dakota may, in its sole discretion, prior to the holding of USMX
Stockholders' Meeting, amend the terms of this Agreement to increase the
consideration payable to holders of USMX Shares pursuant thereto, by delivering
such amended terms to USMX before the holding of such meeting, provided that
such amendment shall not materially delay the consummation of the Merger.
(d) Notwithstanding any other provisions hereof, USMX shall not (1) enter
into a Competing Transaction until at least (A) ten Business Days following the
first notification by USMX to Dakota that it has entered into discussions with a
third party in respect of such Competing Transaction and (B) five Business Days
following delivery of written notice by USMX to Dakota of the identity of the
parties to and the terms and conditions of such Competing Transaction or (2) for
a period of ten Business Days following termination of this Agreement pursuant
to Section 11.2 hereof, grant or agree to grant to any third party, in
connection with a Competing Transaction, an option to purchase treasury
securities or assets of USMX or any USMX Group Member, pay or agree to pay to
any such third party, termination, expense reimbursement, "topping" or similar
fees in the event of non- consummation of such Competing Transaction or
otherwise commit to any inducement to any such third party.
V.13 Cooperation. USMX shall, and shall use its best efforts to cause the USMX
Group to, cooperate with Dakota in all reasonable respects in connection with
the transaction described in Section 10.10 (including preparation and filing of
preliminary and final prospectuses in Canada in connection therewith).
ARTICLE VI
DAKOTA'S AND MERGER CORP'S COVENANTS
From and after the date hereof and until the Closing Date (except as hereinafter
otherwise provided), unless USMX shall otherwise agree in writing:
VI.1 Access. Dakota and Merger Corp shall permit, and shall cause each Dakota
Group Member to permit:
(a) USMX and its Advisers to have reasonable access to all properties,
books, accounts, records, Contracts, files, correspondence, tax records, and
documents of or relating to the Dakota Group and to discuss such matters with
the executive officers of the Dakota Group; Dakota shall make available to USMX
and its Advisers a copy of each report filed with the SEC and all other
information concerning its business and properties as USMX may reasonably
request;
(b) USMX, at its sole cost and expense, to conduct, or cause its agents to
conduct, such reasonable reviews, inspections, surveys, tests, and
investigations of the assets of the Dakota Group as USMX deems necessary or
advisable;
(c) USMX and its Advisers to consult with the accountants for the Dakota
Group, and said accountants are hereby authorized to disclose all information in
their possession to USMX and its Advisers with respect to the Dakota Group and
the businesses thereof; and
(d) USMX and its Advisers to discuss the proposed Merger with the employees
of the Dakota Group; provided that representatives of Dakota and Merger Corp may
be present during any such discussions (except that USMX shall be free to have
discussions with those persons permitted pursuant to Section 6.1(c) without
representatives of Dakota or Merger Corp being present), and provided that such
discussions are coordinated with representatives of Dakota or Merger Corp as to
the content of such proposed discussions to assure that such discussions do not
interfere unreasonably with the business and operations of any Dakota Group
Member or harm the relationship which any Dakota Group Member has with its
employees;
provided, however, any investigation pursuant to this Section shall be conducted
in such manner as not to interfere unreasonably with the businesses and
operations of the Dakota Group.
VI.2 Ordinary Course. Except as set forth in Exhibit 6.2, and except for any
actions required to be performed by Dakota or Merger Corp or otherwise permitted
pursuant to this Agreement, Dakota shall (and shall cause each Dakota Group
Member to) conduct its business only in the ordinary and usual course in all
material respects and use all reasonable efforts to preserve its business
organizations intact and its existing relations with customers, suppliers,
employees, and business associates, and Dakota shall not (and shall cause each
Dakota Group Member not to) do any of the following:
(a) sell or pledge or agree to sell or pledge any capital
stock owned by it in any of its Subsidiaries;
(b) amend its Certificate of Incorporation (or like charter
documents) or By-laws;
(c) subdivide, split, combine, consolidate, or reclassify
any of its outstanding shares of capital stock;
(d) declare, set aside or pay any dividend or make any other distribution
payable in cash, shares, stock, securities or property with respect to any of
its shares of capital stock;
(e) repurchase, redeem, or otherwise acquire, directly or indirectly, any
of its capital stock or any securities\convertible into or
exchangeable or exercisable into any of its capital stock;
(f) enter into any material transaction not in the ordinary
course of its business consistent with past practice;
(g) issue, sell, pledge, dispose of, or encumber, or authorize or propose
the issuance, sale, pledge, disposition, or encumbrance of, any of its capital
stock, or any securities convertible into or exchangeable or exercisable for, or
options, puts, warrants, calls, commitments or rights of any kind to acquire,
any of its shares of capital stock other than Dakota Shares or securities
directly or indirectly convertible into or exchangeable or exercisable for
Dakota Shares in connection with the offering referenced in Section 9.7;
(h) transfer, lease, license, sell, mortgage, pledge, encumber, or dispose
of any property or assets or incur, guarantee, assume, or modify any
indebtedness or other liability other than in the ordinary and usual course of
business consistent with past practice, other than convertible debentures or
notes issued by Dakota in connection with the offering referenced in Section
9.7;
(i) authorize capital expenditures other than in the
ordinary and usual course of business consistent with past
practice;
(j) make any material acquisition of, or investment in, assets, shares,
capital stock or other securities of any other person or entity other than its
wholly-owned Subsidiaries or in the ordinary and usual course of business
consistent with past practice;
(k) except as may be required to satisfy contractual obligations existing
as of the date hereof and the requirements of applicable Law, establish, adopt,
enter into, make, amend in any material respect, or make any material elections
under any collective bargaining agreement or Employee Plan;
(l) implement any change in its accounting principles,
practices, or methods, other than as may be required by generally
accepted accounting principles; and
(m) authorize or enter into any agreement to take any of
the actions referred to in this Section.
VI.3 Representations and Warranties. Dakota shall, and shall cause each Dakota
Group Member to, refrain from doing, or causing to be done, anything which would
cause the representations and warranties set forth in Article III from being
true, complete, and accurate in all material respects on the Closing Date as if
made on such date (except to the extent that such representations and warranties
are, by their terms, made expressly as of the date of this Agreement).
VI.4 No Breach. Dakota shall, and shall cause the Dakota Group Members to,
refrain from doing any act or omitting to do any act, or permitting any act or
omission to act, which will cause a material breach of any Contract or this
Agreement.
VI.5 Financial Statements. Dakota shall furnish to USMX within 30 days after the
end of each fiscal month ending after the date hereof an unaudited consolidated
and consolidating balance sheet and income statement of the Dakota Group for
each such period.
VI.6 Litigation. Dakota shall promptly notify USMX in writing of any action,
written investigation, claim, action, suit, or proceeding which is commenced
against, by or relating to any Dakota Group Member or this Agreement before any
court or Governmental department, commission, board, bureau, agency, or
instrumentality.
VI.7 Closing Conditions. Dakota and Merger Corp shall use best efforts to cause
all of the conditions to the obligations of USMX under this Agreement to be
satisfied on or prior to the Closing Date (to the extent the satisfaction of
such conditions is within the control of the Dakota Group).
VI.8 Contracts. Dakota shall use best efforts to cause the Dakota Group to
consult with USMX prior to entering into any Contract not in the ordinary course
of business.
VI.9 Dakota Shareholders' Approval. The board of directors of Dakota shall call
a shareholders' meeting ("Dakota Shareholders' Meeting") to be held at the
earliest practicable date following delivery of the Joint Proxy Statement to the
Dakota shareholders for the purpose of voting on the adoption of this Agreement
and the Transactions as required by The Toronto Stock Exchange. Dakota shall use
its best efforts to obtain its shareholders' approval of the foregoing,
including without limitation specifically recommending that its shareholders
vote to approve the foregoing; provided, however, that in the event of a
third-party offer (which Dakota shall not encourage or solicit), Dakota shall be
free, with respect to its recommendation, to exercise its fiduciary duties to
its shareholders.
VI.10 Stock Listing. Dakota shall cause the Dakota Shares to be issued in
connection with the Merger to be listed on The Toronto Stock Exchange and the
American Stock Exchange.
VI.11 Line of Credit. Dakota shall provide a line of credit to USMX on the terms
and subject to the conditions set forth in Exhibit 6.11 on or prior to February
21, 1997, provided, however, Dakota shall not be required to provide such line
of credit unless (a) the definitive agreements between USMX and Pegasus Gold
Corp., in form and substance acceptable to Dakota, with respect to the
disposition described in Section 8.8 have been executed and delivered and (b)
with respect to the offering described in Section 9.7, Canaccord Capital
Corporation has consented to the release of US$5 million from escrow to Dakota.
If Dakota has not provided such line of credit to USMX on or prior to February
21, 1997, USMX may terminate this Agreement upon written notice to Dakota;
provided, however, USMX may not terminate this Agreement pursuant to the
foregoing if Dakota, USMX, and NM Rothschild & Sons Limited are in agreement
(which may include oral agreement to the reasonable satisfaction of USMX) on all
material terms and conditions of such line of credit at February 21, 1997, and
each such party thereafter is using and continues to use reasonable efforts to
document such agreement in an extremely expeditious manner with no material
change to the material terms and conditions of such line of credit; and provided
further that USMX may not terminate this Agreement pursuant to the foregoing
once the line of credit has been consummated.
VI.12 Employee Benefit Plans. Each of the Parties agrees to use its reasonable
efforts to coordinate the conversion or merger of any employee benefit plans of
USMX into Dakota plans, to the extent that such plans may exist, to provide any
and all employees of the USMX Group who become employees of the Dakota Group
with the same employee benefits uniformly offered to employees of such Dakota
Group Member. Dakota shall use its best efforts to ensure that any and all
employees of the USMX Group who become employees of the Dakota Group are not
subject to any pre-existing condition requirement under Dakota's medical
insurance plan.
VI.13 Indemnification; Directors' and Officers' Insurance.
(a) In the event of any threatened or actual claim, action, suit,
proceeding, or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding, or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, a director or officer of any USMX Group Member (for
purposes of this Section the "Indemnified Parties") is, or is threatened to be,
made a party based in whole or in part on, or arising in whole or in part out
of, or pertaining to (1) the fact that he is or was a director or officer of any
USMX Group Member or any of their respective predecessors or is or was serving
at the request of any such party as a director, officer, employee, fiduciary, or
agent of another corporation, partnership, trust or other enterprise, or (2)
this Agreement or any of the transactions contemplated hereby, whether in any
case asserted or arising before or after the Effective Time, the appropriate
Dakota Group Member will after the Effective Time cooperate and use its best
efforts to defend against and respond thereto. It is understood and agreed that
after the Effective Time, the appropriate Dakota Group Member shall indemnify
and hold harmless (as and to the full extent permitted by applicable Law and to
the full extent USMX would have been required to indemnify such Indemnified
Party had such claim, action, suit, proceeding, or investigation been finally
determined prior to the Effective Time) each such Indemnified Party against any
Liability or Penalty in connection with any such threatened or actual claim,
action, suit, proceeding, or investigation, and shall advance reasonable
litigation expenses incurred by Indemnified Parties, and in the event of any
such threatened or actual claim, action, suit, proceeding, or investigation
(whether asserted or arising before or after the Effective Time), the
Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Dakota; provided, however, (A) the indemnifying entity shall
have the right to assume the defense thereof and upon such assumption the
appropriate Dakota Group Member shall not be liable to any Indemnified Party for
any legal expenses of other counsel or any other expenses subsequently incurred
by any Indemnified Party in connection with the defense thereof, except that if
the indemnifying entity elects not to assume such defense or counsel for the
Indemnified Parties reasonably advises that there are issues which raise
conflicts of interest between the indemnifying entity and the Indemnified
Parties, the Indemnified Parties may retain counsel reasonably satisfactory to
them after consultation with Dakota, and the indemnifying entity shall pay the
reasonable fees and expenses of such counsel for the Indemnified Parties, (B)
the indemnifying entity shall be obligated pursuant to this paragraph to pay for
only one firm of counsel for all Indemnified Parties, (C) the indemnifying
entity shall not be liable for any settlement effected without its prior written
consent, and (D) the indemnifying entity shall have no obligation hereunder to
any Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
nonappealable, that indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable Law. Any Indemnified Party
wishing to claim Indemnification under this Section, upon learning of any such
claim, action, suit, proceeding or investigation, shall notify Dakota thereof,
provided that the failure to so notify shall not affect the obligations of the
indemnifying entity under this Section except to the extent such failure to
notify materially prejudices such indemnifying entity. The obligations under
this Section shall continue in full force and effect for a period of six years
from the Effective Time; provided, however, that all rights to indemnification
in respect of any claim asserted or made within such period shall continue until
the final disposition of such claim.
(b) Dakota shall use commercially reasonable efforts to cause the persons
serving as officers and directors of USMX immediately prior to the Effective
Time to be covered for a period of six years from the Effective Time by the
directors' and officers' liability insurance policy currently maintained by the
Dakota Group with respect to acts or omissions occurring prior to the Effective
Time which were committed by such officers and directors in their capacity as
such; provided that in no event shall Dakota or any Dakota Group Member be
required to obtain any new or additional directors' and officers' liability
insurance policies to accomplish the foregoing.
(c) In the event Dakota or any of its successors or assigns (1)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (2) transfers or conveys all or substantially all of its properties and
assets to any Person, then, and in each such case, to the extent necessary to
effectuate the purposes of this Section, Dakota shall use commercially
reasonable efforts to make proper provision so that the successors and assigns
of Dakota assume the obligations set forth in this Section.
(d) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
VI.14 Assumption of Existing Agreements Relating to
Employment.
(a) Following the Effective Time, the Surviving Corporation shall honor in
accordance with their terms all employment, severance, stock option, and other
compensation agreements and arrangements existing prior to the execution of this
Agreement, which are between any USMX Group Member and any director, officer, or
employee thereof and which have been disclosed to Dakota, and to assume all
duties, liabilities, and obligations under such agreements as in effect at the
date of this Agreement.
(b) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, the directors, officers, or employees who are
parties to the agreements and arrangements referred to in such section.
VI.15 USMX Stock Options. At or prior to the Effective Time, Dakota shall take
all corporate action necessary to authorize and reserve for issuance a
sufficient number of Dakota Shares for delivery upon exercise of options to
purchase USMX Shares assumed by it in accordance with Section 1.7. As soon as
practicable after the Effective Time, Dakota shall file a registration statement
on Form S-8 (or any successor or other appropriate forms), or another
appropriate form with respect to the Dakota Shares subject to such options and
shall use its best efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
ARTICLE VII
OTHER COVENANTS OF THE PARTIES
VII.1 Consents and Notices. Promptly after the date hereof and, if necessary,
for a reasonable time after the Closing Date:
(a) The Parties shall use their best efforts, and the Parties shall
cooperate with each other, to obtain all consents, waivers, approvals, and
authorizations which may be necessary to effect the Transactions, including
without limitation obtaining those consents, waivers, approvals, and
authorizations described in Exhibits 2.2 and 3.2; provided, however, the
foregoing shall not impose upon any of the Parties any obligation to effect any
payment or to incur any further or additional Liability to any third party in
order to obtain any such consent, waiver, approval, or authorization.
(b) The Parties and their Affiliates shall give all notices to third
parties and make all Governmental filings required to be given or made by the
Parties and their Affiliates in contempla tion of, and as a result of, the
Transactions, including without limitation those notices described in Exhibits
2.2 and 3.2.
VII.2 Joint Proxy/Registration Statement.
(a) The Parties shall jointly prepare and file with the SEC as soon as
reasonably practicable after the date hereof (1) a Registration Statement on
Form S-4 to be filed under the Securities Act by Dakota in connection with the
Merger for purposes of registering Dakota Shares to be issued in the Merger (the
"Registration Statement") and (2) a joint proxy statement and management
information circular to be filed under the Exchange Act by Dakota and USMX to be
distributed by Dakota and USMX, respectively, in connection with the Dakota
Shareholders' Meeting and USMX Stockholders' Meeting (the "Joint Proxy
Statement" and, together with the Registration Statement, the "Joint
Proxy/Registration Statement"). USMX shall cooperate with Dakota and both USMX
and Dakota shall use all reasonable efforts to cause the Registration Statement
to be declared effective under the Securities Act as promptly as practicable
after such filing. Dakota and USMX shall use all reasonable efforts to take any
action required to cause Dakota Shares issuable pursuant to the Merger to be
registered or to obtain an exemption from registration under applicable
provincial, state, or foreign "blue sky" or securities laws. Dakota and Merger
Corp will furnish to USMX and USMX shall furnish to Dakota and Merger Corp all
information concerning itself as each Party or its Advisors may reasonably
request and which is required or customary for inclusion in the Joint
Proxy/Registration Statement.
(b) Dakota and Merger Corp covenant to USMX that the Joint Proxy/
Registration Statement (1) will comply as to form in all material respects with
the applicable provisions of the Exchange Act and the Securities Act relating to
the Dakota Shareholders' Meeting and the issuance of the Dakota Shares and (2)
will not (A) at the respective times such documents are filed with the SEC, (B)
in the case of the Joint Proxy Statement and any amendments thereof or
supplements thereto, at the time of the Dakota Shareholders' Meeting and USMX
Stockholders' Meeting, and (C) in the case of the Registration Statement and any
amendment thereof or any supplement thereto, at all times after it becomes
effective under the Securities Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or necessary to
correct any statement in any earlier filing with the SEC of such Joint
Proxy/Registration Statement or any amendment thereof or any supplement thereto
or any earlier communication to shareholders of Dakota or stockholders of USMX
with respect to the Transactions; provided, however, that no representation,
covenant, or agreement is made by Dakota or Merger Corp with respect to
information supplied by USMX for inclusion in the Joint Proxy/ Registration
Statement.
(c) Dakota covenants to USMX, and USMX covenants to Dakota and Merger Corp,
that all filings required by Law to be made by Dakota or USMX, as applicable, in
the various jurisdictions in Canada shall be made in connection with the Joint
Proxy/Registration Statement.
(d) USMX covenants to Dakota and Merger Corp that the Joint Proxy Statement
and Registration Statement (1) will comply as to form in all material respects
with the applicable provisions of the Exchange Act and the Securities Act
relating to the USMX Stockholders' Meeting and the issuance of the Dakota Shares
and (2) will not (A) at the respective times such documents are filed with the
SEC, (B) in the case of the Joint Proxy Statement or any amendments thereof or
supplements thereto, at the time of the Dakota Shareholders' Meeting and USMX
Stockholders' Meeting, and (C) in the case of the Registration Statement and any
amendment thereof or any supplement thereto, at all times after it becomes
effective under the Securities Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or necessary to
correct any statement in any earlier filing with the SEC of such Joint
Proxy/Registration Statement or any amendment thereof or any supplement thereto
or any earlier communication to shareholders of Dakota or stockholders of USMX
with respect to the Transactions; provided, however, that no representation,
covenant, or agreement is made by USMX with respect to information supplied by
any Person other than USMX or its Affiliate and Advisors for inclusion in the
Joint Proxy Statement and Registration Statement.
(e) USMX shall cause to be delivered to Dakota a letter of KPMG Peat
Marwick LLP or other nationally recognized certified public accounting firm,
dated the date of the Joint Proxy/Registration Statement, and addressed to
Dakota and Merger Corp, in form and substance satisfactory to Dakota (with such
changes to which Dakota shall consent, it being understood that such consent
shall not be unreasonably withheld) relating to the independence of such
certified public accountants with respect to the USMX Group, compliance with the
form requirements of the financial statements of USMX, and as to the procedures
of the financial statements of the USMX Group.
(f) Dakota shall cause to be delivered to USMX a letter of KPMG or other
nationally recognized certified public accounting firm, dated the date of the
Joint Proxy/Registration Statement, and addressed to USMX, in form and substance
satisfactory to USMX (with such changes to which USMX shall consent, it being
understood that such consent shall not be unreasonably withheld) relating to the
independence of such certified public accountants with respect to the Dakota
Group, compliance with the form requirements of the financial statements of the
Dakota Group, and as to the procedures of the financial statements of the Dakota
Group.
(g) It shall be a condition to the mailing of the Joint Proxy Statement to
the shareholders of Dakota and the stockholders of USMX that Dakota and USMX
shall independently have received opinions of Canaccord Capital Corporation and
Newcrest Capital Corp., respectively, dated the mailing date of the Joint Proxy
Statement, to the effect that, as of the date thereof, the conversion ratio set
forth in Section 1.5 is fair from a financial point of view to the shareholders
of Dakota and the stockholders of USMX, respectively.
VII.3 Support Agreements. The Parties shall use their best
efforts to procure from Pegasus Gold Inc. a Support Agreement
substantially in the form of Exhibit 7.3.
VII.4 Confidentiality. Prior to the Effective Time and for one year from any
termination of this Agreement, each of the parties hereto will hold, and will
use commercially reasonable efforts to cause its respective officers, directors,
employees, and Advisors to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of Law, all
confidential documents and information concerning the other Party furnished to
such Party by such other Party in connection with the Transactions, except to
the extent that such information can be shown to have been (a) previously known
on a nonconfidential basis by such Party, (b) in the public domain through no
fault of such Party, or (c) later acquired by such Party from sources other than
such other Party so long as, to the knowledge of such Party, such sources are
not subject to a contractual or fiduciary duty of confidentiality with respect
to such information; provided that such Party may disclose such information to
its officers, directors, employees, and Advisors in connection with the
Transactions so long as such persons are informed by such Party of the
confidential nature of such information and are directed by such Party to treat
such information confidentially. The obligations of the parties hereto to hold
any such information in confidence shall be satisfied if it exercises the same
care with respect to such information a it would take to preserve the
confidentiality of its own similar information. If this Agreement is terminated,
each of the parties hereto will, and will use its best efforts to cause its
officers, directors, employees, and Advisors to, destroy or deliver to the other
Party all documents and other materials, and all copies thereof, obtained by
such Party from such other Party in connection with the Transactions that are
subject to such confidence.
VII.5 Press Releases. Before issuing any press release or otherwise making any
public statements with respect to the Transactions, Dakota and Merger Corp, on
the one hand, and USMX, on the other hand, shall consult with each other and
shall undertake reasonable efforts to agree upon the terms of such press
release, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
Law or by obligations pursuant to any listing agreement with any stock exchange
or national securities exchange.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF DAKOTA AND MERGER CORP
The obligations of Dakota and Merger Corp to consummate the Transactions are
subject to the satisfaction of the following conditions on or prior to the
Closing Date, each of which may be waived by Dakota and Merger Corp:
VIII.1 Representations and Warranties. The representations and warranties of
USMX set forth in Article II shall be true and correct in all material respects
as of the date hereof and on the Closing Date as if made on the Closing Date,
except to the extent that such representations and warranties are, by their
terms, made expressly as of the date of this Agreement.
VIII.2 Compliance with Covenants. USMX shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by USMX prior to or on the Closing Date.
Without limiting the generality of the foregoing, it shall be a further
condition to the obligations of Dakota and Merger Corp that the USMX Group shall
have taken, and shall not have failed to have taken, such actions in all
material respects as USMX shall have covenanted in Articles V and VII to use
best efforts to cause the USMX Group to take or to refrain from taking.
VIII.3 Opinion of Counsel. Dakota and Merger Corp shall have received the
opinion of Bearman Talesnick & Clowdus dated the Closing Date in form and
substance reasonably acceptable to the Parties.
VIII.4 No Material Adverse Change. There shall not have occurred any Material
Adverse Change since December 31, 1996 in the results of operations or financial
condition of the USMX Group (taken as a whole) from that reflected in the
Interim USMX Financial Statements.
VIII.5 Other Matters. USMX shall have furnished, or caused to be furnished, to
Dakota and Merger Corp, in form and substance reasonably satisfactory to Dakota
and Merger Corp, such certificates and other evidence as Dakota and Merger Corp
may have reasonably requested as to the satisfaction of the conditions contained
in this Article and as to such other matters as Dakota and Merger Corp may
reasonably request.
VIII.6 Consents. The consents, waivers, approvals, and authorizations expressly
designated in Exhibits 2.2 and 3.2 as required to be obtained as a condition to
closing shall have been obtained.
VIII.7 Accountant's Bring-Down Letter. Dakota and Merger Corporation shall have
received a letter from the certified public accountants referred to in Section
7.2(e), dated the Closing Date, confirming and updating the information
contained in their letter delivered pursuant to Section 7.2(e) to a date not
more than five Business Days prior to the Closing Date.
VIII.8 Montana Tunnel. USMX and Pegasus Gold Inc. shall have
entered into an agreement in form and substance satisfactory to
Dakota with respect to the disposition of USMX's royalty interest
in the Montana Tunnels properties.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF USMX
The obligations of USMX to consummate the Transactions are subject to the
satisfaction of the following conditions on or prior to the Closing Date, each
of which may be waived by USMX:
IX.1 Representations and Warranties. The representations and warranties of
Dakota and Merger Corp set forth in Article III shall be true and correct in all
material respects as of the date hereof and on the Closing Date as if made on
the Closing Date, except to the extent that such representations and warranties
are, by their terms, made expressly as of the date of this Agreement.
IX.2 Compliance with Covenants. Dakota and Merger Corp shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by Dakota or Merger Corp prior
to or on the Closing Date. Without limiting the generality of the foregoing, it
shall be a further condition to the obligations of USMX that the Dakota Group
shall have taken, and shall not have failed to have taken, such actions in all
material respects as Dakota or Merger Corp shall have covenanted in Articles VI
and VII to use best efforts to cause the Dakota Group to take or to refrain from
taking.
IX.3 Opinions of Counsel. USMX shall have received the opinions of Parcel,
Mauro, Hultin & Spaanstra, P.C. and McCarthy Tetrault dated the Closing Date in
form and substance reasonably acceptable to the Parties.
IX.4 No Material Adverse Change. There shall not have occurred any Material
Adverse Change since December 31, 1996 in the results of operations or financial
condition of the Dakota Group (taken as a whole) from that reflected in the
Interim Dakota Financial Statements.
IX.5 Other Matters. Dakota and Merger Corp shall have furnished, or caused to be
furnished, to USMX, in form and substance reasonably satisfactory to USMX, such
certificates and other evidence as USMX may have reasonably requested as to the
satisfaction of the conditions contained in this Article and as to such other
matters as USMX may reasonably request.
IX.6 Consents. The consents, waivers, approvals, and authorizations expressly
designated in Exhibits 2.2 and 3.2 as required to be obtained as a condition to
closing shall have been obtained.
IX.7 Accountant's Bring-Down Letter. USMX shall have received a letter from the
certified public accountants referred to in Section 7.2(f), dated the Closing
Date, confirming and updating the information contained in their letter
delivered pursuant to Section 7.2(f) to a date not more than five Business Days
prior to the Closing Date.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF THE PARTIES
The obligations of the Parties to consummate the Transactions are subject to the
satisfaction of the following conditions on or prior to the Closing Date, each
of which may be waived upon the mutual consent of all of the Parties:
X.1 No Adverse Proceedings. On the Closing Date, no action or proceeding shall
be pending involving any Government or other Person or before any court or
administrative body to restrain, enjoin, or otherwise prevent the consummation
of this Agreement or the Transactions or to recover any damages or obtain any
other relief as a result of the Transactions.
X.2 No Termination. This Agreement shall not have been
terminated pursuant to Section 11.2.
X.3 No Injunctions. No temporary restraining order, preliminary injunction, or
permanent injunction or other order preventing the consummation of the
Transactions shall have been issued by any federal, state, or provincial court
(whether domestic of foreign) and remain in effect. The Parties agree to use its
best efforts to have any such injunction or order lifted.
X.4 Support Agreement. Pegasus Gold Inc. shall have entered
into the Support Agreement described in Section 7.3 in form and
substance satisfactory to Dakota and USMX.
X.5 Stock Exchange Approvals. To the extent necessary, this Agreement and the
Transactions shall comply with the requirements of the American Stock Exchange,
The Toronto Stock Exchange, the Berlin Stock Exchange, and the Nasdaq National
Market System.
X.6 Shareholder Approval. This Agreement and the Transactions shall have been
adopted and/or approved by (a) the stockholders of USMX in accordance with the
GCL and USMX's Certificate of Incorporation and By-Laws and (b) the shareholders
of Dakota in accordance with The Toronto Stock Exchange and the Articles of
Incorporation and Bylaws of Dakota.
X.7 SEC Filings. Prior to the first date upon which the Joint Proxy Statement is
mailed to the USMX stockholders and Dakota shareholders, the SEC shall have
declared the Registration Statement effective, and any required approvals of
state securities administrators shall have been obtained and appropriate filings
made. On the Closing Date, no stop order or similar restraining order that has
been entered by the SEC or any state securities administrator shall still be in
effect.
X.8 Tax Letter. Dakota, Merger Corp, and USMX shall have received an opinion
from Coopers & Lybrand L.L.P. dated the Closing Date, based on the appropriate
representations of Dakota, Merger Corp, and USMX, to the effect that no gain or
loss should be recognized by Dakota, Merger Corp, or USMX as a result of the
Merger or, provided that a gain recognition agreement is entered into with the
Internal Revenue Service where appropriate, by the U.S. holders of USMX Shares
as a result their receipt of Dakota Shares in exchange for their USMX Shares as
contemplated herein, and otherwise in form and substance reasonably acceptable
to the Parties.
X.9 Rothschild Loan. The written consent of N M Rothschild & Sons Limited shall
have been obtained in a form acceptable to the Parties.
X.10 Canadian Offering. The aggregate proceeds from the offering by Dakota
described in the letter agreement dated December 23, 1996 between Dakota and
Canaccord Capital Corporation of not less than Cdn.$25 Million shall have been
released from escrow to Dakota or shall be held in escrow subject only to
consummation of the Merger.
X.11 Up-Dating of Exhibits; Election Not to Close.
(a) At least three Business Days prior to the Closing Date, USMX may
deliver to Dakota and Merger Corp, and Dakota and Merger Corp may deliver to
USMX, new or additional Exhibits modifying, qualifying, or supplementing the
representations and warranties contained in Articles II and III, respectively.
Except as provided in the next sentence, such new or additional Exhibits shall
be deemed to have modified the representations and warranties made by USMX and
Dakota or Merger Corp, as applicable, on the date of this Agreement (and as of
the Closing Date) and to have superseded any similarly numbered or named Exhibit
hereto delivered on the date hereof. The foregoing shall not affect the
conditions to the obligations or the covenants of USMX, Dakota, or Merger Corp
contained in Articles V through X, as applicable, as such conditions relate to
such representations and warranties prior to giving effect to the delivery of
such new or additional Exhibits (except, in the case of any representation and
warranty qualified by a reference to "Material Adverse Effect," to the extent
that the additional information furnished pursuant to the new or additional
Exhibits would not in the aggregate have or result in a Material Adverse
Effect), such that if such condition is not satisfied as a result of the
disclosures in such new or additional Exhibits, USMX or Dakota and Merger Corp,
as applicable, may terminate this Agreement in accordance with Section 11.2.
(b) In the event that any of the conditions to the obligations of Dakota
and Merger Corp set forth in Article VIII or this Article, or USMX set forth in
Article IX or this Article, shall not have been satisfied, USMX or Dakota and
Merger Corp, as the case may be, shall advise the other, prior to the Closing
Date, that such conditions are not satisfied, and shall advise the other, prior
to the Closing Date, of the basis on which such Person believes such condition
has not been satisfied.
(c) Without limiting the generality of the foregoing, Dakota and Merger
Corp and USMX shall not be entitled to assert any claim against USMX or Dakota
and Merger Corp, respectively, based on any breach of the representations and
warranties contained in Articles II and III, respectively, based upon the
disclosures made in such new or additional Exhibits pursuant to Section 10.11(a)
or if the non-breaching Party or its Affiliates shall, prior to the Closing,
have had knowledge of such breach.
ARTICLE XI
CLOSING AND TERMINATION
XI.1 Closing. The Closing shall take place at the offices of Parcel, Mauro,
Hultin & Spaanstra, P.C., Suite 3600, 1801 California Street, Denver, Colorado
80202, at 9:00 o'clock a.m. (Denver, Colorado time) (or at such other place and
time as the Parties may otherwise agree), on the Closing Date.
XI.2 Termination of this Agreement.
(a) In the event that the Closing shall not have occurred on or before the
Termination Date, then Dakota and Merger Corp or USMX shall have the right
(provided in each case that such person or persons is not in material breach of
its obligations under this Agreement), exercisable at any time after such date
by notice in writing, to terminate this Agreement and its obligations hereunder.
(b) In the event that, prior to the Termination Date, any Party (the
"Breaching Party") is in material breach of its or their obligations under this
Agreement (and such breach cannot reasonably be expected to be cured by the
Breaching Party prior to the Termination Date, or the Breaching Party is not
taking reasonable efforts to cure such breach, and, in either event, such breach
is not waived), then, so long as any other Party (the "Non-Breaching Party")
entitled to the benefit of such obligations is not in default of its or their
obligations under this Agreement, the Non-Breaching Party shall have the right
to terminate this Agreement (unless such breach is or has been cured prior to
the giving of such notice of termination).
(c) No termination of this Agreement, whether pursuant to this Section or
otherwise, shall terminate or impair any claim by Dakota and Merger Corp against
USMX, or by USMX against Dakota and Merger Corp, based upon any breach by the
other of its obligations under this Agreement if such breach serves as the
principal reason for the failure of the conditions contained in Article VIII,
IX, or X to have been satisfied; subject to Sections 10.11(c) and 11.3.
XI.3 Liquidated Damages. If this Agreement is terminated
consistent with Section 11.2 for the following reasons:
(a) by Dakota, if the Board of Directors of USMX shall have made any
recommendation to the USMX stockholders against the Merger or in support of a
Competing Transaction, or if USMX shall have entered into a Competing
Transaction; or
(b) by USMX, if the Board of Directors of USMX determines in good faith,
after consultation with and receiving written advice from its outside legal
counsel (which advice need not be an opinion), that it is required, by reason of
the fiduciary duties of the directors of USMX to the USMX stockholders under
applicable Law, to recommend to the USMX stockholders that they vote against the
Merger and approve instead a Competing Transaction that the USMX Board of
Directors, has determined in good faith, after consultation with its outside
financial advisors, is financially more favorable to the USMX stockholders than
the Merger (including any adjustment to the terms and conditions of the Merger
proposed by Dakota in response to such Competing Transaction, if any), is the
subject of a firm written offer from a third party that is capable of
consummating such Competing Transaction and is likely to be successful, taking
into account any adjustments proposed by Dakota and the conditions and valid and
binding character of such offer,
then USMX may pay to Dakota (by wire transfer of immediately available funds) a
fee (the "Termination Fee") of US$500,000 within thirty days after the delivery
of the notice of termination in exchange for cancellation of the option, dated
February 5, 1997, granted to Dakota to purchase 810,000 USMX Shares; provided
that USMX shall not be permitted to make such payment if at any time prior to
the making of such payment, Dakota shall have exercised such option and USMX
shall have issued to Dakota the USMX Shares issuable upon such exercise.
The obligations of USMX to pay the Termination Fee are in lieu of any damages or
any other payment which USMX might otherwise be obligated to pay to Dakota as a
result of any termination for which payment is due hereunder. USMX agrees that,
in view of the nature of the issues likely to arise in the event of such a
termination, it would be impracticable or extremely difficult to fix the actual
damages resulting from such termination and proving actual damages, causation
and foreseeability in the case of such termination would be costly, inconvenient
and difficult. In requiring USMX to pay the Termination Fee as set forth herein,
it is in the intent of the parties to provide, as of the date hereof, for a
liquidated amount of damages to be paid by USMX to Dakota. Such liquidated
amount shall be deemed full and adequate damages for such termination and is not
intended by either party to be a penalty.
ARTICLE XII
INDEMNIFICATION
XII.1 Indemnification by USMX.
(a) USMX shall indemnify the Dakota Group against, and hold the Dakota
Group harmless from, at all times after the date hereof, any and all
Indemnifiable Claims incurred, suffered, sustained, or required to be paid by
the Dakota Group resulting from, arising out of, based upon, or in respect of
the following:
(1) any breach of any of the representations or warranties made by
USMX in Article II; provided that to the extent exceptions or qualifications to
such representations and warranties are disclosed to Dakota and Merger Corp in
or on the Exhibits hereto prior to the Closing Date (including as disclosed
pursuant to Section 10.11(a)), such representations and warranties shall not be
deemed to have been breached for purposes of these indemnification provisions;
and
(2) any breach of the covenants made by USMX in or pursuant to this
Agreement, including Articles V and VII.
(b) The Dakota Group shall not be entitled to assert any claim for
indemnification in respect of a breach of any representation and warranty under
Section 12.1(a)(1):
(1) until such time as all Indemnifiable Claims of the Dakota Group
under Section 12.1(a)(1) exceed US$100,000 (the "Basket") in the aggregate, at
which time all Indemnifiable Claims of the Dakota Group under Sections
12.1(a)(1) may be asserted;
(2) if the matter which is the basis of such claim for indemnification
under Section 12.1(a)(1) is subject to a reserve established on the books of the
USMX Group as of the Closing Date, except to the extent that any Indemnifiable
Claims based on such matters exceed such reserves;
(3) in any case, in an aggregate amount in excess of
US$3,500,000.
Except as otherwise set forth herein, claims for indemnification in respect of
breaches of covenants by USMX may be made at any time and from time to time
after the date hereof and shall not be subject to the limitations contained in
the preceding sentence.
XII.2 Indemnification by Dakota and Merger Corp.
(a) Dakota and Merger Corp shall indemnify the USMX Group against, and hold
the USMX Group harmless from, at all times after the date hereof, any and all
Indemnifiable Claims incurred, suffered, sustained, or required to be paid by
the USMX Group resulting from, arising out of, based upon, or in respect of the
following:
(1) any breach of any of the representations or warranties made by
Dakota or Merger Corp in Article III; provided that to the extent exceptions or
qualifications to such representations and warranties are disclosed to USMX in
or on the Exhibits hereto prior to the Closing Date (including as disclosed
pursuant to Section 10.11(a)), such representations and warranties shall not be
deemed to have been breached for purposes of these indemnification provisions;
(2) any breach of the covenants made by Dakota or Merger Corp in or
pursuant to this Agreement, including Articles VI and VII.
(b) The USMX Group shall not be entitled to assert any claim for
indemnification in respect of a breach of any representation and warranty under
Section 12.2(a)(1):
(1) until such time as all Indemnifiable Claims of the Dakota Group
under Section 12.2(a)(1) exceed the Basket in the aggregate, at which time all
Indemnifiable Claims of the USMX Group under Sections 12.2(a)(1) may be
asserted;
(2) if the matter which is the basis of such claim for indemnification
under Section 12.2(a)(1) is subject to a reserve established on the books of the
Dakota Group as of the Closing Date, except to the extent that any Indemnifiable
Claims based on such matters exceed such reserves;
(3) in any case, in an aggregate amount in excess of
US$3,500,000.
Except as otherwise set forth herein, claims for indemnification in respect of
breaches of covenants by Dakota or Merger Corp may be made at any time and from
time to time after the date hereof and shall not be subject to the limitations
contained in the preceding sentence.
XII.3 Assertion of Claims; Etc.
(a) If a party entitled to be indemnified pursuant to this Agreement (an
"Indemnitee") receives notice of the assertion by a third party of any claim or
of the commencement by any such person of any action or proceeding (a
"Third-Party Claim") with respect to which another Party (an "Indemnifying
Party") is obligated to provide indemnification, the Indemnitee shall give the
Indemnifying Party prompt notice thereof after becoming aware of such
Third-Party Claim in reasonable detail and shall indicate the amount (estimated
if necessary) of the Indemnifiable Claim that has been or may be sustained by
the Indemnitee. The receipt of such notice shall be a condition precedent to any
Liability of the Indemnifying Party for any Third-Party Claim under the
provisions for indemnification contained in this Agreement; provided, however,
that the rights of the Indemnitee to be indemnified or compensated hereunder in
respect of any Third- Party Claim shall only be affected by its failure to give
prompt notice to the Indemnifying Party of such Third-Party Claim if and to the
extent that such failure prejudices that Indemnifying Party in the defense of
such Third-Party Claim.
(b) If the Indemnifying Party elects to compromise or defend such
Third-Party Claim, it shall within thirty days notify the Indemnitee of its
intent to do so, it shall consult with the Indemnitee and keep the Indemnitee
fully informed as to matters concerning such Third-Party Claim during the course
of such compromise or defense and the Indemnitee shall cooperate, at the expense
(out-of-pocket expenses only) of the Indemnifying Party, in the compromise of,
or defense against, such Third-Party Claim.
(c) If the Indemnifying Party elects not to compromise or defend against
the Third-Party Claim, or fails to notify the Indemnitee of its election as
herein provided or fails to diligently defend any such Third-Party Claim, the
Indemnitee may pay (without prejudice of any of its rights as against the
Indemnifying Party), compromise or defend such Third-Party Claim. The
Indemnifying Party shall give the Indemnitee thirty days notice of its intent to
cease defending the Indemnitee with respect to such Third-Party Claim and the
Indemnitee shall be fully indemnified hereunder for any additional damages
suffered by the Indemnitee if the cessation of such defense prejudices the
Indemnitee in the continuing defense or compromise of such Third- Party Claim;
provided, that upon assuming such responsibility the Indemnitee shall use its
best efforts to diligently defend or attempt to compromise such Third-Party
Claim.
(d) Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnitee may settle or compromise any claim over the objection of the other,
provided, however, that consent to settlement or compromise shall not be
unreasonably withheld.
(e) The Indemnitee and the Indemnifying Party may each participate, at its
own expense, in the defense of such Third- Party Claim.
(f) Any Indemnifiable Claim which does not result from a Third-Party Claim
shall be asserted by written notice given by the party claiming indemnity to the
party from which indemnity is claimed.
(g) To the extent an Indemnifiable Claim may be covered by insurance
carriers under applicable insurance policies covering such Indemnifiable Claim,
the Indemnitee shall use its best efforts to seek recovery in good faith for
such Indemnifiable Claim from such insurers. Notwithstanding the foregoing, the
Indemnitee shall not be obligated to exhaust its remedies against such insurance
carriers in the event such carriers fail to accept responsibility for such
Indemnifiable Claim and the Indemnitee shall be able to fully assert its rights
of indemnification against the Indemnifying Party hereunder; provided, that in
such event the Indemnitee shall assign its right of recovery with respect to
such Indemnifiable Claim against such insurance carrier to the Indemnifying
Party. Any Indemnifiable Claim hereunder shall be reduced by the amounts
actually recovered by the Indemnitee from its insurance carriers and any amounts
recovered by the Indemnitee subsequent to the payment by the Indemnitor with
respect to the same claim shall be remitted to the Indemnitor; provided that
such remittance shall not exceed the amount of such indemnification payment by
the Indemnitor.
XII.4 Survival of Representations, Warranties and Covenants.
(a) No claim for indemnification under the representations and warranties
contained in Article II and Article III shall be made following April 30, 1998.
(b) The expiration of any representation and warranty shall not affect any
claim timely and validly made prior to the date of such expiration.
(c) Except as otherwise expressly set forth herein, all covenants and
agreements of USMX, Dakota, and Merger Corp contained in this Agreement shall
survive the Closing hereunder, without limitation. However, any claim by USMX,
Dakota, or Merger Corp against the other based on a breach of any covenant of
the other required to be performed on or prior to the Closing Date ("Pre-Closing
Covenants") shall not survive the Closing and shall be deemed to have been
waived by the Party for whose benefit such covenant exists; unless the Party who
has made such Pre-Closing Covenant has taken actions to intentionally conceal
the existence of such breach from the Party for whose benefit such Pre-Closing
Covenant exists, but provided that the Party for whose benefit such Pre-Closing
Covenant exists has suffered a damage or loss that would otherwise constitute an
Indemnifiable Claim.
XII.5 Insurance. The benefits of any property, casualty, and other business
insurance which is available to cover any damage or loss that might be the basis
for any Indemnifiable Claim shall be made available to cover any such damage or
loss. The Parties shall prosecute any claim for insurance and apply the proceeds
thereof as aforesaid. No covenant or agreement by any Party to indemnify any
other Party shall release, or be deemed to release, any insurer or indemnitor of
any damage or loss which might be the basis for any Indemnifiable Claim.
XII.6 Other Claims. Dakota and Merger Corp shall not be entitled to assert
against USMX, and USMX shall not be entitled to assert against Dakota and Merger
Corp, any claim for damages, indemnification, or otherwise relating to the
Transactions (including without limitation any Liability arising from or in
connection with this Agreement) except pursuant to this Agreement and subject to
the provisions and limitations of this Article.
ARTICLE XIII
MISCELLANEOUS
XIII.1 Further Actions. From time to time, as and when
requested by any Party, the other Parties shall execute and
deliver, or cause to be executed and delivered, such documents
and instruments and shall take, or cause to be taken, such\further or other
actions as may reasonably request in order to:
(a) carry out the intent and purposes of this Agreement;
(b) effect the Merger (or to evidence the foregoing); and
(c) consummate and give effect to the other transactions, covenants, and
agreements contemplated by this Agreement.
XIII.2 Indemnification Regarding Brokers. The Parties shall indemnify the other
Parties against, and hold the other parties harmless from, at all times after
the date hereof, any and all Liabilities and expenses (including without
limitation legal and professional fees) resulting from, related to or arising
out of any final judgment obtained by any person claiming brokerage commissions
or finder's fees, or rights to similar compensation, on account of services
purportedly rendered on behalf of any Party in connection with this Agreement or
the Transactions.
XIII.3 Expenses. Except as otherwise specifically provided herein, USMX, Dakota
and Merger Corp shall each bear their own legal fees and other costs and
expenses with respect to the negotiation, execution, and the delivery of this
Agreement and the consummation of the Transactions.
XIII.4 Entire Agreement. This Agreement, which includes the Exhibits hereto and
the other documents, agreements, and instruments executed and delivered pursuant
to or in connection with this Agreement, contains the entire Agreement among the
Parties with respect to the Transactions and, except as expressly provided
herein, supersedes all prior arrangements or understandings with respect
thereto, including, without limitation, the letter agreement dated January 3,
1997 between Dakota and USMX (except for such agreements supplementing or
amending this Agreement which specifically make reference to this Section).
XIII.5 Descriptive Headings. The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
XIII.6 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by telecopier, nationally recognized over-night courier, or registered
or certified mail, postage prepaid, addressed as follows:
(a) If to any USMX Group Member:
USMX INC.
141 Union Boulevard, Suite 100
Lakewood, Colorado 80228
Attention: Donald P. Bellum, President
Telecopy: (303) 980-1363
with a copy to:
Bearman Talesnick & Clowdus Professional Corporation
1200 17th Street, Suite 2600
Denver, Colorado 80202-5826
Attention: Robert M. Bearman, Esq.
Telecopy: (303) 572-6511
(b) If to any Dakota Group Member:
Dakota Mining Corporation
410 Seventeenth Street, Suite 2450
Denver, Colorado 80202
Attention: Robert R. Gilmore, Vice President-Finance
and CFO
Telecopy: (303) 573-1012
with a copy to:
Parcel, Mauro, Hultin & Spaanstra, P.C.
Suite 3600, 1801 California Street
Denver, Colorado 80202
Attention: Richard F. Mauro, Esq.
Telecopy: (303) 295-3040
and
McCarthy Tetrault
P.O. Box 10424, Pacific Centre
Suite 1300, 777 Dunsmuir Street
Vancouver, B.C.
CANADA V7Y 1K2
Attention: Richard J. Balfour, Esq.
Telecopy: (604) 643-7900
Any such notices or communications shall be deemed to have been received: (1) if
delivered personally or sent by telecopier (with transmission confirmed) or
nationally recognized overnight courier, on the date of such delivery; or (2) if
sent by registered or certified mail, on the third Business Day following the
date on which such mailing was postmarked. Any Party may by notice change the
address to which notices or other communications to it are to be delivered or
mailed.
XIII.7 Governing Law.
(a) This Agreement shall be governed by and construed in accordance with
the Laws of the State of Delaware (other than the choice of law principles
thereof), except that any representations and warranties with respect to real
and tangible property shall be governed by and construed in accordance with the
Laws of the jurisdiction where such property is situated if other than in the
State of Delaware.
(b) Any action, suit, or other proceeding initiated by USMX, Dakota, or
Merger Corp against the other under or in connection with this Agreement may be
brought in any federal or state court in the State of Colorado, as the Party
bringing such action, suit, or proceeding shall elect, having jurisdiction over
the subject matter thereof. USMX, Dakota, and Merger Corp hereby submit
themselves to the jurisdiction of any such court for the purpose of any such
action and agree that service of process on them in any such action, suit, or
proceeding may be effected by the means by which notices are to be given to it
under this Agreement.
XIII.8 Assignability. This Agreement shall not be assignable otherwise than by
operation of law by any Party without the prior written consent of the other
Parties, and any purported assignment by any Parties without the prior written
consent of the other Party shall be void.
XIII.9 Remedies. The Parties acknowledge that the remedy at law for any breach
of the obligations undertaken by the Parties is and shall be insufficient and
inadequate and that the Parties shall be entitled to equitable relief, in
addition to remedies at law. In the event of any action to enforce the
provisions of this Agreement, each of the Parties waive the defense that there
is an adequate remedy at law. The Parties acknowledge that the USMX Shares and
Dakota Shares are unique. Without limiting any remedies any Party may otherwise
have, in the event any other Party refuses to perform its obligations under this
Agreement, the Parties shall have, in addition to any other remedy at law or in
equity, the right to specific performance.
XIII.10 Waivers and Amendments. Any waiver of any term or condition of this
Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing. A waiver of any breach or failure to enforce any
of the terms or conditions of this Agreement shall not in any way affect, limit,
or waive a Party's rights hereunder at any time to enforce strict compliance
thereafter with every term or condition of this Agreement.
XIII.11 Third-Party Rights. Notwithstanding any other provision of this
Agreement, this Agreement shall not create benefits on behalf of any stockholder
or employee of the USMX Group or the Dakota Group, any third party or any other
Person (including without limitation any broker or finder, notwithstanding the
provisions of Section 13.2 ); and this Agreement shall be effective only as
between the Parties, their successors and permitted assigns.
XIII.12 Illegalities. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal, or unenforceable in any
respect for any reason, the validity, legality, and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the Party for whose benefit the provision exists,
be in any way impaired.
* * *
The remainder of this page is blank. IN WITNESS WHEREOF, the
undersigned have executed and delivered this Agreement as of the day and year
first above written.
USMX, INC. DAKOTA MINING CORPORATION
By: By:
Name: Donald P. Bellum Name: Alan R. Bell
Title: President Title: President and
CEO
DAKOTA MERGER CORPORATION
By:
Name: Alan R. Bell
Title: President
Schedule A
Certain Definitions
"1995 Dakota Financial Statements" shall mean the audited consolidated balance
sheet of the Dakota Group as of December 31, 1995, with the related audited
consolidated statements of income and retained deficits and of cash flows for
the fiscal year ended as of such date (together with the related notes and
schedules thereto), which financial statements contain a letter from KPMG Peat
Marwick Thorne reporting thereon.
"1995 USMX Financial Statements" shall mean the audited consolidated balance
sheet of USMX and its subsidiaries as of December 31, 1995, with the related
audited consolidated statements of income and retained deficits and of cash
flows for the fiscal year ended as of such date (together with the related notes
and schedules thereto), which financial statements contain a letter from KPMG
Peat Marwick LLP reporting thereon.
"Advisers" when used with respect to any Person shall mean such Person's
directors, officers, employees, representatives, agents, counsel, accountants,
advisers, engineers, and consultants.
"Affiliate" shall mean as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person and, if such Person is an individual, any member of the immediate family
(including parents, spouse, children and grandchildren) of such individual and
any trust whose principal beneficiary is such individual or one or more members
of such immediate family and any Person who is controlled by any such member or
trust. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
the management or policies (whether through the ownership of securities or
partnership or other ownership interests, by Contract or otherwise).
"Agreement" shall mean this Agreement and Plan of Merger, as it may be amended
or supplemented at any time and from time to time after the date hereof.
"Basket" shall have the meaning ascribed in Section 12.1(b)(1).
"Breaching Party" shall have the meaning ascribed in Section
11.2(b).
"Business Day" shall mean any day on which commercial banks are not authorized
or required to close in Denver, Colorado.
"Canadian GAAP" shall mean generally accepted accounting principles in Canada
consistently applied.
"Certificate" shall have the meaning ascribed in Section 1.10(a).
"Certificate of Merger" shall have the meaning ascribed in
Section 1.4.
"Closing" shall mean the consummation of the Transactions. "Closing Date" shall
mean a date as soon as practicable after approval and/or adoption of this
Agreement and the Transactions by the shareholders of Dakota and the
stockholders of USMX and satisfaction or waiver of the conditions set forth in
Articles VIII, IX, and X.
"Competing Transaction" shall have the meaning ascribed in
Section 5.12.
"Constituent Corporations" shall have the meaning ascribed in
Section 1.1.
"Contract" shall mean any contract, lease, agreement, instrument, license,
commitment, order, or quotation.
"Dakota Group" shall mean and include Dakota, Merger Corp, and their respective
subsidiaries, taken as a whole.
"Dakota Group Member" shall mean and include Dakota, Merger Corp, or any of
their respective subsidiaries.
"Dakota SEC Reports" shall have the meaning ascribed in Section
3.15.
"Dakota Shareholders' Meeting" shall have the meaning ascribed in
Section 6.9.
"Dakota Shares" shall have meaning ascribed in the Recitals.
"Effective Time" shall have the meaning ascribed in Section 1.4.
"Employee Plans" shall mean any employee benefit plan (as defined in 3(3) of
ERISA), other deferred compensation plan, bonus plan, material fringe benefit
plan (as defined in 6039D of the Tax Code) and other material employee benefit
plan maintained (other than those required by Law to be maintained) for the
benefit of employees.
"Environmental Condition" shall mean and include:
(a) the generation, discharge, emission, or release into the environment
(including without limitation ambient air, surface water, groundwater or land),
spill, receiving, handling, use, storage, containment, treatment,
transportation, shipment, or disposition prior to the Closing of any Hazardous
Substance by any Person (or their predecessors) as to which Remedial Action is
currently or in the future required under any Environmental Law or as to which
any Liability is currently or in the future imposed on any Person based on the
actions or omissions prior to the Closing of any Person (or their predecessors)
with respect to any Hazardous Substance or reporting with respect thereto; and
(b) the presence as of the Closing Date on any real property owned by any
member of the USMX Group or Dakota Group, as applicable, of any underground
storage tank which contains or contained Hazardous Substances.
"Environmental Laws" shall mean Laws regulating or pertaining to the generation,
discharge, emission or release into the environment (including without
limitation ambient air, surface water, groundwater or land), spill, receiving,
handling, use, storage, containment, treatment, transportation, shipment,
disposition or remediation or clean-up of any Hazardous Substance, as such Laws
are amended and in effect as of the date hereof, including without limitation
the following Laws of the United States: the Clean Air Act; the Clean Water Act;
the Comprehensive Environmental Response, Compensation and Liability Act of
1980; the Resource Conservation and Recovery Act of 1976; and the Toxic
Substances Control Act.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall have the meaning ascribed in Section
1.10(a).
"Exchange Fund" shall have the meaning ascribed in Section
1.10(a).
"GCL" shall mean the General Corporation Law of the State of
Delaware.
"Government" shall mean:
(a) the government of the United States, Canada, or any
other foreign country;
(b) the government of any state, province, county, municipality, city,
town, or district of the United States, Canada, or any other foreign country;
and any multi-county district; and
(c) any ministry, agency, department, authority, commission,
administration, corporation, bank, court, magistrate, tribunal, arbitrator,
instrumentality, or political subdivision of, or within the geographical
jurisdiction of, any government described in the foregoing clauses (a) and (b).
"Governmental" shall mean pertaining to any Government.
"Hazardous Substance" shall include petroleum products, hazardous substances,
hazardous waste, or hazardous materials, or pollutants or contaminants, as such
terms are defined in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980; the Resource Conservation and Recovery Act of 1976; or
any other Environmental Law (including any foreign Environmental Law); all as
amended and in effect as of the date hereof.
"Income Tax" shall mean any Tax based on or measured by income (including
without limitation based on net income, gross income, income as specifically
defined, earnings, profits or selected items of income, earnings or profits);
and any interest, Penalties and additions to tax with respect to any such tax
(or any estimate or payment thereof).
"Indemnifiable Claims" shall mean and include any and all loss or damage or
Liability, and all expenses (including without limitation reasonable legal fees
incurred in the investigation, defense, compromise and settlement of any
Indemnifiable Claim for which such Person is entitled to indemnification under
Article XII), of any Person entitled to indemnification under Article XII.
"Indemnifiable Claim" shall not include any injury to business reputation, lost
business opportunities, lost profits (other than actual lost profits), punitive,
special or consequential damages or interference with business operations (other
than actual damages resulting from interference with business operations). The
amount of any Indemnifiable Claim shall be determined or computed net of:
(a) any proceeds of insurance or third-party indemnity (whether maintained
by USMX or Merger Corp) actually received or collected in respect of any such
Indemnifiable Claims; and
(b) any Indemnification Tax Benefit received by the Person entitled to
indemnification with respect to any tax year in which the claim for
indemnification is satisfied or in any prior tax year.
"Indemnification Tax Benefit" shall mean an amount equal to the amount of any
Tax savings actually recognized and actually realized by reason of a net
reduction in taxes paid by an indemnitee attributable to the payment by the
indemnitor of such Indemnifiable Claim (after taking into account the Tax
effect, if any, of receipt of payment of any Indemnifiable Claim). In computing
the amount of any Indemnification Tax Benefit, the indemnitee shall be deemed to
have used all other items of loss, deduction or credit before using any loss
attributable to any Indemnifiable Claim.
"Indemnified Party" shall have the meaning ascribed in Section
6.13.
"Indemnifying Party" shall have the meaning ascribed in Section
12.3(a).
"Indemnitee" shall have the meaning ascribed in Section 12.3(a).
"Interim Dakota Balance Sheet" shall mean the unaudited consolidated balance
sheet included in the Interim Dakota Financial Statements.
"Interim Dakota Financial Statements" shall mean the unaudited financial
statements dated as of December 31, 1996, or such other more recent unaudited
financial statements delivered (from time to time) to USMX.
"Interim USMX Balance Sheet" shall mean the unaudited consolidated balance sheet
included in the Interim USMX Financial Statements.
"Interim USMX Financial Statements" shall mean the unaudited financial
statements dated as of December 31, 1996, or such other more recent unaudited
financial statements delivered (from time to time) to Dakota.
"Joint Proxy Statement" shall have the meaning ascribed in
Section 7.2.
"Joint Proxy/Registration Statement"shall have the meaning
ascribed in Section 7.2.
"Law" shall mean any of the following of, or issued by, any Government, in
effect on or prior to the date hereof, including any amendment, modification, or
supplementation of any of the following from time to time subsequent to the
original enactment, adoption, issuance, announcement, promulgation, or granting
thereof and prior to the date hereof: any statute, law, act, ordinance, code,
rule, or regulation or any writ, injunction, award, decree, judgment, or order
of any Government.
"Liability" of any Person shall mean and include:
(a) any right against such Person to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured;
(b) any right against such Person to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such
right to any equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured; and
(c) any obligation of such Person for the performance of any covenant or
agreement (whether for the payment of money or otherwise).
"Liens" shall mean liens, encumbrances, licenses, claims, security interests,
mortgages, pledges, charges, escrows, options, or rights of first refusal or
offer.
"Material Adverse Change" or "Material Adverse Effect" shall mean a material
adverse change in, or material adverse effect on, the business, properties,
assets, liabilities, results of operations or financial condition of the USMX
Group or Dakota Group (as applicable), in any case after application of the
proceeds of any insurance or indemnity under any contract or agreement between
the applicable Group, USMX or Dakota and any third party. The foregoing shall
not include any change or effect attributable to changes in the economy (of the
United States, Canada, or any other country) generally, changes in the
industries in which the applicable Group engages, changes in metal prices, or
seasonality of the businesses of the Group. No "Material Adverse Change" or
"Material Adverse Effect" shall be deemed to have occurred by virtue or as a
result of any voluntary termination or termination for cause of the employment
of any officer of the applicable Group or the termination of any consulting
relationship between any Person and the applicable Group.
"Merger" shall have the meaning ascribed in Section 1.1.
"Non-Breaching Party" shall have the meaning ascribed in Section
11.2(b).
"Parties" and "Party" shall have the meanings ascribed in the
Preamble.
"Penalty" shall mean any civil or criminal penalty (including any interest
thereon), fine, levy, lien, assessment, charge, monetary sanction, or payment,
or any payment in the nature thereof, of any kind required to be made to any
Government under any Law.
"Permitted Liens" shall mean Liens arising out of the ordinary course of
business which do not, individually or in the aggregate, materially detract from
the use, value or enjoyment (in the ordinary course of business as presently
conducted) of the assets which are the subject of such Liens.
"Person" shall mean any corporation, partnership, limited lability company or
partnership, joint venture, trust, unincorporated association or organization,
business, enterprise, or other entity; any individual; and any Government.
"Pre-Closing Covenant" shall have the meaning ascribed in Section
12.4(c).
"Registration Statement" shall have the meaning ascribed in
Section 7.2.
"Remedial Action" shall mean any investigation, feasibility study, monitoring,
testing, sampling, removal (including without limitation removal of underground
storage tanks), restoration, clean-up, remediation, corrective action, closure,
site restoration, remedial response or remedial work with respect to any
Environmental Condition.
"SEC" shall mean the Securities and Exchange Commission of the
United States.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Securities Act Affiliate" shall mean any affiliate of a Person for purposes of
Rule 145 of the Securities Act.
"Surviving Corporation" shall have the meaning ascribed in
Section 1.1.
"Tax" shall mean any tax, levy, charge, assessment, penalty, interest or fine
imposed by or due any Government, including without limitation any of the
following:
(a) any tax based on or measured by income (including without limitation
based on net income, gross income, income as specifically defined, earnings,
profits or selected items of income, earnings or profits);
(b) any franchise, sales, use and value added tax or any license or
withholding tax; any payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, alternative or add-on minimum tax; and any customs
duties or other taxes;
(c) any "trust fund" tax under Subtitle C, Chapter 24A of
the Tax Code;
(d) any tax on property (real or personal, tangible or
intangible, based on transfer or gains);
(e) any estimate or payment of any of tax described in the
foregoing clauses (a) through (d); and
(f) any interest, Penalties and additions to tax with respect to any tax
(or any estimate or payment thereof) described in the foregoing clauses (a)
through (e).
"Tax Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Termination Date" shall mean April 30, 1997, provided that, if the Joint Proxy/
Registration Statement has not been declared effective by the SEC by a date
which allows sufficient time (under applicable Law) to properly hold the USMX
Stockholders' Meeting and the Dakota Shareholders' Meeting, or if other required
regulatory approvals or clearances have not been received, on or prior to April
30, 1997, the Termination Date shall be extended to a date which allows for the
foregoing, which date, in no event, shall be later than May 31, 1997.
"Termination Fee" shall have the meaning ascribed in Section
11.3.
"Third-Party Claim" shall have the meaning ascribed in Section
12.3(a).
"Transactions" shall mean the Merger, and any other actions or transactions
contemplated under this Agreement.
"U.S. GAAP" shall mean generally accepted accounting principles
in the United States consistently applied.
"USMX Group" shall mean and include USMX and its subsidiaries,
taken as a whole.
"USMX Group Member" shall mean and include USMX or any
subsidiary.
"USMX SEC Reports" shall have the meaning ascribed in Section
2.26.
"USMX Stockholders' Meeting" shall have the meaning ascribed in
Section 5.10.
"USMX Shares" shall have the meaning ascribed in the Recitals.
TABLE OF CONTENTS
RECITALS 1
AGREEMENT 1
ARTICLE I--GENERAL 2
1.1 Merger. 2
1.2 Charter and By-laws; Directors and Officers. 2
1.3 No Separate Identity. 2
1.4 Effectiveness. 2
1.5 Conversion of Shares. 2
1.6 Treasury Shares, Etc. 2
1.7 Warrants, Options, Etc. 3
1.8 No Fractional Shares. 3
1.9 Stock Transfer Books. 3
1.10 Exchange of Certificates 4
1.11 Directors of Dakota. 4
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF USMX 4
2.1 Organization and Good Standing. 5
2.2 Consents, Authorizations, and Binding Effect. 5
2.3 Minute and Stock Transfer Books. 6
2.4 Financial Statements and Financial Condition. 6
2.5 Title and Condition of Assets. 7
2.6 Insurance. 9
2.7 Litigation and Compliance. 9
2.8 Taxes. 10
2.9 Intangible Assets. 11
2.10 Employees. 11
2.11 Pension and Other Employee Plans and Agreements. 11
2.12 Labor Relations. 12
2.13 Contracts, Etc. 13
2.14 Absence of Certain Changes, Etc. 13
2.15 Subsidiaries. 14
2.16 Capitalization and Title to Shares. 16
2.17 Environmental Matters. 16
2.18 Brokers. 16
2.19 Officers and Directors. 17
2.20 Fairness of Transaction. 17
2.21 Valid Issuance of New Stock. 17
2.22 No Misstatements or Omissions. 17
2.23 USMX SEC Reports. 17
2.24 Information in Disclosure Documents. 18
2.25 No Knowledge of Breach of Representations and
Warranties of
Merger Corp. 18
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF DAKOTA AND MERGER
CORP 18
3.1 Organization and Good Standing. 19
3.2 Consents, Authorizations, and Binding Effect. 19
3.3 Minute and Stock Transfer Books. 20
3.4 Financial Statements and Financial Condition. 20
3.5 Title and Condition of Assets. 21
3.6 Insurance. 23
3.7 Litigation and Compliance. 23
3.8 Taxes. 24
3.9 Intangible Assets. 25
3.10 Pension and Other Employee Plans and Agreements. 25
3.11 Labor Relations. 25
3.12 Contracts, Etc. 26
3.13 Absence of Certain Changes, Etc. 27
3.14 Subsidiaries. 27
3.15 Capitalization and Title to Shares. 29
3.16 Environmental Matters. 29
3.17 Fairness of Transaction. 30
3.18 Valid Issuance of New Stock. 30
3.19 No Misstatements or Omissions. 30
3.20 Dakota SEC Reports. 30
3.21 Information in Disclosure Documents. 31
3.22 No Knowledge of Breach of Representations and
Warranties of USMX. 31
ARTICLE IV--NO OTHER REPRESENTATIONS AND WARRANTIES 31
4.1 No Other Representations and Warranties. 31
4.2 Projections, Etc. 31
ARTICLE V--USMX COVENANTS 32
5.1 Access. 32
5.2 Ordinary Course. 32
5.3 Representations and Warranties. 34
5.4 Insurance. 34
5.5 No Breach. 34
5.6 Financial Statements. 34
5.7 Litigation. 34
5.8 Closing Conditions. 34
5.9 Contracts. 34
5.10 USMX Stockholders' Approval. 34
5.11 Rule 145 Affiliates. 35
5.12 No Shop. 35
5.13 Cooperation. 36
ARTICLE VI--DAKOTA'S AND MERGER CORP'S COVENANTS 36
6.1 Access. 36
6.2 Ordinary Course. 37
6.3 Representations and Warranties. 38
6.4 No Breach. 39
6.5 Financial Statements. 39
6.6 Litigation. 39
6.7 Closing Conditions. 39
6.8 Contracts. 39
6.9 Dakota Shareholders' Approval. 39
6.10 Stock Listing. 39
6.11 Line of Credit. 39
6.12 Employee Benefit Plans 40
6.13 Indemnification; Directors' and Officers' Insurance 40
6.14 Assumption of Existing Agreements Relating to
Employment 41
6.15 USMX Stock Options 42
ARTICLE VII--OTHER COVENANTS OF THE PARTIES 42
7.1 Consents and Notices. 42
7.2 Joint Proxy/Registration Statement. 42
7.3 Support Agreements. 44
7.4 Confidentiality. 44
7.5 Press Releases. 45
ARTICLE VIII--CONDITIONS TO OBLIGATIONS OF DAKOTA AND MERGER CORP
45
8.1 Representations and Warranties. 45
8.2 Compliance with Covenants. 45
8.3 Opinion of Counsel. 45
8.4 No Material Adverse Change. 45
8.5 Other Matters. 45
8.6 Consents. 45
8.7 Accountant's Bring-Down Letter. 46
8.8 Montana Tunnel. 46
ARTICLE IX--CONDITIONS TO OBLIGATIONS OF USMX 46
9.1 Representations and Warranties. 46
9.2 Compliance with Covenants. 46
9.3 Opinions of Counsel. 46
9.4 No Material Adverse Change. 46
9.5 Other Matters. 46
9.6 Consents. 47
9.7 Accountant's Bring-Down Letter. 47
ARTICLE X--CONDITIONS TO OBLIGATIONS OF THE PARTIES 47
10.1 No Adverse Proceedings. 47
10.2 No Termination. 47
10.3 No Injunctions. 47
10.4 Support Agreement. 47
10.5 Stock Exchange Approvals. 47
10.6 Shareholder Approval. 47
10.7 SEC Filings. 47
10.8 Tax Letter. 48
10.9 Rothschild Loan. 48
10.10 Canadian Offering. 48
10.11 Up-Dating of Exhibits; Election Not to Close. 48
ARTICLE XI--CLOSING AND TERMINATION 49
11.1 Closing. 49
11.2 Termination of this Agreement. 49
11.3 Liquidated Damages. 49
ARTICLE XII--INDEMNIFICATION 50
12.1 Indemnification by USMX. 50
12.2 Indemnification by Dakota and Merger Corp. 51
12.3 Assertion of Claims; Etc. 52
12.4 Survival of Representations, Warranties and Covenants.53
12.5 Insurance. 54
12.6 Other Claims. 54
ARTICLE XIII--MISCELLANEOUS 54
13.1 Further Actions. 54
13.2 Indemnification Regarding Brokers. 54
13.3 Expenses. 54
13.4 Entire Agreement. 54
13.5 Descriptive Headings. 55
13.6 Notices. 55
13.7 Governing Law. 56
13.8 Assignability. 56
13.9 Remedies. 56
13.10 Waivers and Amendments. 57
13.11 Third-Party Rights. 57
13.12 Illegalities. 57
SCHEDULE OF EXHIBITS
EXHIBIT NO. DESCRIPTION
1.4 Form of Certificate of Merger
USMX Disclosure Exhibits
2.1 Foreign Qualification and Subsidiaries
2.2 Consents, Etc.
2.4(b) Accounting Books and Records
2.4(c) Interim USMX Financial Statements
2.5(a) Real Property Interests
2.5(b) Property Liens and Defects
2.5(c) Royalties
2.5(e) Operating Condition Defects
2.6 Insurance
2.7(a) Litigation
2.7(c) Judgments, Etc.
2.7(d) Permits, Etc.
2.8 Taxes
2.11 Employee Plans
2.12 Labor Matters
2.13 Contracts
2.14 Certain Changes
2.15(a) Subsidiaries
2.15(b) Liens on Subsidiary Capital Stock
2.15(d) Subsidiary Proxies, Options, Etc.
2.15(e) Disposed Subsidiaries
2.16 Capital Stock of USMX
2.17 Environmental Matters
2.19 Officers and Directors
2.23 USMX SEC Reports
Dakota Disclosure Exhibits
3.1 Foreign Qualification and Subsidiaries
3.2 Consents, Etc.
3.4(b) Accounting Books and Records
3.4(c) Interim Dakota Financial Statements
3.5(a) Real Property Interests
3.5(b) Property Liens and Defects
3.5(c) Royalties
3.5(e) Operating Condition Defects
3.6 Insurance
3.8(a) Litigation
3.7(c) Judgments, Etc.
3.7(d) Permits, Etc.
3.10 Employee Plans
3.12 Contracts
3.13 Certain Changes
3.14(a) Subsidiaries
3.14(b) Liens on Subsidiary Capital Stock
3.14(d) Subsidiary Proxies, Options, Etc.
3.15 Capital Stock of Dakota
3.16 Environmental Matters
3.20 Dakota SEC Reports
5.2 USMX Exceptions to Ordinary Course
5.11 Form of Securities Act Affiliate Agreement
6.2 Dakota Exceptions to Ordinary Course
6.11 Terms of Line of Credit
7.3 Form of Support Agreement
<PAGE>
APPENDIX B
RESOLUTIONS
DAKOTA RESOLUTIONS
1. Resolutions to Approve and Adopt the Merger Agreement
WHEREAS, the Board of Directors of Dakota has authorized and approved,
and has recommended that the Shareholders of Dakota approve and adopt,
the Agreement and Plan of Merger dated February 5, 1997 (the "Merger
Agreement") among Dakota, Dakota Merger Corporation, and USMX, Inc.;
and
WHEREAS, it is desirable to approve and adopt the Merger Agreement.
NOW, THEREFORE, BE IT RESOLVED that the Merger Agreement is hereby
approved and adopted in all respects; and
FURTHER RESOLVED that the transactions contemplated under the Merger
Agreement, including, without limitation, the issuance of additional
Common Shares of Dakota to effect the Merger, are hereby approved in
all respects.
2. Resolution to Ratify an Amendment to the Share Incentive Plan
WHEREAS, the Board of Directors of Dakota has approved an amendment to
Dakota's Share Incentive Plan to increase the number of Common Shares
reserved for issuance thereunder from 3,000,000 to 6,000,000 (the "Plan
Amendment"); and
WHEREAS, it is desirable to ratify, confirm, approve and adopt the
Plan Amendment.
NOW, THEREFORE, BE IT RESOLVED that the Plan Amendment is hereby
ratified, confirmed, approved and adopted in all respects.
3. Resolution to Issue 4,884,550 Common Shares
WHEREAS, Dakota has issued 8,881 Series B Special Warrants exercisable
for 7.5% unsecured convertible debentures of Dakota (the "Debentures"),
which Debentures are convertible into up to 4,884,550 Common Shares of
Dakota;
WHEREAS, the Board of Directors of Dakota has authorized the issuance
of the Series B Special Warrants, the Debentures issuable thereunder,
and the Common Shares issuable thereunder; and
WHEREAS, it is desirable to approve the issuance the Common Shares upon
conversion of the Debentures issuable upon exercise of the Series B
Special Warrants.
NOW, THEREFORE, BE IT RESOLVED that the issuance of up to 4,884,550
Common Shares of Dakota upon conversion of the Debentures issuable upon
exercise of the Series B Special Warrants is hereby approved in all
respects.
USMX RESOLUTIONS
1. Resolutions to Approve and Adopt the Merger Agreement
WHEREAS, the Board of Directors of USMX has authorized and approved,
and has recommended that the Stockholders of USMX approve and adopt,
the Agreement and Plan of Merger dated February 5, 1997 (the "Merger
Agreement") among Dakota Mining Corporation, Dakota Merger Corporation,
and USMX; and
WHEREAS, it is desirable to approve and adopt the Merger Agreement.
NOW, THEREFORE, BE IT RESOLVED that the Merger Agreement is hereby
approved and adopted in all respects; and
FURTHER RESOLVED that the transactions contemplated under the Merger
Agreement are hereby approved in all respects.
2. Resolution to Approve the Montana Tunnels Agreement
WHEREAS, USMX has entered into a Purchase and Sale Agreement dated
March 17, 1997 with Pegasus Gold, Inc. with respect to the Montana
Tunnels (the "Montana Tunnels Agreement");
WHEREAS, the Board of Directors of USMX has approved the Montana
Tunnels Agreement; and
WHEREAS, it is desirable to ratify, confirm, and approve the Montana
Tunnels Agreement.
NOW, THEREFORE, BE IT RESOLVED that the Montana Tunnels Agreement is
hereby ratified, confirmed, and approved in all respects.
<PAGE>
APPENDIX C
March 14, 1997
The Board of Directors of
USMX, Inc.
141 Union Boulevard, Suite 100
Lakewood, CO
U.S.A. 80228
Dear Sir(s):
Newcrest Capital Inc. ("Newcrest", "we", "us", or "our") understand that USMX,
Inc. ("USMX") has entered into a merger agreement (the "Merger") with Dakota
Mining Corporation ("Dakota"). Under the terms of the Merger, shareholders of
USMX will receive one Dakota common share for every 1.1 common shares of USMX
held (the "Share Exchange Ratio") and USMX will become a wholly owned subsidiary
of Dakota.
The terms and conditions of the Merger as well as a detailed review of the
financial position and operations of each of USMX and Dakota are more fully
described in a notice of annual and special meeting of shareholders and
management information circular and proxy statement which will be provided to
common shareholders of USMX and Dakota.
Engagement of Newcrest Capital Inc.
USMX has retained Newcrest to provide advisory services as well as our opinion
(the "Fairness Opinion") to the Board of Directors of USMX (the "Board of
Directors") as to the fairness, from a financial point of view, of the Merger to
the shareholders of USMX (the "Holders of Shares"). We have not been engaged to
prepare and have not prepared a formal valuation of USMX or any of its material
assets and our Fairness Opinion should not be construed as such. Under the terms
of the engagement, Newcrest will receive a fee for the preparation of the
Fairness Opinion and USMX has agreed to reimburse Newcrest for its reasonable
out-of pocket expenses. USMX has also agreed to indemnify Newcrest in respect of
certain liabilities which may be incurred by Newcrest in connection with the
provision of its services. No part of Newcrest's fee is contingent upon the
conclusion reached by Newcrest in the Fairness Opinion.
Qualifications of Newcrest
Newcrest is an independent, fully-integrated investment dealer headquartered in
Toronto, Ontario with additional offices in Montreal, Calgary and Vancouver. The
firm specializes in equity investments in publicly traded Canadian companies.
Newcrest was known as Sanwa McCarthy Securities Ltd. until September of 1995 and
was renamed in October of 1995 after a significant corporate reorganization.
Newcrest provides investment services to institutional clients; employs its own
trading group; does specialized and comprehensive research on a variety of
different industries and is an active underwriter and financial advisor to
Canadian companies.
In particular, Newcrest has participated in a significant number of transactions
involving financings, fairness opinions and valuations of mining companies.
Scope of Review
In preparing the Valuation and Fairness Opinion, Newcrest has, among other
things, reviewed and relied upon, or carried out, the following:
(i) audited financial statements of USMX and Dakota for the year ended
December 31, 1995 and draft financial statements of USMX and Dakota for
the year ended December 31, 1996;
(ii) unaudited interim financial statements for the periods ended
September 30, 1996 for USMX and Dakota;
(iii) management prepared operating and financial forecasts for fiscal years
ending December 31, 1997, 1998, 1999 and 2000 for USMX and Dakota;
(iv) draft information circular describing the Merger to be mailed to USMX
and Dakota shareholders;
(v) certain publicly available information related to the business,
operations, financial performance and industry conditions of USMX;
(vi) press releases issued by USMX and Dakota from January 1, 1996 to the
date hereof;
(vii) gold market performance and industry data;
(viii) discussions with senior management of USMX in respect of the operations,
business plans and undeveloped mining interests of USMX and gold industry
conditions;
(ix) stock market information relating to USMX and Dakota;
(x) a certificate addressed to Newcrest from USMX representing, among other
things, that the information provided to us in respect to the Fairness
Opinion is full, true and complete disclosure and that no material
information has been withheld which might reasonably affect the Fairness
Opinion; and,
(xi) such other market, financial and resource industry information that
Newcrest considered necessary or appropriate in the circumstances in
order to provide the Fairness Opinion.
We conducted such analysis, investigations, research and testing of
assumptions as were considered by us to be appropriate in the circumstances. We
were granted access to the management of both USMX and Dakota and were not, to
our knowledge, denied access to any information which we requested which might
be material to the Fairness Opinion.
Assumptions
In accordance with the terms of our engagement agreement, we have relied on and
assumed the completeness and accuracy of publicly available information
concerning USMX and Dakota and the financial and other information which
Newcrest has received from each company. Although we have not conducted any
independent verification of the information, we have no reason to believe that
such information is not accurate or complete. The Fairness Opinion is
conditional upon such completeness, accuracy and fair presentation of all
material provided to us.
USMX and Dakota have represented to Newcrest, in certificates dated as at the
date hereof, amongst other things, that the information, data, advice, opinions
and representations provided to Newcrest are complete, true and correct in all
material respects and do not contain any untrue material fact or omit to state
any material fact and that since the date the relevant information was provided,
there has been no material changes in USMX or Dakota or any of their
subsidiaries and no material change has occurred in the information or any part
thereof which would reasonably be expected to have a material effect on the
Fairness Opinion. USMX and Dakota have also represented in the above
certificates that with respect to any portions of the information that
constitute forecasts, projections or estimates, such forecasts, projections or
estimates were prepared using assumptions which in the belief of USMX and Dakota
are reasonable in the circumstances, and are not misleading in any material
respect in light of the assumptions used.
The analysis utilized in developing the range of a fair merger ratio between
USMX and Dakota is based upon techniques and relevant assumptions that Newcrest
deemed appropriate in the circumstances. In our analysis and in connection with
the preparation of the Fairness Opinion, we have made certain assumptions with
respect to economic and industry conditions and other matters, many of which are
beyond the control of any party involved with the Merger.
The methodology employed by Newcrest included a review of long range financial
and operational projections provided by USMX and Dakota which reflect numerous
assumptions regarding the impact of general economic and industry conditions on
the future financial results of USMX and Dakota. While Newcrest believes the
assumptions used are appropriate in the circumstances, some or all of the
assumptions may prove to be incorrect.
The analysis incorporated in the Fairness Opinion must be considered as a whole.
Any attempt to select portions of our analysis without considering all factors
and analysis could lead to an undue emphasis on any particular factor or
analysis and possibly lead to incorrect and misleading conclusions. The Fairness
Opinion is not intended to be and does not constitute a recommendation to any
shareholder of USMX as to whether or not such shareholder should tender their
shares.
Fairness Methodology
Newcrest reviewed and considered different methodologies and approaches to
assess the fairness from a financial point of view of the Merger to Holders of
Shares. Of particular significance is a comparison of the Share Exchange Ratio
with our assessment of the relative values of USMX and Dakota using consistent
assumptions and techniques for both companies. We have not attributed any
particular weight to any analysis or factor considered by us, but rather have
made qualitative judgements based on our experience in rendering such opinions
and on circumstances then prevailing as to the significance and relevance of
each analysis and factor.
In assessing the fairness of the Merger, from a financial point of view, to the
Holders of Shares, we have compared the Share Exchange Ratio to:
i) the relative valuations of USMX and Dakota derived from employing
a net asset value approach ("NAV Aproach");
ii) the historical market trading prices of the common shares (and the
implied exchange ratios) of USMX and Dakota; and
iii) the relative valuations of USMX and Dakota based on production and
resource trading multiples of comparable mining companies.
NAV Approach
The NAV Approach incorporates discounted cash flow analysis which takes into
account the amount, timing and relative certainty of the future cash flows
expected to be generated by all the properties currently held by USMX and
Dakota. The free cash flow projections were discounted to present value by
applying an appropriate weighted average cost of capital. As part of our
analysis, Newcrest conducted various sensitivity analyses whereby the
sensitivity of the discounted value of the free cash flows were considered
relative to changes in certain variables including the projected price of gold,
amount of ore mined and discount rates.
For purposes of the NAV approach, Newcrest made the following assumptions:
i) balance sheet items were stated at the carrying values as at
December 31, 1996;
ii) if the Merger were not to be completed, USMX would complete an equity
issue to raise US$10 million (at US$1.00 per common share) in 1997;
iii) operating mines were evaluated on an after-tax discounted cash flow
basis;
iv) USMX's exploration interests outside of Illinois Creek and Thunder
Mountain were reviewed with USMX management and estimates of value were
determined with reference to several factors such as the size of the
properties, ownership interest of USMX, stage of exploration program and
historic exploration expenditures;
v) discount rates ranging from 0% to 8%;
vi) spot gold prices ranging from US$350 per ounce to $390 per ounce; and
vii) silver price of US$5.00 per ounce.
As a result of the range of relative company valuations implied by the NAV
Approach, Newcrest is of the opinion that the Share Exchange Ratio is fair from
a financial point of view to the Holders of Shares.
Market Trading Analysis
On January 6, 1997 (the "Announcement Date"), the Merger was publicly announced.
Set forth below is a summary of the weighted average trading price of USMX and
Dakota common shares during the periods referenced together with the resulting
implied share exchange ratio:
USMX Weighted Dakota Weighted Implied Share
Time Horizon Average Price Average Price Exchange Ratio
Mar 7/96 $1.34 $1.38 1.023
1 day prior to Jan 6/97 $1.84 $1.50 0.813
30 days prior to Jan 6/97 $1.71 $1.76 1.024
60 days prior to Jan 6/97 $1.76 $1.98 1.122
Notes:
(1) Implied share exchange ratio refers to the ratio of the Dakota closing share
price (AMEX) to the USMX closing share price (Nasdaq).
(2) All trading prices quoted in US$.
(3) Dakota total volume based on volume on AMEX and TSE.
(4) Dakota US$ share prices based on daily closing prices on the AMEX.
(5) Average Prices have been rounded to two decimal places
For the period of 60 trading days prior to the Announcement Date, the minimum
implied share exchange ratio was 0.814 and the maximum was 1.458.
In terms of share trading volume, USMX common shares had an average daily
trading volume of approximately 31,767 shares for the 60 day period prior to the
Announcement Date. For the same period, Dakota shares had daily average trading
volumes of 37,570 shares (American Stock Exchange) and 22,618 (Toronto Stock
Exchange). Based on the daily close of the two stocks for the same period, 46%
of the volume of USMX common shares traded were done so when the implied share
exchange ratio was at or above the Share Exchange Ratio.
[GRAPHIC OMITTED]
The Share Exchange Ratio is fair from a financial point of view to the Holders
of Shares based on the above analysis of the range of relative trading prices
for the common shares for USMX and Dakota in the above periods prior to the
announcement of the Merger.
Comparable Valuation Approach
As a check on the conclusions reached based upon the NAV Approach, Newcrest
compared the range of equity valuations of the USMX and Dakota properties, based
on current adjusted stock market capitalization multiples (reserves, resources
and production) of comparable publicly traded mining companies. The resulting
relative valuations of USMX and Dakota supported the conclusion that the Share
Exchange Ratio is fair to Holders of Shares. However, given the difficulty in
identifying truly comparable companies which are at the same stage of production
and reserve development, Newcrest placed less significance on the Comparable
Valuation Approach.
Other Considerations
Newcrest considered other factors relevant to Holders of Shares before and after
giving effect to the proposed Merger including the following:
i) reduced administrative costs on a consolidated basis largely through
elimination of costs associated with operating USMX as a publicly-held
company;
ii) direct access to cash flows generated through Dakota's financial and
operating activities, representing diversification from the Illinois
Creek project and resulting in enhanced financing opportunities; and
iii) the merged company will have a significantly larger market capitalization
and near term annual projected production of approximately 200,000 ounces
gold; the merged company should be viewed by markets as a mid-cap gold
producer instead of a junior producer, resulting in enhanced market
valuation multiples and better access to the capital markets.
FAIRNESS OPINION
Based on and subject to the foregoing, Newcrest is of the opinion that, as of
the date hereof, the Share Exchange Ratio is fair, from a financial point of
view, to the Holders of Shares.
This Fairness Opinion may be relied upon by the Board of Directors of USMX and
the shareholders of USMX for the purpose of their consideration of the Merger,
but may not be used or relied upon by any other person for any other purpose
without our express prior written consent.
Yours very truly,
NEWCREST CAPITAL INC.
<PAGE>
APPENDIX
The Board of Directors
March 14, 1997
Page 8
CANACCORD CAPITAL CORPORATION
P.O. Box 6, Suite 1210
320 By Street
Toronto, Ontario
Canada M5H 4A6
March 14, 1997
PRIVATE AND CONFIDENTIAL
The Board of Directors of
Dakota Mining Corporation (the "Special Committee")
Dear Sirs:
Re: Proposed Merger of Dakota Mining Corporation and USMX, Inc.
INTRODUCTION
Canaccord Capital Corporation ("Canaccord") understands that Dakota Mining
Corporation ("Dakota") entered into an agreement providing for the merger (the
"Merger") of a wholly-owned subsidiary of Dakota with USMX, Inc. (`USMX") on
February 6, 1997 (the "Announcement Date"). The proposed Merger will result in
shareholders of USMX receiving one Dakota common share for every 1.1 common
share of USMX (the "Share Exchange Ratio"). It is understood that USMX will
become a wholly owned subsidiary of Dakota.
The terms and conditions of the Merger as well as a detailed review of the
financial position and operations of each of Dakota and USMX are more fully
described in the management information circular and proxy statement (the "Proxy
Circular") for the annual and special meeting of shareholders which will be
provided to common shareholders of USMX and Dakota.
ENGAGEMENT OF CANACCORD
Canaccord has acted as a financial advisor to Dakota since January 1996 and has
assisted Dakota in identifying merger candidates with the intention of creating
shareholder value. Canaccord has conducted detailed due diligence and is
familiar with the assets of Dakota. As such, the Special Committee first
contacted Canaccord to provide a fairness opinion in January, 1997, as to
whether the terms of the Merger are fair, from a financial point of view, to the
Dakota Shareholders (the "Fairness Opinion"). Canaccord was formally engaged on
February 10, 1997.
Under the terms of our engagement, Canaccord will receive a fee of US $200,000
for the preparation of the Fairness Opinion as well as on-going financial
advice. Additionally, Dakota has agreed to reimburse Canaccord for its
reasonable out-of-pocket expenses, including the fees and disbursements of its
counsel, related to this engagement and to indemnify Canaccord in certain
circumstances. The fees payable to Canaccord are not contingent in whole or in
part upon the approval or completion of the Merger nor dependent upon the
conclusion reached by Canaccord in the Fairness Opinion. Canaccord has not been
engaged to prepare a formal valuation of either Dakota or USMX or any of their
material assets nor have we been requested to determine the likely trading range
of the combined company that will exist after giving effect to the Merger, and
this opinion should not be construed as such.
CREDENTIALS OF CANACCORD
Canaccord is not an insider, associate or affiliate (as such terms are defined
in the Securities Act (Ontario) of Dakota or USMX. Canaccord has previously
acted for Dakota in a financing in 1996 and in February, 1997, and generally as
a financial advisor, but not in any other capacity. Further, Canaccord may be
retained in the future to act in connection with the solicitation of
shareholders in connection with the approval of the Merger.
We believe Dakota selected us to act as its financial advisor in connection with
the proposed Merger as a result of our knowledge of Dakota and USMX, our
knowledge of the Canadian securities markets generally, and our experience in
complex financial transactions in Canada. As part of our investment banking
business, we are regularly engaged in the provision of fairness opinions and in
the valuation of businesses and securities in connection with mergers and
acquisitions and private placements.
The Fairness Opinion expressed herein is the opinion of Canaccord and the form
and content hereof have been approved for release by a committee of its officers
and directors, each of whom is experienced in the preparation of fairness
opinions and merger, acquisition, divestiture and valuation matters.
SCOPE OF REVIEW
In preparing this Fairness Opinion, Canaccord reviewed and, where considered
appropriate, relied upon the following:
Dakota Mining Corporation
1. Audited financial statements for the year ended December 31, 1995 and draft
financial statements for the year ended December 31, 1996;
2. Annual Reports dated December 31, 1994 and 1995;
3. Unaudited interim financial statements for the period ended September 30,
1996;
4. Draft Proxy Circular to be mailed to Dakota Shareholders dated March 14,
1997;
5. Operating forecast prepared by management for the fiscal years ending
December 31, 1997 through to 2000;
6. Pre-feasibility report on the sulfide portion of the Gilt Edge Mine by
Roberts & Schaefer Company, 1994;
7. Site visits by Canaccord;
8. Draft Loan and Intercreditor Agreement with a senior lender as disclosed in
the Proxy Circular; and
9. Review of Dakota gold hedging program.
USMX Inc.
1. Audited financial statements for the year ended December 31, 1995 and draft
financial statements for the year ended December 31, 1996;
2. Annual Reports dated December 31, 1994 and 1995;
3. Unaudited interim financial statements for the period ended September 30,
1996;
4. Draft Information Circular to be mailed to USMX Shareholders dated March
14, 1997;
5. Operating forecast prepared by management for the fiscal years ending
December 31, 1997 through to 2000;
6. Review of USMX's gold hedging program; and
7. Review of USMX's preliminary prospectus dated November 1, 1996.
General Information
1. Merger Agreement between Dakota and USMX dated February 5, 1997;
2. Joint press releases of USMX and Dakota announcing the proposal for the
Merger;
3. Discussions with senior management of Dakota and USMX with respect to
information referred to above and their assessment of the historical,
current and prospective operations, assets, investments and financial
position of their respective companies;
4. Current and historical stock market trading information relating to Dakota
and USMX;
5. Information concerning basic and fully diluted shares outstanding at
various specific dates for Dakota and USMX;
6. Other industry, corporate, economic, and market data, as well as such other
investigations and financial analysis as Canaccord considered necessary or
appropriate in the circumstances; and
7. Proprietary Canaccord gold mining company databases.
ASSUMPTIONS AND LIMITATIONS
Pursuant to our engagement, and with the approval of the Board, Canaccord has
relied upon and has assumed the completeness, accuracy and fair presentation of
all the financial and other information, data, advice, opinions and
representations obtained by it from public sources, contained in the Proxy
Circular, or provided to it by Dakota, USMX or their respective subsidiaries,
affiliates and advisors, or otherwise pursuant to our engagement. Canaccord has
assumed that the business plans, financial estimates and projections provided to
it by the management of Dakota and USMX represent their best estimates of the
most probable results for their respective companies for the periods presented
therein and that such estimates and projections are justifiable. Further,
Canaccord has assumed that all of the conditions for the Merger (as described in
the Proxy Circular) will be met. Should any of the conditions of the Merger not
be met, Canaccord has the right to amend or withdraw its opinion. Subject to the
exercise of professional judgment and except as expressly described herein,
Canaccord has not attempted to verify independently the accuracy or completeness
of any of such information, data, advice, opinions, representations, business
plans, forecasts and projections.
Dakota and USMX have each represented to Canaccord, in certificates dated as at
the date hereof, amongst other things, that the information, data and other
material provided to Canaccord was at the date provided, complete, true and
correct in all material respects and did not contain any untrue statement of
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances in which such
statements were made. Each of Dakota and USMX has represented to Canaccord that
since the date that any information, data or other material were provided to
Canaccord, except as disclosed in writing to us, to the best of their knowledge,
information and belief after reasonable inquiry there has been no material
change, financial or otherwise, in the business, operations or prospects of
either Dakota or USMX respectively, or any of their subsidiaries not disclosed
to Canaccord which would reasonably be expected to have a material affect on the
Fairness Opinion. Further, it was represented to Canaccord, with respect to any
portions of the information that constitute forecasts, projections or estimates,
such forecasts, projections or estimates were prepared using the assumptions
identified therein, which in the reasonable belief of Dakota and USMX are
reasonable in the circumstances, and are not misleading in any material respect.
The Fairness Opinion is rendered on the basis of securities markets, economic
and general business and financial conditions prevailing as of the date hereof
and the condition and prospects, financial and otherwise, of Dakota and USMX as
they were reflected in the information and documents reviewed by Canaccord and
as they were represented to us in our discussions with their respective
management.
In our analysis and in connection with the preparation of the Fairness Opinion,
Canaccord reviewed financial projections provided by Dakota and USMX, or their
advisors, which reflect numerous assumptions regarding the impact of general
economic and industry conditions and political and other conditions on the
future financial results of each of these companies. While Canaccord believes
the assumptions used are appropriate in the circumstances, many are beyond the
control of any party involved with the Merger. The Fairness Opinion is not
intended to be and does not constitute a recommendation to any shareholder of
Dakota as to whether or not such shareholder should vote in favor of the Merger,
but rather represents Canaccord's assessment of the fairness, from a financial
point of view, of the Merger to the Dakota Shareholders.
FAIRNESS METHODOLOGY
In rendering our Fairness Opinion to the Board of Directors, Canaccord reviewed,
considered and performed a variety of financial and comparative analyses. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant assumptions and methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not necessarily susceptible to partial analysis or summary
description. No specific weightings were assigned to any of the various
methodologies employed. Instead, qualitative judgments were made based on our
experience in rendering opinions and on circumstances then prevailing as to the
significance and relevance of each analysis and factor. Any attempt to select
portions of our analysis or of the factors considered, without considering all
factors and analyses employed would create an incomplete and misleading view of
the process underlying the Fairness Opinion.
In arriving at our opinion as to fairness, from a financial point of view, of
the Merger to the Dakota Shareholders, Canaccord compared the Share Exchange
Ratios with our assessment of the relative values of Dakota and USMX.
The scope of our analyses encompassed the following:
a) A comparison of the Merger Share Exchange Ratio and the historical stock
market trading prices for Dakota and USMX;
b) An analysis of the net asset values for each of Dakota and USMX on an
aggregate and per share basis, and in reference to the proposed Share
Exchange Ratio;
c) A comparison of Dakota and USMX relative to their respective publicly
traded peer groups in terms of market capitalization to various measures as
deemed appropriate; and
d) A comparison of the implied acquisition value for Dakota relative to
selected recent market transactions Canaccord deemed comparable.
We have also completed such other analysis and investigations that were
considered by Canaccord to be appropriate in the circumstances for the purposes
of arriving at an opinion as to whether the Merger is fair, from a financial
point of view, to the Dakota Shareholders. For the purposes of our analysis,
Canaccord did not prepare, nor were we requested to prepare, a formal valuation
of either Dakota of USMX, or a determination of the likely trading range of USMX
shares following the Merger.
Market Trading Analysis
Canaccord reviewed the relative trading of Dakota and USMX for certain periods
prior to the Announcement Date. As shown in the chart below, the historic
exchange ratio for the 12 month period prior to the announcement date January 6,
1997 ("Announcement Date") was less than 1:1.1 (Dakota shares: USMX shares)
representing a slight discount of USMX common shares, as compared to USMX's
common share market value at such time, to Dakota Shareholders.
[Share Exchange Ratio Chart Inserted Here]
To determine if the market was a fair indication of value, we performed detailed
liquidity analyses of both Dakota and USMX. We analyzed the volume traded as a
percentage of total shares outstanding, volume traded as a percentage of public
float, approximate daily trading volume (# of shares), approximate daily value
of trading, approximate daily block trading volume and approximate block trading
as a percentage of total trading, for the 30 day, 100 day, and 12 months prior
to the Announcement Date.
From this analysis we concluded that the proposed Share Exchange Ratio
represented a modest historic premium for Dakota Shareholders and that the
recent historic exchange ratios do not differ materially from the recent
historical stock market trading prices of each of Dakota and USMX.
We further concluded that as a valuation technique the market trading approach
for Dakota and USMX could be given considerable consideration in determining
value given their high liquidity. For the historical periods in consideration,
Dakota traded between approximately $100,000 and $250,000 per day and over 65%
of the total shares outstanding in 1996. In addition there exists a history of
sizable block trading activity. It was clear that the Dakota Shareholders had
ample liquidity and we had no reason to believe that the market was not a fair
reflection of value. USMX traded between approximately $75,000 and $100,000 per
day and over 45% of the total shares outstanding in 1996. Despite the lack of
block trading activity compared to Dakota, USMX Shareholders had ample liquidity
and we had no reason to believe that the market was not a fair reflection of
value.
To arrive at an appropriate market value for Dakota and USMX, Canaccord
calculated an average share price from the closing market price on the
Announcement Date, the 30 day weighted average market value prior to the
Announcement Date, and the 100 day weighted average market value prior to the
Announcement Date.
Net Asset Value Analysis
The Net Asset Value approach allows for the separate valuation of each of the
individual assets and liabilities using the most appropriate valuation
methodology for the individual asset.
Sufficient information existed to utilize a discounted cash flow approach
("DCF") in conjunction with current balance sheets, and review of exploration
properties to determine the net asset value for both Dakota and USMX. For the
purposes of the net asset value approach, Canaccord made the following
assumptions:
a) The balance sheets for Dakota and USMX were dated December 31, 1996;
b) The price of unhedged gold would remain constant at US $370/oz.;
c) The price of silver would remain constant at US $5/oz.;
d) Net present values for the operating mines were calculated based on
after-tax discounted cashflows;
e) Further exploration programs and assumptions to increase the gold reserves
were not factored into the DCF model;
f) The applied discount rates ranged from 0% to 5%. In addition, no premium to
the NAV was assigned;
g) USMX would require additional equity financing amounting to US $10 million
at US $1.00 per common share should the Merger not be completed.
Canaccord reviewed and analyzed the financial condition of both Dakota and USMX
and their ability to finance operations.
Selected Comparable Companies Analysis
Dakota and USMX were analyzed in comparison to similar publicly traded
companies, based on several criteria including property locations, relative
reserve development of those properties, and the timing and magnitude of future
gold production for each of the companies. Canaccord reviewed the market
capitalization per ounce of gold equivalent production and per ounce of gold
reserve for each of the selected comparable companies. The results of the
analysis indicate that Dakota and USMX are trading in reasonable ranges relative
to the selected comparable companies.
Selected Comparable Transactions Analysis
Canaccord analyzed recent comparable publicly disclosed transactions of both
gold companies and individual properties. This approach was not a material
determinant of value due to, among other things, the difficulty in identifying
companies that had properties in similar geographic locations and that were in
equivalent stages of production and reserve development, and the different forms
of consideration paid.
Other Considerations
In reaching our conclusions in this Fairness Opinion, Canaccord reviewed and
considered other qualitative factors that would be relevant to the Dakota
Shareholders including, but not limited to market presence, market liquidity,
geographic diversity, financing leverage, financial strength and management
depth. These considerations included the following:
A) Increased Market Liquidity
On a pro forma basis, after taking into consideration the Merger, Dakota
Shareholders will benefit from increased market presence and liquidity inherent
in the merged company. Specifically, the combined company will benefit from the
following attributes: (i) have a market capitalization exceeding $150 million;
(ii) be a multiple listed company; and (iii) have an increased shareholder base.
B) Increased Access to Capital
The merged company will have greater access to capital in North America given
its larger size and market liquidity. In addition, there are opportunities to
increase financial leverage as the larger merged company will be better able to
secure debt, especially when certain projects are brought into operation.
C) Increased Production and Reserve Profile
The merged company will have approximate annual production in excess of 200,000
ounces of gold in 1988 and 1.7 million ounces of proven and probable reserves.
This should result in the merged company receiving a higher market
capitalization per ounce of production and reserves.
D) Complementary Management Teams
Dakota and USMX have complementary management teams possessing operating
expertise, both open pit and underground. Dakota will provide additional
experience and expertise in operating cold weather heap leach operations.
E) Enhanced Exploration Potential
Dakota and USMX in particular have exciting exploration potential which should
contribute to increased reserves upon undertaking a comprehensive exploration
program.
F) Gold Hedging Program
Dakota and USMX in particular have employed an excellent gold hedging program of
approximately 10,300 ounces and 145,000 ounces of gold hedged at an average
price of US $389 and US 410 respectively.
G) Cost Rationalization
The merged company will be able to reduce general, administrative and overhead
costs resulting from overlapping responsibilities and redundant costs.
CONCLUSION
Based upon and subject to the foregoing, Canaccord is of the view that the
Merger is fair, from a financial point of view, to Dakota Shareholders, as of
the date hereof.
We have assumed, without independent verification, that all of the opinions,
advice and statements contained in the Proxy Circular is correct including,
without limitation, the opinions and statements contained therein relating to
taxation matters. To the extent that such opinions, advice or statements are
subject to any assumptions, qualifications or limitations, this opinion is
deemed subject to the same assumptions, qualifications and limitations.
We have also noted the risks associated with investment in USMX and Dakota,
including those factors set out in the Proxy Circular. This opinion could be
materially affected by the occurrence of any such matters in respect of USMX to
the extent that it would not have materially affected Dakota.
This opinion has been provided for the use of the Board of Directors and may not
be used or relied upon by any other person without the express prior written
consent of Canaccord. We hereby consent to the appending of this opinion, in its
entirety, to the Proxy Circular. Canaccord is providing this opinion as of the
date hereof and disclaims any undertaking or obligation to advise any person of
any change in any fact or matter affecting this opinion which may come or be
brought to Canaccord's attention after the date hereof. Without limiting the
foregoing, in the event that there is any material change in any fact or matter
affecting this opinion after the date hereof, Canaccord reserves the right to
change, modify or withdraw this opinion.
Yours truly,
/s/ CANACCORD
CANACCORD CAPITAL CORPORATION
<PAGE>
APPENDIX E
March 14, 1997
USMX
141 Union Blvd.
Lakewood, Colorado 80028
Dakota Mining Corporation
410 Seventeenth Street, Suite 2450
Denver, Colorado 80202
Re: Dakota / USMX Merger Transaction
Gentlemen:
Pursuant to your request, we are providing our opinion of certain United States
federal income tax consequences to United States shareholders of the proposed
Merger Transaction as described below. Our opinion is based on the Agreement and
Plan of Merger dated February 5, 1997, ("Merger Agreement") and the description
of facts and assumptions contained herein. If any of the facts or assumptions
presented herein or included as part of the Merger Agreement are incorrect in
whole or in part, such inaccuracies may have a material effect upon our opinion
expressed in this letter.
The opinion discussed in this letter covers only those items of federal income
tax specifically discussed in this letter. No attempt has been made to analyze
the tax implications of this transaction to foreign shareholders nor to reach a
conclusion under applicable state or local law.
The parties to the Merger Agreement are:
Dakota Mining Corporation, is a federal corporation organized under the Canada
Business Corporations Act ("Dakota"). Dakota is publicly traded in Europe,
Canada and the United States and is not an investment company. Dakota or its
wholly owned foreign affiliates commenced an active mining business in 1989
outside the United States, has been continuously engaged in the mining business
thereafter, and continues to hold and has sought to acquire additional mineral
interest claims outside the United States to date. In addition, Dakota, through
other affiliates, has been engaged in the mining business throughout this
period.
USMX Merger Corporation, is a Delaware corporation and a direct,
wholly-owned subsidiary of Dakota ("Merger Corp"), formed for
purposes of the Merger transaction. Merger Corp. is not an
investment company. Merger Corp holds no liabilities nor any
assets subject to liabilities; and
USMX Inc., is a Delaware corporation ("USMX") and is not an investment company.
The common stock of USMX is publicly traded in the United States and Canada. No
other classes of stock are outstanding.
For reasons germane to the business continuance, Dakota and Merger Corp desire
to acquire USMX by way of a merger of Merger Corp with and into USMX, with USMX
as the surviving corporation ("Merger Transaction"). Such merger will constitute
a valid merger under Delaware state law.
Subsequent to the Merger Transaction, Dakota will contribute the stock of USMX,
including its affiliates, to an existing wholly-owned U.S. subsidiary of Dakota.
Our opinion is based on a number of assumptions. In rendering our opinion, we
have assumed the following:
1) In the Merger Transaction, the USMX shareholders will surrender and Dakota
will acquire, an amount of stock representing at least 80 percent (as measured
immediately prior to the Merger Transaction) of the total combined voting power
of all classes of stock entitled to vote and at least 80 percent (as measured
immediately prior to the Merger Transaction) of the total number of shares of
each class of non-voting stock of USMX in exchange solely for Dakota voting
stock.
2) After the Merger Transaction, USMX will hold substantially all (at least 90
percent of net worth) of its own properties and substantially all (at least 90
percent of net worth) of the properties of Merger Corp. USMX will not sell or
otherwise dispose of any of its assets, except in the ordinary course of its
trade or business.
3) USMX has not made any distributions other than regular, normal dividends
within the past six months, nor will any distributions be made as part of the
Merger Transaction nor has any stock been redeemed within the past six months.
4) The shareholders of USMX have no present plan, intention or arrangement to
sell, transfer, or otherwise dispose of their shares of Dakota stock to be
received in the Merger Transaction that would cause their ownership of Dakota
stock, in the aggregate, to fall below 50% of the stock received in the Merger
Transaction. Dakota has no plan or intention to reacquire any stock issued in
the Merger Transaction, nor liquidate, merge or dispose of USMX after the Merger
Transaction.
5) There is no intercorporate indebtedness between Dakota (or
Merger Corp.) and USMX that was issued, acquired or will be
settled at a discount and there are no plans to capitalize or
cancel the line of credit being granted to USMX.
Our opinion is based on the existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the applicable Treasury regulations thereunder,
and the judicial and administrative interpretations thereof. Any legislative,
regulatory, administrative, or judicial decisions subsequent to the date of this
opinion or changes in the facts of the Merger Transaction may have an impact on
the validity of our conclusions.
Subject to the assumptions, conditions and qualifications described herein, and
based on existing federal income tax law, it is our opinion that for United
States federal income tax purposes:
1) The Merger Transaction will constitute a reorganization
within the meaning of Section 368(a) of the Code, and Dakota,
USMX and Merger Corp. will each be a party to the reorganization
within the meaning of 368(b) of the Code;
2) Dakota will not recognize any gain or loss as a result of the
Merger Transaction;
3) USMX will not recognize any gain or loss as a result of the
Merger Transaction;
4) No gain or loss should be recognized by U.S. shareholders of USMX who, by
virtue of the Merger Transaction, become holders of less than 5% of the stock of
Dakota, measured by either voting rights or value. No gain or loss should be
recognized by U.S. shareholders of USMX who, by virtue of the Merger
Transaction, become holders of 5% or greater of the stock of Dakota measured by
either voting rights or value, provided such shareholders enter into gain
recognition agreements with the Internal Revenue Service as required in Section
367 of the Internal Revenue Code and the Regulations pursuant thereto. No
opinion is being rendered on any transfer or exchange of any options or warrants
for stock in USMX for options or warrants for stock in Dakota;
5) The aggregate tax basis of the shares of Dakota stock
received in the Merger Transaction by a stockholder of USMX
should be the same as the tax basis of his USMX stock exchanged
therefor;
6) The holding period of Dakota stock in the hands of a USMX stockholder should
include the holding period of his USMX stock exchanged therefor, provided such
USMX stock is held as a capital asset at the time of the Merger Transaction;
7) The reorganization will not be disqualified in the event of a
contribution by Dakota of the stock of USMX to an existing,
wholly-owned US subsidiary of Dakota.
This opinion letter represents our current judgment on the specific issues.
There is no assurance that the Internal Revenue Service will agree with the
opinions expressed herein. The Internal Revenue Service may take a position
contrary to our opinion, and if the matter is litigated, a court could reach a
contrary decision.
The opinions expressed herein are solely for your benefit and the benefit of the
USMX and Dakota shareholders at the effective date of the Merger Transaction,
and they may not be relied upon in any matter or for any purpose by any other
person, and may not be circulated, quoted or otherwise referred to for any other
purpose without our consent.
Very truly yours,
<PAGE>
APPENDIX F
PURCHASE AND SALE AGREEMENT
By and Among
PEGASUS GOLD CORPORATION ("Buyer")
and
USMX, INC. and USMX OF MONTANA, INC. ("Sellers")
Dated
March 17, 1997
3/15/97
- ii -
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PRELIMINARY STATEMENTS.......................................................................................... 1
ARTICLE I Purchase and Sale of Mining Agreements....................................................... 2
Section 1. Agreement to Purchase and Sell..................................................... 2
ARTICLE II Purchase Price, Manner of Payment and Closing................................................ 3
Section 2.1 Purchase Price.................................................................... 3
Section 2.2 Time and Place of Closing......................................................... 3
Section 2.3 Manner of Payment of the
Purchase Price............................................................ 3
ARTICLE III Sellers' Representations, Warranties and
Covenants........................................................................... 4
Section 3.1 Organization...................................................................... 4
Section 3.2 Authority......................................................................... 4
Section 3.3 Consents.......................................................................... 4
Section 3.4 Enforceability.................................................................... 5
Section 3.5 Litigation........................................................................ 5
Section 3.6 Mining Agreements................................................................. 5
Section 3.7 Indemnification of Buyer...........................................................6
ARTICLE IV Buyer's Representations, Warranties and
Acknowledgments
7
Section 4.1 Organization...................................................................... 7
Section 4.2 Authority......................................................................... 7
Section 4.3 Enforceability.................................................................... 7
Section 4.4 No Assignment of Loan............................................................. 8
Section 4.5 Consents.......................................................................... 8
Section 4.6 Litigation........................................................................ 8
ARTICLE V Conditions to Closing......................................................................... 8
Section 5.1 Conditions Precedent to
Buyer's Obligations....................................................... 8
(a) Representations and Warranties................................................... 8
(b) Documents and Proceedings Satisfactory........................................... 9
(c) Instruments of Transfer.......................................................... 9
(d) Compliance with Terms and Conditions 9
(e) Officer's Certificate........................................................... 10
Section 5.2 Conditions Precedent to
Sellers' Obligations......................................................10
(a) Representations and Warranties.................................................. 10
(b) Documents and Proceedings Satisfactory.......................................... 10
(c) Compliance with Terms and Conditions
11
(d) Officer's Certificate........................................................... 11
(e) USMX Shareholder Approval....................................................... 11
ARTICLE VI Closing..................................................................................... 11
Section 6.1 Form of Documents................................................... 11
Section 6.2 Buyer's Deliveries.................................................. 12
Section 6.3 Sellers' Deliveries................................................. 12
ARTICLE VII Termination................................................................................ 13
ARTICLE VIII Miscellaneous............................................................................. 13
Section 8.1 Amendments, Etc................................................................. 13
Section 8.2 Addresses and Notices........................................................... 14
Section 8.3 Governing Law................................................................... 14
Section 8.4 Submission to Jurisdiction...................................................... 14
Section 8.5 Expenses........................................................................ 15
Section 8.6 Counterparts.................................................................... 15
Section 8.7 Assignability................................................................... 15
Section 8.8 Further Assurances.............................................................. 16
Section 8.9 No Waiver Regarding Responsibility for Pre-Existing Environmental
Conditions...............................................................16
</TABLE>
EXHIBITS
EXHIBIT A - ASSIGNMENT AGREEMENT
EXHIBIT B - CONSENT AND AGREEMENT
<PAGE>
3/15/97
- 15 -
3/15/97
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into
this 17th day of March, 1997, by and among PEGASUS GOLD CORPORATION, a
Nevada corporation ("Buyer"), USMX, INC. (successor by merger to U.S.
Minerals Exploration Company, a Colorado corporation), a Delaware
corporation ("USMX"), and USMX of MONTANA, INC., a Montana corporation
("USMX/Montana", and together with USMX being referred to herein
collectively as "Sellers"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings provided in the Loan Agreement
(as hereinafter defined).
: PRELIMINARY STATEMENTS
1. Buyer has entered into a letter agreement, dated May 8, 1996, as
amended by a letter agreement dated June 12, 1996, a letter agreement dated June
20, 1996 and a revised amortization schedule as appended to letter dated June
21, 1996 from Buyer's Vice President and General Counsel (said agreement, as so
amended, hereinafter called the "Loan Agreement"), with USMX, pursuant to which
Buyer agreed to loan $4,500,000 (the "Loan") to USMX and certain of its
subsidiaries and affiliates on the terms and conditions set forth therein.
2. In connection with the Loan Agreement, Sellers and Buyer entered
into an Assignment and Security Agreement, dated as of June 28, 1996 (the
"Security Agreement"), whereby Sellers granted to Buyer a security interest in
all of their right, title and interest in, to and under the following: (a) the
Agreement, dated as of January 1, 1986, by and between USMX and Montana Tunnels
Mining, Inc. (formerly known as Centennial Minerals Inc.), a Nevada corporation
("MTMI"), which is a wholly-owned subsidiary of Buyer; (b) the Special Warranty
Deed and Assignment with Reserved Royalties, dated June 6, 1987, by Sellers to
MTMI, recorded June 23, 1987 in the office of the Jefferson County, Montana
Recorder as Entry No. 140649, in Book 120 Deeds, Pages 751, et seq. (as such
Agreements and Deed have been amended to date, hereinafter collectively called
the "Mining Agreements"); and (c) all proceeds of the Mining Agreements.
3. On the terms and subject to the conditions contained in this
Agreement, Buyer desires to purchase, and Sellers desire to sell, all of
Sellers' right, title and interest in, to and under the Mining Agreements for a
purchase price equal to the outstanding principal amount of the Loan (plus
interest accrued thereon through the Closing Date (as hereinafter defined)).
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE IARTICLE I
Purchase and Sale of Mining Agreements
Section 1. Agreement to Purchase and SellAgreement to Purchase and
Sell. On the terms and subject to the conditions contained in this Agreement,
Buyer agrees to purchase from Sellers, and Sellers agree to sell to Buyer, all
of Sellers' right, title and interest in, to and under the Mining Agreements
(the "Purchased Assets").
II
ARTICLE II
Purchase Price, Manner of Payment and Closing
Section II.1 Purchase Price.......Section II.1 Purchase Price. The
purchase price of the Purchased Assets shall be equal to the aggregate
outstanding principal balance of the Loan, plus accrued and unpaid interest
thereon (collectively, the "Purchase Price"), as of the Closing Date, as defined
in Section 2.2 below.
Section II.2 Time and Place of ClosingII.2 Time and Place of Closing.
The transactions contemplated by this Agreement shall be consummated (the
"Closing") at 10:00 a.m., Pacific time, at the offices of Buyer, 601 West First
Avenue, Suite 1500, Spokane, Washington 99204, as soon as practicable, but, in
any event, not later than five (5) days after USMX has received the approval of
its shareholders with respect to this Agreement, or at such other time or place
as shall be mutually agreed upon by Buyer and Sellers. The date on which the
Closing occurs in accordance with the preceding sentence is referred to in this
Agreement as the "Closing Date".
Section II.3 Manner of Payment of the Purchase PriceII.3 Manner of
Payment of the Purchase Price. At the Closing, Buyer shall cancel and forgive
all indebtedness (including but not limited to all unpaid principal and interest
under the Loan) owing to Buyer by USMX, its subsidiaries and its affiliates
under the Loan Agreement in full satisfaction of the Purchase Price. As of the
Closing Date, the Loan Agreement and the Security Agreement shall be deemed to
be terminated and neither party shall have any rights or obligations thereunder.
ARTICLE IIIARTICLE III
Sellers' Representations, Warranties and Covenants
Sellers represent, warrant and covenant to Buyer as follows:
Section III.1 Organization........Section III.1 Organization. Each
Seller is a corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation.
Section III.2 AuthorityIII.2 Authority. Subject to USMX's receipt of
shareholder approval with respect to this Agreement, the execution, delivery and
performance by Sellers of this Agreement, and all documents and instruments to
be executed by Sellers pursuant to this Agreement (collectively, "Sellers'
Ancillary Documents"), have been duly authorized by all necessary corporate
action, and do not and will not contravene (a) either Seller's charter, by-laws
or other organizational documents, (b) any applicable law, statute, rule or
regulation, (c) any contractual restriction including, without limitation, any
indenture, mortgage, lease, agreement, judgment, order or decree binding on or
affecting the Sellers or their properties, and do not and will not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of their properties.
Section III.3 ConsentsIII.3 Consents. Other than USMX shareholder
approval and the consent of MTMI, no authorization or approval or other action
by, and no notice to or filing with, any governmental authority, regulatory
body, court, financial institution or any other person is required for the due
execution, delivery and performance by Sellers of this Agreement and the
Sellers' Ancillary Documents.
Section III.4 EnforceabilityIII.4 Enforceability. This Agreement and
Sellers' Ancillary Documents have been duly executed and delivered by the duly
authorized representative of each Seller and, subject to the consents described
in Section 3.3 above, constitute the legal, valid and binding obligation of such
Seller enforceable against such Seller in accordance with their terms.
Section III.5 LitigationIII.5 Litigation. There is no pending or, to
Sellers' actual knowledge, threatened action or proceeding affecting Sellers or
any of their respective subsidiaries before any court, governmental, regulatory
or administrative agency or arbitrator which purports to affect the legality,
validity or enforceability of the Agreement, the Sellers' Ancillary Documents or
the transactions contemplated hereby or thereby.
Section III.6 Mining AgreementsIII.6 Mining Agreements. (a) The Mining
Agreements, true and complete copies of which have been furnished to Buyer, have
been duly authorized, executed and delivered by Sellers, have not been amended
or otherwise modified (except by the Amendment of Agreement and Deed, dated as
of July 15, 1991, among MTMI and Sellers, and as otherwise permitted by Section
7 of the Security Agreement), are in full force and effect and are binding upon
and enforceable against Sellers and the other parties thereto in accordance with
their respective terms. Sellers have received no notices of default under any of
the Mining Agreements, and, to Sellers' actual knowledge, there exists no
default under the Mining Agreements by Sellers or any other party thereto.
(b) Sellers collectively are the legal and beneficial owners of the
Purchased Assets free and clear of any lien, security interest, option or other
charge or encumbrance created by Sellers or arising by, through or under
Sellers, except for the security interests granted to Buyer pursuant to the Loan
Agreement, and except for claims or potential claims of the Montana Department
of Environmental Quality under its CECRA Program. No effective financing
statement or other document similar in effect covering all or any part of the
Purchased Assets is on file in any recording office, except those in favor of
Buyer pursuant to the Loan Agreement.
Section III.7 Indemnification of BuyerIII.7 Indemnification of Buyer.
Sellers hereby jointly and severally agree to indemnify Buyer, its successors
and assigns from and against all third parties claiming any right, title or
interest in or to the Purchased Assets by, through or under either or both of
the Sellers, except for the security interests granted to Buyer pursuant to the
Loan Agreement, and except for claims or potential claims of the Montana
Department of Environmental quality under its CECRA Program.
ARTICLE IVARTICLE IV
Buyer's Representations, Warranties and Acknowledgments
Buyer represents and warrants to Sellers as follows:
Section IV.1 Organization Section IV.1 Organization. Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation.
Section IV.2 AuthorityIV.2 Authority. The execution, delivery and
performance by Buyer of this Agreement, and all documents and instruments to be
executed by Buyer or MTMI pursuant to this Agreement ("Buyer's Ancillary
Documents"), have been duly authorized by all necessary corporate action, and do
not and will not contravene (a) Buyer's or MTMI's charter, by-laws or other
organizational documents, (b) any applicable law, statute, rule or regulation,
(c) any contractual restriction including, without limitation, any indenture,
mortgage, lease, agreement, judgment, order or decree binding on or affecting
Buyer or its properties, and do not result in or require the creation of any
lien, security interest or other charge or encumbrance upon or with respect to
any of its properties.
Section IV.3 EnforceabilityIV.3 Enforceability. This Agreement and
Buyer's Ancillary Documents have been duly executed and delivered by the duly
authorized representative of Buyer and constitutes the legal, valid and binding
obligation of Buyer enforceable against Buyer in accordance with its terms.
Section IV.4 No Assignment of LoanIV.4 No Assignment of Loan. Buyer has
not transferred or assigned any of its right, title or interest in the Loan
Agreement, the Loan or the Security Agreement to any party.
Section IV.5 ConsentsIV.5 Consents. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority,
regulatory body, court, financial institution or any other person is required
for the due execution, delivery and performance by Buyer of this Agreement and
Buyer's Ancillary Documents.
Section IV.6 LitigationIV.6 Litigation. There is no pending or, to
Buyer's actual knowledge, threatened action or proceeding affecting Buyer or
MTMI or any of their respective subsidiaries before any court, governmental,
regulatory or administrative agency or arbitrator which purports to affect the
legality, enforceability or validity of this Agreement, Buyer's Ancillary
Documents, or the transactions contemplated hereby or thereby.
ARTICLE VARTICLE V
Conditions to Closing
Section V.1 Conditions Precedent to Buyer's Obligations Section V.1
Conditions Precedent to Buyer's Obligations. The obligation of Buyer to purchase
the Purchased Assets under this Agreement is subject to the satisfaction (or
waiver by Buyer), at or before the Closing, of each of the following conditions:
(a) Representations and Warranties. All representations and
warranties of Sellers set forth in Article III of this Agreement
shall be true and correct as of the Closing Date as though such
representations and warranties were made as of the Closing Date.
b) Documents and Proceedings Satisfactory. All actions to be taken by
Sellers, and all instruments, opinions and documents required by this
Agreement to be delivered by Sellers, shall be reasonably satisfactory
to Buyer, and Sellers shall have delivered to Buyer on the Closing Date
such documents and other evidence as Buyer may reasonably request in
order to establish the due execution and delivery of this Agreement and
the taking of the requested actions and other proceedings in connection
herewith.
c) Instruments of Transfer. Sellers shall have: (i) executed the
Assignment Agreement in the form of Exhibit A (the "Assignment
Agreement"); and (ii) Sellers shall have delivered to Buyer such other
instruments of sale and transfer ("Other Assignments"), in each case as
may be necessary or desirable to vest in Buyer all of Sellers' right,
title and interest in, to and under the Mining Agreements, free and
clear of any and all liens, security interest, options, claims or
encumbrances, arising by, through or under Sellers, other than security
interests granted by Sellers to Buyer under the Loan Agreement, which
security interests shall be released by Buyer as provided in Sections
6.2(b) and 6.2(c) below.
d) Compliance with Terms and Conditions. All of the terms, covenants,
agreements and conditions to this Agreement to be complied with,
performed and satisfied by Sellers on or before the Closing Date shall
have been complied with, performed and satisfied in all material
respects.
e) Officer's Certificate. Each Seller shall have delivered to Buyer a
certificate, dated the Closing Date, signed by the President or a Vice
President of such Seller, certifying to the matters specified in Sections
5.1(a) and 5.1(b). Section V.2 Conditions Precedent to Sellers' Obligations
Section V.2 Conditions Precedent to Sellers' Obligations. The obligation of
Sellers to sell the Purchased Assets under this Agreement are subject to
the satisfaction (or waiver by Sellers), at or before the Closing, of each
of the following conditions:
(a) Representations and Warranties. All representations and warranties of
Buyer set forth in Article IV of this Agreement shall be true and
correct as of the Closing Date as though such representations and
warranties were made as of the Closing Date.
b) Documents and Proceedings Satisfactory. Buyer shall have caused MTMI
to execute the Consent Agreement in the form attached hereto as
Exhibit B (the "MTMI Consent"). Buyer also shall have executed the
Assignment Agreement, and all actions to be taken by Buyer, and all
other instruments, opinions and documents required by this Agreement
to be delivered by Buyer and MTMI, shall be reasonably satisfactory to
Sellers, and Buyer shall have delivered to Sellers on the Closing Date
such documents and other evidence as Sellers may reasonably request in
order to establish the due execution and delivery of this Agreement
and the taking of the requested actions and other proceedings in
connection therewith.
c) Compliance with Terms and Conditions. All of the terms, covenants,
agreements and conditions to this Agreement to be complied with,
performed and satisfied by Buyer on or before the Closing Date shall
have been complied with, performed and satisfied in all material
respects.
d) Officer's Certificate. Buyer shall have delivered to Sellers a
certificate, dated the Closing Date, signed by the President or a Vice
President of Buyer, certifying to the matters specified in Sections
5.2(a) and 5.2(b).
e) USMX Shareholder Approval. USMX shall have received the approval of
its shareholders with respect to this Agreement.
ARTICLE VIARTICLE VI
Closing
Section VI.1 Form of Documents....Section VI.1 Form of Documents. At the
Closing, the parties shall deliver the documents and shall perform the acts that
are set forth in this Article VI. All documents that Sellers deliver shall be in
form and substance reasonably satisfactory to Buyer and its counsel, and all
documents that Buyer and MTMI deliver to Sellers shall be in form and substance
reasonably satisfactory to Sellers and their counsel.
Section VI.2 Buyer's DeliveriesVI.2 Buyer's Deliveries. Subject to the
fulfillment or waiver of the conditions set forth in Article V, Buyer shall
deliver to Sellers all of the following:
(a) all promissory notes (if any) and other like instruments under the
Loan Agreement, marked as paid in full by Buyer, or as otherwise
requested by Sellers;
(b) duly executed releases, in recordable form, of all security
instruments executed by Sellers, or either of them, pursuant to the
Loan Agreement or Security Agreement;
(c) the duly executed MTMI Consent;
(d) the Assignment Agreement duly executed by Buyer; and
(e) such other documents from Buyer or MTMI as may reasonably be required
in order to effectuate the transactions contemplated hereby.
Section VI.3 Sellers' Deliveries..Section VI.3 Sellers' Deliveries. Subject
to the fulfillment or waiver of the conditions set forth in Article V, Sellers
shall execute and deliver to Buyer all of the following:
(a) certified copies of the charter and by-laws of each Seller;
(b) certificates of good standing of each Seller with respect to its
jurisdiction of incorporation;
(c) an incumbency and specimen signature certificates for each Seller with
respect to the officers of such Seller executing this Agreement on
behalf of such Seller;
(d) a certified copy of resolutions of each Seller's board of directors
and shareholders authorizing the execution, delivery and performance
of this Agreement and the Sellers' Ancillary Documents;
(e) the Assignment Agreement, conveying all of the right, title and
interest in, to and under the Mining Agreements; and
(f) such other documents from Sellers as may reasonably be required in
order to effectuate the transactions contemplated hereby.
ARTICLE VIIARTICLE VII
Termination
This Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Closing by prompt notice given in accordance
with Section 8.2:
(a) by the mutual written consent of Buyer and Sellers; or
(b) by any party if the Closing shall not have occurred on or before June
30, 1997, or such other date as shall be mutually agreed upon by
Sellers and Buyer.
VIII ARTICLE VIII
Miscellaneous
Section VIII.1 Amendments, Etc....Section VIII.1 Amendments, Etc. No
amendment or waiver of any provision of this Agreement, and no consent to any
departure by any party herefrom, shall in any event be effective unless the same
shall be in writing and signed by the other parties hereto, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
Section VIII.2 Addresses and NoticesVIII.2 Addresses and Notices. All
notices and other communications provided for hereunder shall be in writing
(including telecopier, telegraphic, telex or cable communication) and mailed
(postage prepaid), telecopied, telegraphed, cabled or delivered to it, if to
either Seller, at its address at 141 Union Boulevard, Suite 100, Lakewood,
Colorado 80228, Attention: President, and if to Buyer, at its address at 601
West First Avenue, Suite 1500, Spokane, Washington 99204, Attention: General
Counsel, or as to any party, at such other address as shall be designated by
such party in a written notice to the other parties. All such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective five days after deposit in the mails, telecopied, delivered by
telegraph company, confirmed by telex answerback or delivered to the cable
company, respectively.
Section VIII.3 Governing LawVIII.3 Governing Law. This Agreement and
each of Sellers' Ancillary Documents and Buyer's Ancillary Documents shall be
governed by and construed in accordance with the laws of the State of Washington
(without regard to any conflict of laws principles).
Section VIII.4 Submission to JurisdictionVIII.4 Submission to
Jurisdiction. Buyer and Sellers irrevocably submit to the jurisdiction of any
Washington State court or Federal court sitting in the State of Washington in
any action arising out of this Agreement or any document or instrument executed
in connection herewith, agree that all claims in such action may be decided in
such court, waives, to the fullest extent permitted by law, the defense of an
inconvenient forum and consents to the service of process by mail. A final
judgment in any such action shall be conclusive and may be enforced in other
jurisdictions. Nothing contained herein shall affect the right of Buyer or
Sellers to serve legal process in any manner permitted by law or affect Buyer's
or Sellers' right to bring any action in any other court.
Section VIII.5 ExpensesVIII.5 Expenses. Each party hereto shall bear
the fees and expenses incurred by such party in connection with, relating to or
arising out of the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
Section VIII.6 CounterpartsVIII.6 Counterparts. This Agreement may be
executed in multiple counterparts, each of which shall be deemed to be an
original, and all such counterparts shall constitute one and the same
instrument.
Section VIII.7 AssignabilityVIII.7 Assignability. This Agreement shall
not be assignable by any party without the prior written consent of the other
parties hereto, except that prior to the Closing Buyer may assign its rights and
delegate its duties under this Agreement to a subsidiary or affiliate of Buyer,
but such assignment and delegation shall not release Buyer from its obligations
hereunder.
Section VIII.8 Further AssurancesVIII.8 Further Assurances. The parties
shall, and shall cause their respective subsidiaries to, execute such further
documents, and perform such further acts, as may be necessary to transfer and
convey the Purchased Assets to Buyer, on the terms herein contained, and to
otherwise comply with the terms of this Agreement and consummate the
transactions contemplated hereby.
Section VIII.9 No Waiver Regarding Responsibility for Pre-Existing
Environmental Conditions. Sellers and Buyer hereby acknowledge that there may be
unresolved issues as to whether Sellers should bear any responsibility with
respect to environmental conditions, if any, that existed prior to January 1,
1986 on the properties subject to Mining Agreements. Sellers and Buyer hereby
agree that neither execution of this Agreement and documents hereunder nor the
Closing hereunder shall constitute or be construed as a waiver by Sellers,
Buyer, MTMI or their respective affiliates, of any right or defense with respect
to such responsibility.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
SELLERS:
USMX, INC.
By:________________________________
Title:_____________________________
USMX OF MONTANA, INC.
By:________________________________
Title:_____________________________
BUYER:
PEGASUS GOLD CORPORATION
By:_______________________________
Title:____________________________
<PAGE>
3/15/97
A-2
EXHIBIT A
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this "Assignment") is entered into this ___
day of _____________, 1997, by and among PEGASUS GOLD CORPORATION, a Nevada
corporation ("Buyer"), USMX, INC. (successor by merger to U.S. Minerals
Exploration Company, a Colorado corporation), a Delaware corporation ("USMX"),
and USMX OF MONTANA, INC., a Montana corporation ("USMX/Montana", and together
with USMX being referred to herein collectively as "Sellers"), subject to the
terms and provisions of the Purchase and Sale Agreement, dated March 17, 1997
(the "Purchase Agreement"), by and among Buyer and Sellers. Capitalized terms
used herein and not otherwise defined shall have the respective meanings
provided in the Purchase Agreement.
Subject to the terms of the Purchase Agreement, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Sellers do hereby sell, transfer, and assign to Buyer all of such Sellers'
right, title and interest in, to and under the Mining Agreements. To have and to
hold the same unto Buyer and its successors and assigns from and after the date
hereof.
Sellers hereby jointly and severally agree to indemnify Buyer, its
successors and assigns from and against all third parties claiming any right,
title or interest in or to the Purchased Assets by, through or under either or
both of the Sellers, except for the security interests granted to Buyer pursuant
to the Loan Agreement, and except for claims or potential claims of the Montana
Department of Environmental quality under its CECRA Program.
IN WITNESS WHEREOF, Sellers and Buyer have caused their duly authorized
representatives to execute and deliver this Assignment as of the date first
above written.
USMX, INC.
By:_________________________________
Title:_____________________________
USMX OF MONTANA, INC.
By:________________________________
Title:_____________________________
PEGASUS GOLD CORPORATION
By:_________________________________
Title:_____________________________
STATE OF }
} ss.
COUNTY OF }
<PAGE>
3/15/97
A-3
Before me personally appeared _____________________________ on this
______ day of ________________, 1997, and first being duly sworn, executed the
above __________________________, as ___________________of USMX, INC. and
acknowledged to me that [s]he executed the same in that capacity.
Witness my hand and official seal.
My commission expires: _____________________
(seal)
----------------------------
NOTARY PUBLIC
STATE OF }
} ss.
COUNTY OF }
Before me personally appeared _____________________________ on this
______ day of ________________, 1997, and first being duly sworn, executed the
above __________________________, as ___________________of USMX OF MONTANA, INC.
and acknowledged to me that [s]he executed the same in that capacity.
<PAGE>
3/15/97
A-3
Witness my hand and official seal.
My commission expires: _____________________
(seal)
----------------------------
NOTARY PUBLIC
STATE OF }
} ss.
COUNTY OF }
Before me personally appeared _____________________________ on this
______ day of ________________, 1997, and first being duly sworn, executed the
above __________________________, as ___________________of PEGASUS GOLD
CORPORATION and acknowledged to me that [s]he executed the same in that
capacity.
Witness my hand and official seal.
My commission expires: _____________________
(seal)
----------------------------
<PAGE>
3/15/97
A-3
NOTARY PUBLIC
<PAGE>
3/15/97
B-3
EXHIBIT B
CONSENT AND AGREEMENT
The undersigned hereby acknowledges notice of, and consents to the
terms and provisions of, the Purchase and Sale Agreement, dated mARCH 17, 1997
(the "Purchase Agreement"), by and among PEGASUS GOLD CORPORATION, a Nevada
corporation ("Buyer"), USMX, INC. (successor by merger to U.S. Minerals
Exploration Company, a Colorado corporation), a Delaware corporation ("USMX"),
and USMX OF MONTANA, INC., a Montana corporation ("USMX/Montana", and together
with USMX being referred to herein collectively as "Sellers"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings
provided in the Purchase Agreement.
In accordance with the foregoing, the undersigned hereby agrees with
Buyer and Sellers that:
(a) The undersigned will make all payments to be made by it under or in
connection with the Mining Agreements directly to Buyer at its office at
601 West First Avenue, Suite 1500, Spokane, Washington 99204 or otherwise
in accordance with the instructions of Buyer.
(b) All payments referred to in paragraph (a) above shall be made by the
undersigned irrespective of, and without deduction for, any counterclaim,
defense, recoupment or set-off and shall be final, and the undersigned will
not seek to recover from Buyer for any reason any such payment once made.
(c) After the Closing Date, Buyer shall be entitled to exercise, exclusively,
any and all rights and remedies under the Mining Agreements in accordance
with the terms of the respective agreements, Sellers shall have no further
right, title or interest in, to or under the Mining Agreements, and the
undersigned shall comply in all respects with such exercise.
This Consent and Agreement shall be binding upon the undersigned and
its successors and assigns, and shall inure to the benefit of Buyer, Sellers and
their respective successors, transferees and assigns. This Consent and Agreement
shall be governed by the laws of the State of Washington (without regard to
conflict of laws principles).
IN WITNESS WHEREOF, the undersigned has duly executed this Consent and
Agreement as of the date first above written.
MONTANA TUNNELS MINING, INC.
By:________________________________
Title:_____________________________
STATE OF }
} ss.
COUNTY OF }
Before me personally appeared _____________________________ on this
______ day of ________________, 1997, and first being duly sworn, executed the
above __________________________, as ___________________of MONTANA TUNNELS
MINING, INC. and acknowledged to me that [s]he executed the same in that
capacity.
Witness my hand and official seal.
My commission expires: _____________________
(seal)
----------------------------
NOTARY PUBLIC
<PAGE>
3/15/97
B-3
<PAGE>
APPENDIX G
SHARE INCENTIVE PLAN
PART 1. - INTRODUCTION
1.01 Purpose
The purpose of the Plans is to secure for Dakota Mining
Corporation (formerly known as MinVen Gold Corporation) (the "Corporation") and
its shareholders the benefits of incentive inherent in share ownership by the
directors and key employees of the Corporation and its Affiliates who, in the
judgment of the Board, will be largely responsible for its future growth and
success. It is generally recognized that share plans of the nature provided for
herein aid in retaining and encouraging employees and directors of exceptional
ability because of the opportunity offered them to acquire a proprietary
interest in the Corporation.
1.02 Definitions
(a) "Arrangement" means the arrangement under the provisions of section
192 of the Canada Business Corporations Act to give effect to the
Capital Reorganization.
(b) "Arrangement Effective Date" means September 15, 1993.
(c) "Affiliate" has the meaning ascribed thereto in the Canada Business
Corporations Act, as amended from time to time.
(d) "Board" means the board of directors of the Corporation.
(e) "Capital Reorganization" means the corporate capital reorganization
and restructuring undertaken by the Corporation as and pursuant to the
Arrangement, pursuant to which the following events, among others,
were accomplished:
(i) the creation of the Common Shares by amending the Articles as
part of the Arrangement;
(ii) all of the common shares issued and outstanding on the
Arrangement Effective Date ("Old Common Shares") were exchanged
by the holders thereof into Units on the basis of one (1) Unit
for every 12.43452 Old Common Shares then issued and outstanding;
(iii)the terms of all issued and outstanding stock options, warrants
and other convertible or exchangeable securities, if any, were
adjusted accordingly to reflect the consolidation of Old Common
Shares into Units as provided in the preceding paragraph;
(iv) the Articles o Continuance of the Corporation were amended to
cancel the Old Common Shares; and
(v) the name of the Company was changed to "Dakota Mining
Corporation".
(f) "Common Shares" means the common shares of the Corporation.
(g) "Corporation" means Dakota Mining Corporation (formerly known as
MinVen Gold Corporation), a corporation duly amalgamated under the
laws of the Province of British Columbia effective August 2, 1988.
(h) "Eligible Employees" shall means key employees of the Corporation or
any Affiliate thereof including officers, whether or not directors,
and including both full-time and part-time employees, whether or not
they have a written employment contract with the Corporation and shall
constitute the class of employees eligible for participation in each
of the Plans.
(i) "Eligible Directors" shall mean the directors of the Corporation or
any affiliate thereof and shall constitute the class of directors
eligible for participation in the Share Option Plan.
(j) "Fair Market Value" on a particular day means the weighted average
sale price for board lots of the Shares on The Toronto Stock Exchange
(or if the Shares are not listed on The Toronto Stock Exchange, on
such stock exchange on which the Shares are listed as may be selected
for such purpose by the Board or if the Shares are not so listed then
on the over-the-counter market) over the five consecutive trading days
immediately preceding the date on which such value is to be determined
or, if no trades are made during such five-day period, then over the
15 consecutive trading days immediately preceding the date on which
such value is to be determined or, if no trades are made during such
15-day period, then "Fair Market Value" means, the fair value of a
Share as determined by the Corporation's auditors. The weighted
average price per Share shall be determined by dividing the aggregate
sale price of all such Shares sold on the aforementioned exchange
during the aforementioned five-day and 15-day trading periods by the
total number of such Shares so sold in such trading periods,
respectively;
<PAGE>
144554\0424833.WP
- 13 -
(k) "Option" shall mean an option granted under the terms of the Share
Option Plan.
(l) "Option Period" shall mean an Eligible Employee or Eligible Director
to whom an Option has been granted under the terms of the Share Option
Plan.
(m) "Optionee" shall mean an Eligible Employee or Eligible Director to
whom an Option has been granted under the terms of the Share Option
Plan.
(n) "Participant" means, in respect of any Plan, an Eligible Employee or
Eligible Director who is eligible and elects to participate in such
Plan.
(o) "Plan" means, collective the Share Option Plan and the Share Purchase
Plan and the term "Plan" means any such plan.
(p) "Share Option Plan" means the plan established and operated pursuant
to Part 2 hereof.
(q) "Share Purchase Plan" means the plan established and operated pursuant
to Part 3 hereof.
(r) "Shares" shall mean (i) with respect to Options granted prior to the
Arrangement Effective Date, Units (ii) with respect to Options granted
on or after the Arrangement Effective Date, Common Shares, and (iii)
with respect to the Share Purchase Plan, Common Shares.
(s) "Unit" shall mean one Common Share and one-half (1/2) of a Warrant.
(t) "Warrant" shall mean a Common Share Purchase Warrant issued pursuant
to the Warrant Indenture providing for the issue of Common Share
Purchase Warrants, dated as of the Arrangement Effective Date, between
the Corporation and Montreal Trust Company of Canada, Trustee.
PART 2. - SHARE OPTION PLAN
2.01 Participation
Options shall be granted only to Eligible Employees and
Eligible Directors.
2.02 Determination of Option Recipients
The Board shall make all necessary or desirable determinations
regarding the granting of Options to Eligible Employees and Eligible Directors
and may take into consideration the present and potential contributions of a
particular Eligible Employee or Eligible Director to the success of the
Corporation and any other factors which it may deem proper and relevant.
2.03 Price
The exercise price per Share under any Option will be
determined by the Board, provided that such price may not be less than the
closing price per Share for the Shares on The Toronto Stock Exchange on the date
of grant of such Option or, if the date of grant of such Option is not a trading
day, the trading day immediately preceding the date of grant of such Option (or,
if no trade of Shares occurred on The Toronto Stock Exchange on such date, the
simple average of the closing bid and ask prices per Share for the Shares on The
Toronto Stock Exchange on such date.
2.04 Grant of Options
The Board may at any time authorize the granting of Options to
such Eligible Employees and such Eligible Directors as it may select for the
number of Shares that it shall designate, subject to the provisions of the Share
Option Plan. The date of each grant of Options shall be the date the grant is
authorized by the Board.
Each Option granted to an Eligible Employee or to an Eligible
Director shall be evidenced by a stock option agreement with terms and
conditions consistent with the Plan and as approved by the Board (which terms
and conditions need not be the same in each case and may be changed from time to
time).
A director of the Corporation to whom an option may be granted
shall not participate in the decision of the Board to grant such Option.
2.05 Term of Options
The Option Period shall be five years from the date such
Option is granted, but may be reduced with respect to any such Option as
provided in Section 2.08 hereof covering termination of employment or death of
the Optionee.
In the event that the Board elects to grant Options which are
subject to vesting, such Options may only be exercised (in each case to the
nearest full share) during the Option Period as follows:
(a) at any time during the first year of the Option Period the
Optionee may purchase up to 33 1/3% of the total number of shares
set forth in his Option;
(b) at any time after the end of the first year of the Option Period
the Optionee may purchase an additional 33 1/3% of the total
number of Shares set forth in his Option plus any Shares not are
not purchased in accordance with Subsection 2.05(a); and
(c) at any time after the end of the second year of the Option
Period, the Optionee may purchase an additional 33 1/3% of the
total number of Shares set forth in his Option, plus any Shares
not purchased in accordance with Subsections 2.05(a) and 2.05(b).
Except as set forth in Section 2.08, no Option may be
exercised unless the Optionee is at the time of such exercise:
(a) in the case of a Eligible Employee, in the employ of the
Corporation or any Affiliate and shall have been continuously
so employed since the grant of his Option, but absent on
leave, having the approval of the Corporation or such
Affiliate, shall not be considered an interruption of
employment for any purpose of the Share Option Plan; or
(b) in the case of an Eligible Director, a director of the
Corporation or any Affiliate and shall have been such a
director continuously since the grant of his Option.
The exercise of any Option will be contingent upon receipt by
the Corporation of cash payment of the full purchase price of the Shares being
purchased. No Optionee or his legal representative, legatees or distributees
will be, or will be deemed to be, a holder of any Shares subject to an Option,
unless and until certificates for such Shares are issued to him or them under
the terms of the Share Option Plan.
2.06 Share Appreciate Right
An Optionee may, if determined by the Board, have the right
(the "Right"), when entitled to exercise an Option, to terminate such Option in
whole, or in part (the "Terminated Option") by notice in writing to the
Corporation and, in lieu of exercising such Option, receive that number of
Shares, disregarding fractions which, when multiplied by the Fair Market Value,
have a total value (the "Total Value") equal to the product of the number of
Option Shares times the difference between the Fair Market Value on the day
immediately prior to the exercise of the Right and the option price per Share of
the Option Shares.
2.07 Lapsed Options
If Options are terminated pursuant to Section 2.08 hereof or
expire without being exercised in whole or in part, new Options may be granted
covering the Shares not purchased under such lapsed Options.
2.08 Effect of Termination of Employment or Death
--------------------------------------------
(a) If an Optionee shall die while employed by or while a director of
the Corporation or its Affiliate, any Option held by him at the
date of death shall become exercisable in whole or in part if the
Option was issued one year or more prior to the date of death,
but only by the person or persons to whom the Optionee's rights
under the Option shall pass by the Optionee's will or the laws of
descent and distribution. All such Options shall be exercisable
only to the extent that the Optionee was entitled to exercise the
Option at the date of his death and only for six months after the
date of death or prior to the expiration of the Option Period in
respect thereof, whichever is sooner.
(b) If an Optionee ceases to be employed by or a director of the
Corporation or its Affiliate for cause, no Option held by such
Optionee may be exercised following the date on which such
Optionee ceases to be so employed or ceases to be a director, as
the case may be. If an Optionee ceases to be employed by or a
director of the Corporation or its Affiliate for any reason other
than cause then any Option held by such Optionee at the effective
date thereof shall become exercisable in whole or in part for a
period of thirty (30) days thereafter.
2.09 Effect of Take-over Bid
If a bona fide offer (the "Offer") for Shares is made to the
Optionee or to shareholders generally or to a class of shareholders which
includes the Optionee, which Offer, if accepted in whole or in part, would
result in the offeror exercising control over the Corporation within the meaning
of subsection (3) of the Securities Act (Ontario) (as amended from time to
time), then the Corporation shall, immediately upon receipt of notice of the
Offer, notify each Optionee currently holding an Option of the Offer, with full
particulars thereof; whereupon, notwithstanding Section 2.05 hereof, such Option
may be exercised in whole or in part by the Optionee so as to permit the
Optionee to tender the Shares received upon such exercise (the "Optioned
Shares") pursuant to the Offer. If:
(a) the Offer is not completed within the time specified therein; or
(b) the Optionee does not tender the Optioned Shares pursuant to the
Offer; or
(c) all of the Optioned Shares tendered by the Optionee pursuant to
the Offer are not taken up and paid for by the offeror in respect
thereof;
then the Optioned Shares or, in the case of clause (c) above, the Optioned
Shares that are not taken up and paid for shall be returned by the Optionee to
the Corporation and reinstated as authorized but unissued Shares and the terms
of the Option as set forth in Section 2.05 shall again apply to the Option. If
any Optioned Shares are returned to the Corporation under this Section, the
Corporation shall refund the exercise price to the Optionee for such Optioned
Shares. In no event shall the Optionee be entitled to sell the Optioned Shares
otherwise than pursuant to the Offer.
2.10 Effect of Amalgamation, Consolidation or Merger
-----------------------------------------------
If the Corporation amalgamates, consolidates with or merges
with or into another corporation any Shares receivable on the exercise of an
Option shall be converted into the securities, property or cash which the
Participant would have received upon such amalgamation, consolidation or merger
if the Participant had exercised his Option immediately prior to the record date
applicable to such amalgamation, consolidation or merger and the option price
shall be adjusted appropriately by the Board and such adjustment shall be
binding for all purposes of the Share Option Plan.
2.11 Adjustment in Shares Subject to the Plan
----------------------------------------
If there is any change in the Shares through or by means of a
declaration of stock dividends of Shares, of consolidations, subdivisions or
reclassifications of Shares, or otherwise, the number of Shares available under
the Share Option Plan, the Shares subject to any Option, and the purchase price
thereof shall be adjusted appropriately by the Board and such adjustment shall
be effective and binding for all purposes of the Share Option Plan.
2.12 Loans to Employees
Subject to the Act, the Board may at any time authorize the
Corporation to loan money to an Eligible Employee, on such terms and conditions
as the Board in its sole discretion may determine to assist such Eligible
Employee to exercise an Option held by him or her.
PART 3. - SHARE PURCHASE PLAN
3.01 Participants
Participants in the Share Purchase Plan will be Eligible
Employees who have been continuously employed by the Corporation or any of its
Affiliates for at least twelve consecutive months. The Board shall have the
right in its absolute discretion to waive such twelve-month period or refuse any
Eligible Employee or group of Eligible Employees the right of participation or
continued participation in the Share Purchase Plan.
3.02 Election to Participate in the Share Purchase Plan and Participant's
Contribution
Any Participant may elect to contribute money (the
"Participant's Contribution") to the Share Purchase Plan in any calendar year if
the Participant, prior to December 1 of the immediately preceding calendar year,
delivers to the Corporation a written direction in form and substance
satisfactory to the Corporation:
(a) authorizing the Corporation to deduct from the Participant's
salary in equal instalments the Participant's Contribution; and
(b) directing the Corporation to register a municipal address
specified by the Corporation as the Participant's address on the
shareholders' register for any Shares issued to the Participant
in accordance with the Share Purchase Plan.
If by December 1 of the immediately preceding calendar year
the Eligible Employee has not been continuously employed by the Corporation or
any of its Affiliates for at least twelve consecutive months, then, in the month
the Eligible Employee becomes so employed, he may elect to make a Participant's
Contribution with respect to the balance of the calendar year commencing on the
first day of the following month.
The Participant's Contribution shall not exceed 10% of the
Participant's basic annual salary from the Corporation and its Affiliate at the
time of delivery of the direction before deductions, exclusive of any overtime
pay, bonuses or allowances of any kind whatsoever (the "Basic Annual Salary").
In the case of any Eligible Employee who become employed for twelve consecutive
months during the year and delivers a direction at that time, the Participant's
Contribution shall not exceed 10% of his Basic Annual Salary from the
Corporation and it Affiliates at the time of delivery of the direction prorated
over the remainder of the calendar year before deductions exclusive of any
overtime pay, bonuses or allowances of any kind whatsoever.
No adjustment shall be made to the Participant's contribution
until the next succeeding calendar year at which time, in order for the
Participant's Contribution to continue, a new written direction shall have been
delivered to the Corporation for such calendar year. The Participant's
Contribution shall be held by the Corporation in trust for the purpose of the
Share Purchase Plan.
3.03 Corporation's Contribution
Immediately prior to the date any shares are issued to a
Participant in accordance with Section 3.05, the Corporation will credit the
Participant with and thereafter hold in trust for the Participant an amount (the
"Corporation's Contribution") equal to the Participant's Contribution then held
in trust by the Corporation.
3.04 Aggregate Contribution
The Participant's Contribution plus the Corporation's
Contribution shall be the "Aggregate Contribution". The Corporation shall not be
required to segregate the Aggregate Contribution from its own corporate fun or
to pay interest thereon.
3.05 Issue of Shares
On March 31, June 30, September 30 and December 31 in each
calendar year, the Corporation will issue to each Participant fully paid and
non-assessable Shares equal in value to the Aggregate Contribution held in trust
on such date by the Corporation converted into Shares at the Issue Price on such
dates. If such conversion would otherwise result in the issue to a Participant
of a fraction of a Share, the Corporation will issue only such full Shares as
are issuable. "Issue Price" means the higher of (i) the weighted average price
of the Share on The Toronto Stock Exchange (or, if the Shares are not listed on
such Exchange, on any other exchange on which the Shares are listed) for the
three months prior to the date of issue and (ii) the lowest price from time to
time permitted by The Toronto Stock Exchange or such exchange or exchanges on
which the Shares may be traded at such time. The weighted average price shall be
determined by dividing the aggregate sale price of all Shares sold on the said
exchange during the said three-month period by the total number of Shares sold
to such exchange during such period.
The Corporation shall hold any unused balance of the Aggregate
Contribution in trust for a Participant until used in accordance with the Share
Purchase Plan.
3.06 Safekeeping and Delivery of Shares
All Shares issued to a Participant in accordance with the
Share Purchase Plan will be held in safekeeping by a trust company qualified to
carry on business in the Province of British Columbia (the "Trustee") and will
be delivered, subject as provided in the Plan, to such Participant upon the
expiry of a period of twelve months (or such other period as may be imposed by
law or by any regulatory authority or stock exchange on which the Shares are
listed) following the date of issue of such Shares (the "Holding Period"). If
the Trustee receives on behalf of a Participant in respect of any Shares so
held:
(a) cash dividends;
(b) options or rights to purchase additional securities of the
Corporation or any other corporation;
(c) any notice of meeting, proxy statement and proxy for any meeting
of holders of Shares of the Corporation; or
(d) other additional Shares or other securities (by way of dividend
or otherwise);
then the Trustee shall forward to such Participant at his last known address
according to the records of the Corporation any of the items listed in
Subsections 3.06(a), (b) and (c) and shall hold in safekeeping any additional
securities referred to in Subsection 3.06(d) and shall deliver such securities
to a Participant with delivery of the Shares in respect of which such additional
securities were issued.
Any Shares issued to a Participant but held in safekeeping by
the Trustee will be distributed to a Participant or his estate prior to the
expiry of the Holding Period only upon:
(a) the date of the commencement of the Participant's retirement in
accordance with the Corporation's normal retirement policy;
(b) the date of the commencement of the total disability of the
Participant determined in accordance with the Corporation's
normal retirement policy; or
(c) the date of death of the Participant.
All fees and disbursements of the Trustee shall be paid by the
Corporation.
3.07 Effect of Termination of Employment or Death
--------------------------------------------
If a Participant shall cease to be employed by the Corporation
or any of its Affiliates for any reason or shall receive notice from the
Corporation of the termination of his employment, the Participant shall be
deemed to be no longer a Participant in the Share Purchase Plan and
(a) any portion of the Participant's Contribution then held in trust
for the Participant shall be paid to the Participant or his
estate or successor, as the case may be;
(b) any portion of the Corporation's Contribution then held in trust
for the Participant shall be paid to the Corporation; and
(c) any Shares then held in safekeeping for a Participant shall be
delivered to the Participant pursuant to Section 3.06 hereof.
3.08 Effect of Amalgamation, Consolidation or Merger
-----------------------------------------------
If the Corporation amalgamates, consolidates with or merges
with or into another corporation, each Participant for whom Shares are held in
safekeeping will receive, on the date on which any Shares would otherwise have
been delivered to the Participant in accordance with Section 3.06, the
securities, property or cash to which the Participant was entitled to receive on
such amalgamation, consolidation or merger.
PART 4. - GENERAL
4.01 Number of Shares
The aggregate number of Shares that may be reserved for
issuance, from time to time, under the Plans shall not exceed 3,000,000 Shares.
In addition, the aggregate number of shares so reserved for issuance under the
Plans to any one person shall not exceed 5% of the issued and outstanding
Shares.
4.02 Transferability
All benefits, rights and options accruing to any Participant
in accordance with the terms and conditions of any Plan shall not be
transferable unless specifically provided herein. During the lifetime of a
Participant, all benefits, rights and options may only be exercised by the
Participant.
4.03 Employment
Nothing contained in any Plan shall confer upon any
Participant any right with respect to employment or continuance of employment
with the Corporation or any Affiliate, or interfere in any way with the right of
the Corporation or any Affiliate to terminate the Participant's employment at
any time. Participation in any Plan by a Participant is voluntary.
4.04 Record Keeping
The Corporation shall maintain a register in which shall be
recorded:
(a) the name and address of each Participant;
(b) the Plan or Plans in which the Participant participates;
(c) any Participant's Contributions;
(d) the number of Shares held in safekeeping for a Participant; and
(e) the number of Options granted to a Participant and the number of
Options outstanding.
4.05 Necessary Approvals
The Plans shall be effective only upon the approval of the
shareholders of the Corporation given by the affirmative vote of a majority of
the Shares represented at a meeting of holders of Shares and voted thereon or by
a written resolution signed by all shareholders.
The obligation of the Corporation to sell and deliver Shares
in accordance with any Plan is subject to the approval of any governmental
authority having jurisdiction or any stock exchanges on which the Shares are
listed for trading which may be required in connection with the authorization,
issuance or sale of such Shares by the Corporation. If any Shares cannot be
issued to any Participant for any reason including, without limitation, the
failure to obtain such approval, then the obligation of the Corporation to issue
such Shares shall terminate and any Participant's Contribution or option price
paid to the Corporation shall be returned to the Participant.
4.06 Administration of the Plans
The Board is authorized to interpret each Plan from time to
time and to adopt, amend and rescind rules and regulations for carrying out such
Plan. The interpretation and construction of any provision of any Plan by the
Board shall be final and conclusive. Administration of each Plan shall be the
responsibility of the appropriate officers of the Corporation and all costs in
respect thereof shall be paid by the Corporation.
4.07 Income Taxes
As a condition of and prior to participation in the Plan, a
Participant shall authorize the Corporation in written form to withhold from any
remuneration otherwise payable to such Participant any amounts required by any
taxing authority to be withheld for taxes of any kind as a consequence of such
participation in the Plans.
4.08 Amendments to Plans
The Board reserves the right to amend, modify or terminate any
Plan at any time if and when it is advisable in the absolute discretion of the
Board. However, any amendment of such Plan which would:
(a) materially increase the benefits under such Plan; or
(b) materially increase the number of Shares which would be issued
under such Plan (except any increase resulting automatically from
an increase in the number of issued and outstanding Shares); or
(c) materially modify the requirements as to eligibility for
participation in such Plan;
shall be effective only upon the approval of the shareholders of the
Corporation. Any amendment to any provision of such Plan shall be subject to
approval, if required, by any regulatory body having jurisdiction over the
securities of the Corporation.
4.09 No Representation or Warranty
The Corporation makes no representation or warranty as to the
future market value of any Shares issued in accordance with the provisions of
any Plan.
4.10 Interpretation
The Plan will be governed by and construed in accordance with
the laws of the Province of British Columbia and the laws of Canada applicable
therein.
4.11 Compliance with Applicable Law, etc.
If any provision of any Plan of any agreement entered into
pursuant to any Plan contravenes any law or any order, policy, bylaw or
regulation of any regulatory body or stock exchange having authority over the
Corporation or the Plans then such provision shall be deemed to be amended to
the extent required to bring such provision into compliance therewith.
Vancouver, British Columbia
Approved by the directors and
shareholders on September 13, 1993,
Effective as of September 15, 1993
Amended effective May 23, 1996, and
approved by the directors on April 10, 1996 and
by the shareholders on May 23, 1996
<PAGE>
DAKOTA MINING CORPORATION FINANCIAL STATEMANTS
Auditors' Report
To the Shareholders of Dakota Mining Corporation
We have audited the consolidated balance sheets of Dakota Mining Corporation as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
accordance with generally accepted accounting principles.
KPMG
CHARTERED ACCOUNTANTS
Toronto, Canada
February 4, 1997,
except as to Note 2,
which is as of February 6, 1997
and Note 6(c), which is as
of February 18,1997
<PAGE>
<TABLE>
<CAPTION>
DAKOTA MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
(expressed in United States dollars)
December 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash $5,092,150 $2,260,025
Inventories 2,643,701 3,821,176
Deferred stripping costs 886,086 667,956
Other current assets 739,064 340,965
----------- ----------
9,361,001 7,090,122
Property, plant and equipment, net 15,150,399 22,972,514
Other assets
Reclamation bonds 5,111,844 3,577,475
Advance minimum royalties 1,871,965 2,007,260
Other 74,141 258,050
------------- ------------
$31,569,350 $35,905,421
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Account payable $4,915,525 $5,152,517
Accrued liabilities 2,003,625 1,864,790
Reclamation costs 428,983 576,500
Short-term borrowings 623,623 1,157,991
Current portion of long-term debt 383,265 565,546
----------- -----------
8,355,021 9,317,344
Long-term liabilities
Long-term debt 3,240,053 439,520
Other long-term liabilities 952,000 -
Reclamation costs 5,562,881 3,558,304
----------- -----------
Total liabilities 18,109,955 13,315,168
---------- ----------
Shareholders' equity
Warrants 63,134 87,500
Preference shares, without par value; 20,000,000
shares authorized, none issued or outstanding
Common shares, without par value; unlimited shares
authorized; 35,479,742 issued and outstanding in
1996; 26,534,742 in 1995 52,809,980 38,906,595
Accumulated deficit (39,133,909) (16,064,270)
Cumulative translation adjustment (279,810) (339,572)
------------- -------------
Total shareholders' equity 13,459,395 22,590,253
---------- ----------
$31,569,350 $35,905,421
========== ==========
</TABLE>
Approved on behalf of the Board
/s/Alan R. Bell /s/ Stanley Dempsey
Alan R. Bell Stanley Dempsey
Director Director
(See accompanying notes to consolidated financial statements)
<PAGE>
DAKOTA MINING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in United States dollars)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Operating revenues $24,556,406 $17,208,608 $8,441,593
Operating costs
Mine, mill and administration 26,296,133 13,851,637 5,433,071
Depreciation, depletion, and
amortization 6,496,371 4,729,391 2,162,255
Royalties and severance taxes 1,163,510 743,713 340,824
Exploration 498,908 87,134 203,437
Reclamation 2,255,429 2,196,383 1,978,609
Holding and standby costs 1,330,026 3,025,127 2,324,437
General corporate costs 1,789,939 1,293,058 1,662,077
Property impairment 7,922,116 - -
----------- ----------- ----------
47,752,432 25,926,443 14,104,710
---------- ---------- ----------
Operating loss (23,196,026) (8,717,835) (5,663,117)
------------ ------------ ------------
Other income (expense):
Investment income 475,508 301,193 326,374
Interest expense (441,844) (496,239) (698,389)
Other 92,723 (76,837) 296,206
-------------- ------------- -----------
126,387 (271,883) (75,809)
------------- ------------ -------------
Net loss $(23,069,639) $(8,989,718) $(5,738,926)
============ =========== ===========
Net loss per common share $(0.73) $(0.35) $(0.33)
====== ====== ======
Weighted average number of
shares outstanding 31,405,369 25,396,310 17,406,350
========== ========== ==========
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
DAKOTA MINING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(expressed in United States Dollars)
<TABLE>
<CAPTION>
Cumulative
Common Shares Accumulated Translation
Shares Amount Warrants Deficit Account
------------ ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 13,973,068 17,317,430 3,911,844 (1,335,626) (42,148)
Issue special warrants subsequently
exchanged for common shares, net
of offering costs of $734,042 6,000,000 9,498,969 - - -
Exercise of warrants for cash 1,387,040 2,931,226 (760,097) - -
Net loss and translation loss - - - (5,738,926) (297,424)
------------ ----------- ----------- ----------- ---------
Balance, December 31, 1994 21,360,108 29,747,625 3,151,747 (7,074,552) (339,572)
Issue special warrants subsequently
exchanged for common shares, net
of offering costs of $493,150 4,838,710 5,506,850 - - -
Exercise of warrants for cash 335,924 772,631 (184,758) - -
Expiration of common share
purchase warrants - 2,879,489 (2,879,489) - -
Net loss - - - (8,989,718) -
----------------- ---------------------------------- ----------------------------
Balance, December 31, 1995 26,534,742 38,906,595 87,500 (16,064,270) (339,572)
Issue special warrants subsequently
exchanged for common shares, net
of offering costs of $974,478 8,700,000 13,475,488 63,134 - -
Exercise of options for cash 245,000 340,397 - - -
Expiration of Pegasus warrants - 87,500 (87,500) - -
Net loss and transaction loss - - - (23,069,639) 59,762
------------------ - -------------- ------------- ------------ ----------
Balance, December 31, 1996 35,479,742 $52,809,980 $ 63,134 $(39,133,909) $279,810
========== ========== =========== ============ ===========
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
DAKOTA MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in United States dollars)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities
Net loss $(23,069,639) $(8,989,718) $(5,738,926)
Add (deduct) non-cash items
Depreciation, depletion and amortization 6,496,371 4,656,910 2,448,382
Property impairment 7,131,639 - -
Reclamation, holding and standby costs accrued (net) 2,809,060 1,969,390 (165,800)
---------- ---------- -----------
(6,632,569) (2,363,418) (3,456,344)
Net change in non-cash working
capital items related to operations 459,148 2,776,637 (423,149)
----------- --------- -----------
(6,173,421) 413,219 (3,879,493)
------------ ---------- -----------
Investing activities
Additions to property, plant and equipment (5,847,542) (4,357,622) (2,585,907)
Proceeds from asset dispositions 4,757 - 118,380
Additions to reclamation bonds and other assets (1,240,592) (1,271,151) (259,298)
------------ ----------- ---------
(7,083,377) 5,628,773 2,726,825
------------ --------- ---------
Financing activities
Proceeds form exercise of
common share purchase warrants 340,397 587,873 2,171,129
Proceeds from the sale of special warrants 14,513,100 6,000,000 10,233,011
Special warrant offering costs paid (974,478) (493,150) (734,042)
New borrowings 3,242,824 1,992,474 368,155
Repayment of indebtedness (1,092,682) (3,709,059) (6,127,636)
----------- ----------- -----------
16,029,161 4,378,138 5,910,617
Effect of exchange rate changes 59,762 - (290,033)
----------- ----------- ------------
Net change in cash 2,832,125 (837,416) (985,734)
Cash, beginning of period 2,260,025 3,097,441 4,083,175
--------- --------- ---------
Cash, end of period $5,092,150 $2,260,025 $3,897,441
========= ========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
DAKOTA MINING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Dakota Mining Corporation and its subsidiaries (the "Company") are
engaged in the business of investing in and operating precious metals
mining projects, producing gold and silver and exploring for, acquiring
and developing precious metals properties.
The consolidated financial statements of the Company are reported in
United States dollars in accordance with generally accepted accounting
principles in Canada. As described in Note 11, these principles may
differ in certain respects from those that the Company would have
followed had its consolidated financial statements been prepared in
accordance with generally accepted accounting principles and practices
in the United States. The significant accounting policies used in these
consolidated financial statements are summarized as follows:
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company, its subsidiaries and a proportionate share of the accounts of
partnerships and unincorporated joint ventures in which the Company has
an interest. At December 31, 1996, the Company's principal
subsidiaries, partnerships and joint ventures and its percentage equity
interest in each are as follows:
MinVen Gold (U.S.A.) Corporation 100.0%
Brohm Mining Corp. ("Gilt Edge Mine" or "Brohm") 100.0%
Stibnite Mine Joint Venture ("Stibnite Mine") 100.0%
The Golden Reward Mining Co., L.P. ("Golden Reward Mine") 40.0%
The Cactus Gold Mines Company Joint Venture ("Cactus Mine") 25.0%
Use of Estimates
Management of the Company makes various estimates and assumptions in
determining the reported amount of assets, liabilities, revenues and
expenses, and in the disclosure of commitments and contingencies. These
estimates will change with the passage of time and the occurrence of
future events, and actual results may differ materially from the
estimates.
Foreign Currency Translation
The Company presents its financial statement information in United
States dollars as its principal assets and operations are located in
the United States.
The Company uses the current rate method of foreign currency
translation whereby the assets and liabilities of its self-sustaining
Canadian operations are translated into their United States dollar
equivalent at rates of exchange prevailing at each balance sheet date.
Revenues and expenses of Canadian operations are translated at average
exchange rates prevailing during the periods in which such items are
recognized in earnings. Transaction amounts denominated in foreign
currencies are translated into their United States dollar equivalents
at exchange rates prevailing at the transaction dates.
<PAGE>
1. Accounting Policies (continued)
Foreign Currency Translation (continued)
Gains and losses arising from translation of the financial statements
of Canadian operations are included in the unrealized cumulative
translation adjustment account in shareholders' equity. Gains and
losses added to this account are recognized in the statement of
operations when the related net foreign investment is reduced.
Cash Equivalents
The Company considers all temporary cash investments having maturities
of three months or less at the date of purchase to be cash equivalents.
Inventories
Bullion and ore inventory are valued at the lower of the average unit
production cost or net realizable value. Materials and supplies are
valued at the lower of average cost or replacement cost.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Exploration costs,
pre-production costs, depreciation on equipment and other carrying
charges related to the development of mineral properties with indicated
economically recoverable reserves are deferred until the start of
commercial production. Major expenditures related to the development of
identified mineral reserves on producing properties are capitalized.
The costs of waste stripping in excess of the expected pit life average
stripping ratio are deferred and charged to production on a unit of
production basis when the ratio of waste to ore mined is less than the
pit life average. Mine exploration costs and development costs to
maintain production of operating mines are charged to operations as
incurred.
The Company periodically reviews the carrying value of its properties
by comparing the net book value with the estimated undiscounted future
cash flow from the property. If the net book value exceeds the
undiscounted future cash flow, the Company records an impairment.
Changes in the significant estimates and assumptions underlying future
cash flow estimates may have a material effect on future carrying
values and operating results.
Depreciation, Depletion and Amortization
Depreciation of plant and equipment is provided on the straight-line
method with useful lives ranging from three to ten years over the
lesser of the estimated useful life of the asset or the estimated life
of the ore reserves on the units-of-production method. Depletion and
amortization of deferred exploration and development costs are provided
on the units-of-production method based upon estimated ore reserves.
<PAGE>
Capitalization of Financing Costs
Financing costs, including interest, are capitalized on expenditures
related to significant development or expansion activities on mineral
properties. When production commences on these mineral properties, such
costs are charged against operations as incurred. There was no
capitalized interest in 1996, 1995 or 1994.
Reclamation Costs
The Company records a liability for the estimated cost to reclaim mined
land by accruing charges to reclamation costs. The estimate is based on
the work which is to be performed as set forth in the reclamation plan
approved by the agencies responsible for granting the related mining
permits. The accrued reclamation liability is reduced as reclamation
expenditures are made. If operations are suspended for a significant
period, an immediate accrual of estimated reclamation costs to be
incurred during the suspension period is recorded.
Revenue Recognition
Revenues are recognized when deliveries of gold and silver are made.
Gains or losses on forward metal sales contracts, options and other
similar arrangements which hedge revenues from future production are
not recognized until the hedged production is delivered or the option
contract is exercised or expires.
Hedging
The Company, from time-to-time enters into fixed forward and spot
deferred sales contracts for the sale of its gold as a hedge against
changes in prices. Gains or losses related to these transactions are
netted against revenue when the hedged production is sold. The Company
may also purchase put options for the sale of its gold. The related
gains or losses are also netted against revenue when the gold is sold.
Income Taxes
Income taxes are provided based on accounting income or loss. Deferred
taxes arise principally from claiming depreciation, depletion,
amortization, exploration and development costs for tax purposes at
amounts differing from those charged to operations for accounting
purposes. As the timing differences reverse, taxes previously deferred
are charged to income based on the effective rate.
Loss Per Share
Net loss per share has been calculated using the weighted average
number of common shares outstanding during each period. The exercise of
outstanding options and warrants to purchase common shares of the
Company would be anti-dilutive.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
1996 financial statement presentation.
2. Merger and Convertible Debenture Offering Subsequent to Year-End:
On February 5, 1997, a definitive Merger Agreement with USMX, INC.
(USMX) was signed. Under the terms of the Merger Agreement,
shareholders of USMX will receive one Dakota common share for every
1.1 common shares of USMX held and USMX will become a wholly owned
subsidiary of Dakota. In connection with the transaction, the Company
will issue approximately 14.7 million common shares in order to
complete the acquisition. The Company will account for the merger as a
purchase. Completion of the merger remains subject to shareholder and
creditor approval, review by regulatory authorities, and other
customary conditions. Management expects to complete the merger by
early May, 1997.
In order to provide financing for the proposed merger with USMX, on
February 5, 1997, the Company entered into an agency agreement with
certain Canadian investment dealers (collectively, the "Agents") to
sell by way of private placement 25,000 Special Warrants at a price of
Cdn$1,000 per Special Warrant for aggregate gross proceeds to the
Company of Cdn$25 million. The Special Warrants offering was completed
on February 6, 1997 with all proceeds, net of a 6% commission paid to
the Agents, placed into an escrow account.
Each Special Warrant entitles the holder, upon exercise thereof and
without payment of any additional consideration, to acquire one 7.5%
unsecured subordinated convertible debenture (the "Debentures") of the
Company in the principal amount of Cdn$1,000. Each Debenture will be
convertible into common shares of the Company at a conversion price of
Cdn$2.00 per common share up to and including the last business day
immediately preceding February 5, 2004. The debentures will not be
redeemable prior to January 29, 2001 but thereafter will be redeemable
by the Company if the weighted average trading price of the Company's
common shares is 125% of the conversion price for a defined period
prior to such redemption. On maturity or redemption, the Company will
have the option to repay the principal amount of the Debentures in cash
or common shares of the Company at a price equal to 95% of the weighted
average trading price for a defined period prior to such maturity or
redemption.
The Company has agreed to use its best efforts to file a prospectus in
British Columbia, Alberta, Ontario and Quebec to qualify for
distribution the Debentures issuable upon exercise of the Special
Warrants and the common shares issuable upon conversion of the
Debentures.
If the merger is not complete by May 31, 1997, or such late date as
the Agents may determine in its sole discrettion, the number of
Dakota Common Shares issuable upon conversion of the Debentures will
be such that the debentures will be convertable for 550 Dakota Common
Shares (the "Penalty").
Proceeds from the Special Warrant offering, after deducting the 6%
commission paid to Agents and other expected costs, approximate US$16.9
million. The offering proceeds will principally be used to complete
construction and commence start-up of the Illinois Creek Mine owned by
USMX, Inc., developmental drilling and for general working capital
purposes. Under the terms of the merger agreement, the Company has
agreed to provide USMX with a $5 million loan from the proceeds of the
Special Warrant offering. The loan is bridge financing needed by USMX
to reduce its outstanding accounts payable and to commence start-up of
its Illinois Creek Mine. The loan will be collateralized by various
USMX assets.
<PAGE>
3. Inventories and Deferred Stripping Costs
At December 31 in each of the years indicated, inventories were
comprised of the following:
1996 1995
---- ----
Bullion $ 854,444 $1,290,231
Ore 1,524,072 2,244,420
Materials and supplies 265,185 286,525
----------- -----------
$2,643,701 $3,821,176
========= =========
In 1993, the mining activity at Stibnite Mine consisted primarily of
the removal of waste overburden. Accordingly, the costs of waste
removal of approximately $1.8 million were deferred. Of this amount,
$1.12 million was charged to operations in 1995 with the remainder
charged to operations in 1996 as related gold resources were mined. In
1996, the mining activity at Gilt Edge Mine included the removal of
waste overburden. Accordingly, the costs of waste removal of $886,086
were deferred.
4. Property, Plant and Equipment
At December 31, in each of the years indicated, property, plant and
equipment consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
At cost
Mining properties $20,451,876 $14,470,978
Plant and equipment 12,352,287 12,312,247
Deferred costs 3,446,432 3,700,540
----------- -----------
36,250,595 30,483,765
---------- ----------
Accumulated depreciation,
depletion and amortization
Mining properties 15,254,392 3,435,856
Plant and equipment 4,809,662 3,532,968
Deferred costs 1,036,142 542,427
------------ -----------
21,100,196 7,511,251
---------- ----------
$15,150,399 $22,972,514
========== ==========
</TABLE>
5. Short-term Borrowings
In April, 1996, the terms of a short-term borrowing arrangement with D.
H. Blattner & Sons ("Blattner") were redetermined. The Company has
signed a Secured Loan Note which provides for monthly payments
including accrued interest of $75,000 commencing May 1, 1996 and
continuing until September 1, 1997. The loan bears interest at 8.5% per
annum, is collateralized by the assets of Stibnite Mine and is
guaranteed by the Company. This facility was subordinated by Blattner
to Gerald Metals under the Revolving Loan Agreement previously
described. On May 21, 1996 Gerald Metals purchased the Secured Loan
Note from Blattner in a transaction not involving the Company. The
remaining unpaid balance as of December 31, 1996 is $624,000. This is
not part of the Revolving Loan Agreement discussed in Note 6(c).
Management believes the fair value of short-term borrowings
approximates the carrying value.
6. Long-term Debt
Long-term debt at December 31 is comprised of the following:
1996 1995
---- ----
Note payable to Harley Hall $ 358,400 $ 716,800
Equipment notes payable 34,918 288,266
Line of Credit Facility 3,230,000 -
----------- -----------
3,623,318 1,005,066
Less current portion 383,265 565,546
--------- ----------
$ 3,240,053 $ 439,520
========== ===========
(a) Note Payable to Harley Hall
At December 31, 1996, the remaining balance due to Harley
Hall, doing business as Hall Construction, ("Hall") is
repayable by the Golden Reward Mine in 12 equal monthly
principal payments (amounting to $896,000 annually, the
Company's 40% share is $358,400) plus accrued interest. The
amount owed to Hall bears interest at the following rates: (i)
from December 30, 1995 to December 29, 1996, at United States
prime plus 1.5%; and (ii) thereafter, at United States prime
plus 1%. The amount owed to Hall is secured by a mechanics'
lien on the Golden Reward Mine. The Company's 40% share of the
note is reflected in the table above.
(b) Equipment Notes Payable
The equipment notes payable are for equipment purchased from a
supplier who agreed to a repayment term over three years on a
graduated payment basis. Interest ranging from 6% to 16.5% per
annum is payable monthly. The notes are secured by the
equipment which is located at the Gilt Edge Mine.
Management believes the fair value of long-term debt approximates the
carrying value.
(c) Line of Credit Facility
On February 28, 1997, the Company entered into a letter
agreement with Gerald Metals Inc. to amend and restate the
terms of a Revolving Loan Agreement dated April 19, 1996.
Under the amended terms, the revolving loan will be converted
to a term loan of up to $5.0 million, will be repayable at the
rate of $1.0 million per month commencing in June 1998, will
bear interest at LIBOR plus 2.25% and will be collateralized
by Dakota's underlying assets at its Gilt Edge and Stibnite
mines. Accordingy, the amounts outstanding at December 31,
1996 under the Revolving Loan Agreement have been classified
as long-term .
Gerald has also agreed to provide the Company with a $2.5
million stand-by credit facility to serve as bridge financing
until completion of the merger with USMX and release of
remaining proceeds from the offering of special warrants.
Refer to Note 2 for a description of these matters. The
stand-by facility will be collateralized by a portion of the
$5 million advance to be made to USMX, will bear interest at
LIBOR plus 2.25% and the Company will be obligated to pay a
commitment fee of 1/2 of one percent on the unused portion.
The stand-by facility will be repayable on or before July 31,
1997.
(d) Interest Paid
Interest paid on long-term debt and short-term borrowings
was $441,844 in 1996, $560,639 in 1995, and $1,213,119 in
1994.
7. Share Capital
(a) Stock Options to Directors and Employees
The Company has established a stock option plan for directors, officers
and employees covering 3,000,000 common shares. At December 31, 1996,
options and warrants to purchase 1,708,525 common shares were
outstanding with terms of up to five years from the date of grant at an
exercise price equal to the market price prevailing at the time of the
grants, as detailed in the following table:
<TABLE>
<CAPTION>
Number of Cdn $ Exercise
Common Option Price Price
Shares Per Share Warrants(1) Per Share
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993 597,925 $3.50-$16.79 16,463 $1.50
Granted in 1994 40,000 $2.90 -
Surrendered or expired, 1994 (24,423) $3.50-$4.23 (2,211) $1.50
---------- ----------
Outstanding, December 31, 1994 613,502 $2.90-$16.79 14,252 1.75(1)
Granted in 1995 793,132 $1.60-$2.00 $1.75
Surrendered or expired, 1995 111,680 $2.00-$16.79 (14,252) -
------- --------
Outstanding, December 31, 1995 1,294,954 $1.60 - $4.23 - -
Granted in 1996 784,375 $2.45-$3.16 - -
Surrendered or expired, 1996 (370,804) $1.60-$4.23 - -
---------
Outstanding, December 31, 1996 1,708,525 $1.80-$3.50 - -
========= =========
<FN>
(1) Effective September 16, 1994, the exercise price increased to $1.75
pursuant to the terms of the warrants.
(b) Other Stock Purchase Rights
</FN>
</TABLE>
Information concerning other stock purchase rights granted by the
Company are as follows:
<TABLE>
<CAPTION>
Common Exercise
Shares Price Expiration
---------- -------- ----------
<S> <C> <C> <C>
Citibank, N.A. 166,625 Cdn$4.68 7/31/97
Gerald Metals, Inc. 100,000 $1.57 9/21/99
Common Share Purchase Warrants 4,550,000 Cdn$2.65 12/14/97
</TABLE>
<PAGE>
8. Income Taxes
(a) As a result of accumulated losses for which the Company
receives no current tax benefit, there is no income tax
benefit or expense for 1996, 1995 or 1994.
(b) The Company does not have an effective tax rate as a result of
losses without any resulting tax benefit. Therefore, the
United States statutory income tax rate of 34% is fully
eliminated by such losses.
(c) At December 31, 1996, the Company's United States operations
had net operating loss carry-forwards for tax purposes of
approximately $56 million. A majority of the loss
carry-forwards are restricted under United States tax laws
regarding the availability and future utilization of net
operating loss carry-forwards resulting from ownership
changes. These losses expire in various amounts through the
year 2010. The differences between losses for financial
reporting and tax purposes arise primarily as a result of
timing differences.
9. Commitments and Contingencies
(a) The Company is committed to total minimum payments under
various lease and royalty agreements to 2012, including its
pro rata share from its joint ventures. These commitments for
each of the next five years are as follows:
Years $ Amounts
1997 $503,659
1998 $794,850
1999 $433,563
2000 $336,649
2001 $318,750
Thereafter, annually $318,750
(b) The Company has an employee savings plan wherein it matches
employee contributions to the plan, up to 3% of each
employee's compensation. During 1996, 1995 and 1994, the
Company, contributed $50,334, $64,576, and $60,151,
respectively to the plan, including its pro rata share from
joint ventures.
(c) Environmental Matters
In April 1993, the South Dakota Department of Environmental
and National Resources ("DENR") issued an order ("Order")
regarding remediation efforts related to acid rock drainage at
the Gilt Edge Mine. The Order remains in effect. The Order
principally required that, unless discharge water meets
certain permitted terms and conditions, there shall be no
discharge of acid mine drainage and that the Company's
wholly-owned subsidiary, Brohm, submit a comprehensive
mitigation plan to address specific short term as well as long
term plans for the site. On January 19, 1996, Brohm received
final approval of an updated and amended plan from the State
of South Dakota. Brohm estimates that further reclamation and
mitigation costs in connection with the Order will approximate
$3.2 million which amount has been fully accrued. Brohm has
provided the State of South Dakota with a form of financial
assurance in the amount of $7.9 million to ensure that the
reclamation and remediation activities set forth in the
comprehensive plan will be performed. At December 31, 1996,
Brohm had provided the State of South Dakota with cash
deposits of $2.4 million and has provided the State of South
Dakota with a demand note as proof of financial assurance in
the amount of $5.5 million. All interest earned from the cash
deposits is added to the principal of such deposits. The
demand note is callable only under certain conditions which
principally relate to events whereby Brohm would fail to
fulfill its obligations under the comprehensive plan. The
demand note is subject to periodic adjustments as reclamation
activities are carried out and/or changes to the plan are
made. The Company anticipates that at its planned rate of
expenditure required reclamation will be completed by the end
of 1997 that the demand note will be cancelled.
Further, at a future date when Brohm provides notice to the
State of South Dakota that the mine will close and that post
closure care is to begin, Brohm will be obligated to establish
a post closure fund or other financial assurance acceptable to
the State to ensure long-term treatment and maintenance of the
site. The amount of the post closure financial assurance is
not expected to be less than $3.0 million although no final
determination will be made until the mine actually closes.
The Company is required to meet certain equity covenants of
$20 million as a condition of its permits with the State of
South Dakota. As of December 31, 1996 the Company did not meet
this requirement, however the Convertible Debenture Offering
as discussed in Note 2 will ensure that the Company meets this
requirement on a go-forward basis.
(d) Hedging Activities - Gerald Metals, Inc.
The Company from time-to-time enters into gold price
protection agreements. As of December 31, 1996 the Company had
entered into various option contracts with Gerald Metals to
deliver 7,500 ounces of gold at a minimum price of $370.00 per
ounce and a maximum of $385.00 per ounce during the period
from January 31, 1997 through June 30, 1997. In addition,
forward sales contracts for 16,000 ounces at an average price
of $387.00 were in place at year-end.
The fair value of the Company's hedging instruments based on
the notional gain using market prices as of December 31, 1996
was approximately $309,000 for the forward sales options and
option contracts.
(e) Reclamation Costs
The ultimate amount of the reclamation obligations to be
incurred is uncertain, however the Company estimates these
costs to be $6.9 million at Gilt Edge Mine, $721,000 at
Stibnite Mine and $900,000 for the Company's 40% share at
Golden Reward. Of the total $8.4 million in estimated costs,
$6.0 million has been accrued for as of December 31, 1996. The
remaining costs will be accrued as mining continues at Gilt
Edge Mine and Stibnite Mine. However, no assurances can be
given that the above estimates accurately reflect the actual
costs of all reclamation activities that may be required.
10. Generally Accepted Accounting Principles (GAAP) in Canada and the United
States
The Company follows Canadian accounting principles which are different
in some respects from accounting principles applicable in the United
States. There are no significant differences in 1996, 1995 or 1994
between Canadian accounting principles and U.S. GAAP pertaining to the
Company.
(a) There are no material differences in the application of United
States accounting principles on accumulated deficit, share
capital and cumulative translation adjustment.
(b) Under U.S. GAAP, the Company would calculate deferred income
taxes using an asset and liability method. Deferred income
taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income
tax purposes. The components of the Company's deferred taxes
in the balance sheet under U.S. GAAP as of December 31 would
therefore be as follows ($000's):
<TABLE>
<CAPTION>
1996 1995
---- ----
Canada U.S. Canada U.S.
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Taxable temporary differences
Noncurrent
Mining costs capitalized for financial
reporting purposes $ - $ (300)$ - $(2,500)
Accounting differences attributed to joint ventures - (2,200) - (2,700)
Other - (2,900) - (3,000)
-------- ------- -------- -------
- (5,400) - (8,200)
--------- ------- -------- -------
Deductible temporary differences
Current
Tax basis of inventories in excess of book basis - 200 - (100)
------- -------- --------- --------
Noncurrent
Tax basis of fixed assets in excess of book basis - 12,900 - 12,600
Reclamation costs not deductible for tax purposes - 1,900 - 1,300
Other - 200 - 200
-------- -------- -------
- 15,000 - 14,100
-------- ------ -------- -------
- 9,800 - 5,800
Net operating loss carryovers 1,800 23,200 1,500 19,200
------ ------ ------- -------
Net total deferred tax assets 1,800 33,000 1,500 25,000
Valuation allowance (1,800) (33,000) (1,500) (25,000)
------- -------- ------- --------
$ - $ - $ - $ -
========= ========== ========= ==========
</TABLE>
(c) At December 31, 1996 the Company has one stock-based
compensation plan, which is described below. The Company
applies the intrinsic value method in accounting for its plan.
Accordingly, no compensation cost has been recognized for its
fixed stock option plan. Had compensation cost for the
Company's stock-based compensation plan been determined based
on the fair value at the grant dates for awards under those
plans consistent with the method of Financial Accounting
Standards Board Statement 123 - Accounting for Stock-Based
Compensation, the Company's net loss and loss per share would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net loss As reported $(23,069,639) $(8,989,718)
Proforma (23,626,933) (9,390,332)
Primary loss per common share As reported $(0.73) $(0.35)
Proforma $(0.75) $(0.37)
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black- Scholes option-pricing model with the
following weighted average assumptions used for grants in
1996, and 1995, respectively: dividend yield of 0% for both
years; expected volatility of 33%, and 58%, risk-free interest
rates between 5.28% and 6.61% and expected lives of two to
three years.
A summary of the status of the Company's stock option plan as
of December 31, 1996 and 1995, and changes during the years on
those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Fixed options
Outstanding at beginning
of year 1,294,954 $2.54 613,502 $3.57
Granted 784,375 $2.76 793,132 $1.93
Exercised 245,000 $1.90 - -
Outstanding and exercisable,
at end of year 1,708,525 $2.71 1,294,594 $2.54
Weighted average fair
value of options granted
during the year $2.76 $1.93
</TABLE>
The range of exercise prices is from $1.80 to $3.50 with a weighted remaining
contractual life of two years.
(d) The following table sets forth the components of the net change in non-cash
working capital items related to operations as reflected in the
consolidated statement of cash flows under U.S. GAAP.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Add (deduct) non-cash working capital items:
Inventories $1,177,475 $(2,529,304) $ 2,562
Deferred stripping costs (218,130) 1,159,260 (163,897)
Other current assets (402,040) (56,729) (115,312)
Accounts payable (236,992) 3,473,531 390,591
Accrued liabilities 138,835 729,879 767,357)
--------- ---------- ----------
$ 459,148 $2,776,637 $ (423,149)
========= ========= =========
</TABLE>
<PAGE>
11. Ownership Interest in Golden Reward Mine
The Company owns a 40% interest in Golden Reward Mine, with the
remaining 60% interest being owned by two subsidiaries of Wharf
Resources Ltd. ("Wharf"). The Company's proportionate share of the
partnership's condensed statements of net assets as of December 31,
1996 and 1995 and condensed statements of operations and cash flows for
each of the years in the three year period ended December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Condensed Statements of Net Assets
Current assets $ 569,273 $1,313,421
Property, plant and equipment, net 1,264,336 10,047,931
Other assets 575,849 464,193
---------- ------------
Total assets 2,409,458 11,825,445
--------- ----------
Accounts payable and other
current liabilities 486,829 428,777
Current portion of long-term debt 358,400 364,400
Long-term debt - 358,400
Other long-term liabilities 1,843,911 370,701
---------- ------------
Total liabilities 2,689,140 1,522,278
---------- -----------
$ (279,682) $10,303,167
=========== ==========
Condensed Statements of Operations:
Revenues 3,957,670 7,309,158 7,418,342
------------ ----------- -----------
Mine cash production costs 3,003,781 4,363,047 4,796,759
Royalties 96,269 193,720 167,117
Holding and standby costs 1,330,026 - -
Exploration 66,535 - -
Reclamation 639,496 208,298 117,472
Depreciation and depletion 1,645,603 3,277,390 2,155,086
Property impairment 7,922,116 - -
--------- --------------- ---------------
Total operating costs 14,703,826 8,042,455 7,236,434
---------- --------- ---------
Operating income (loss) (10,746,156) (733,297) 181,908
Other income (expense) 86,001 (225,334) (450,137)
------------ ------------ ----------
$(10,660,155) $ (958,631) $ 268,229)
============ =========== ==========
Condensed Statements of Cash Flows
Cash provided by operating activities $ 280,050 $ 2,668,071 $ 1,551,483
Cash used in investing activities (94,663) (1,058,452) (483,799)
Cash used in financing activities (364,400) (1,707,985) (1,346,654)
----------- ----------- -----------
Net decrease in cash (179,013) (98,366) (278,970)
Cash, beginning of period 459,430 557,796 836,766
--------- --------- ---------
Cash, end of period $ 280,417 $ 459,430 $ 557,796
========= ========= =========
</TABLE>
Based upon uncertainties arising from the proximity of certain
unpermitted reserves to a ski hill, the operator of Golden Reward L.P.
reflected in the financial statements of the partnership an impairment
of its investment in mineral properties relating to the Golden Reward
Mine. The Company recorded this impairment of approximately $7.9
million in its 1996 Financial Statements after Golden Reward L.P.
failed to reach an agreement regarding the acquisition of certain
surface rights owned by the ski hill. Of this amount, $790,477 pertains
to the write-down of inventory. During the second quarter of 1996, the
Company recorded an accrual of $1.7 million, representing its share of
reclamation and other costs accrued due to the cessation of mining
operations. The owners have disagreed regarding certain operational and
financial matters for the Golden Reward Mine, including planned future
operations and related funding requirements. The resolution of these
matters is not presently determinable.
For the years ended December 31, 1996, 1995 and 1994, Wharf Resources
Management Inc., the operator of Golden Reward Mine and 60% owner of
Golden Reward L.P., was reimbursed $425,000, $530,000, and $420,000,
respectively, by Golden Reward Mine for technical and administrative
services.
<PAGE>
<TABLE>
<CAPTION>
Quarterly Financial Data
(unaudited)
March 31 June 30 September 30 December 31 Full Year
-------- ------- ------------ ----------- ---------
1996
<S> <C> <C> <C> <C> <C>
Revenues $3,196,715 $3,604,052 $9,064,863 $8,690,776 $24,556,406
Operating loss (917,139) (3,379,194) (9,485,310) (9,414,383) (23,196,026)
Other expense (28,294) 171,981 39,514 (56,814) 126,387
Net loss (945,433) (3,207,213) (9,446,227) (9,470,766) (23,069,639)
Net loss per share $(0.04) $(0.11) $(0.27) $(0.27) $(0.73)
1995
Revenues $1,967,445 $1,480,343 $3,188,095 $10,572,725 $17,208,608
Operating loss (1,170,173) (1,723,899) (1,100,957) (4,722,806) (8,717,835)
Other expense (54,035) (1,997) (46,065) (169,786) (271,883)
Net loss (1,224,208) (1,725,896) (1,147,022) (4,892,5920 (8,989,718)
Net loss per share $(0.06) $(0.07) $(0.04) $(0.18) $(0.35)
</TABLE>
<PAGE>
USMX, INC. FINANCIAL STATEMENTS
Independent Auditors' Report
The Board of Directors and Stockholders
USMX, Inc. and subsidiaries:
We have audited the accompanying consolidated statements of financial position
of USMX, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended December 31, 1996. 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 USMX, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred cost overruns associated with the
construction of the Illinois Creek Mine, has cash flow deficits from operations
and currently has no mines in operation. At December 31, 1996, the Company has
an accumulated deficit of $3,056,000, a working capital deficiency of
approximately $27,132,000 and is not in compliance with certain covenants of its
long term debt agreements. In addition, significant additional funds will be
required to bring the Company's Illinois Creek Mine into production. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
March 12, 1996
<PAGE>
USMX, INC. and Subsidiaries
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>
December 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 238 $ 5,226
Restricted cash 108 -
Deferred mining and processing costs 200 -
Consumable inventories 488 -
Federal income taxes receivable 424 381
Other 803 227
- --------------------------------------------------------------------------------------------------------------
Total current assets 2,261 5,834
- --------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Undeveloped mineral properties 1,826 2,913
Mineral properties under development 12,043 6,345
Construction in progress 27,905 -
Developed mineral properties 920 920
Mine buildings and equipment 3,042 2,451
Vehicles, furniture and equipment 703 662
- --------------------------------------------------------------------------------------------------------------
46,439 13,291
Less accumulated depreciation,
depletion and amortization (3,532) (3,475)
- --------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 42,907 9,816
- --------------------------------------------------------------------------------------------------------------
Commodity futures contracts, at market 1,144 -
Reclamation surety and other assets 3,843 1,819
- --------------------------------------------------------------------------------------------------------------
Total assets $ 50,155 $17,469
- --------------------------------------------------------------------------------------------------------------
(Continued)
</TABLE>
<PAGE>
USMX, INC. and Subsidiaries
Consolidated Statements of Financial Position
(Concluded)
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long term debt $ 21,355 $ -
Current portion of note payable to related party 355 -
Accounts payable 6,708 312
Accrued salaries 84 73
Accrued reclamation 843 304
Other accrued liabilities 48 51
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 29,393 740
- -------------------------------------------------------------------------------------------------------------
Note payable to related party, less current portion 3,923 -
Deferred commodity option premiums, at market 298 -
Estimated reclamation liability - 885
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000
shares authorized, none issued - -
Common stock, $.001 par value, 45,000,000
shares authorized, 16,184,000 shares issued
and outstanding as of December 31, 1996,
14,644,000 shares issued and outstanding
as of December 31, 1995 16 15
Additional paid-in capital 19,581 15,583
Retained earnings (Accumulated deficit) (3,056) 246
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 16,541 15,844
Commitments and contingencies (Note 15)
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 50,155 $ 17,469
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are a part of these consolidated financial statements.
<PAGE>
USMX, INC. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C>
Sales of gold $ - $ 2,678 $ 13,615
Costs applicable to sales:
Cost of gold sold - 2,890 11,203
Mining taxes - 14 106
Production royalties - 379 665
- -------------------------------------------------------------------------- ------------------------------------------
- 3,283 11,974
- -------------------------------------------------------------------------- ------------------------------------------
Gross profit (loss) - (605) 1,641
General and administrative expenses 3,621 2,548 2,185
Prospecting costs 643 684 739
Asset abandonments, write downs and impairments 1,416 4,431 261
- -------------------------------------------------------------------------- ------------------------------------------
Loss from operations (5,680) (8,268) (1,544)
Other income (expense):
Unrealized gains on commodity futures and option contracts 884 - -
Gain on common stock held for investment 936 - -
Royalty income (received from related party) 720 720 720
Interest income 275 525 518
Interest expense (including $184,000 to related parties in 1996) (511) (14) (22)
Other, net 19 13 35
- -------------------------------------------------------------------------- ------------------------------------------
2,323 1,244 1,251
- -------------------------------------------------------------------------- ------------------------------------------
Loss before income taxes (3,357) (7,024) (293)
Income tax benefit (55) (118) (497)
- -------------------------------------------------------------------------- ------------------------------------------
Net income (loss) $(3,302) $ (6,906) $204
- -------------------------------------------------------------------------- ------------------------------------------
Net income (loss) per common share $ (0.22) $ (0.47) $ 0.01
- -------------------------------------------------------------------------- ------------------------------------------
Weighted average common and common equivalent shares outstanding 15,285 14,755 14,860
- -------------------------------------------------------------------------- ------------------------------------------
</TABLE>
The accompanying notes are a part of these consolidated financial statements.
<PAGE>
USMX, INC. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
--------------------------------
Number of Paid-in Treasury (Accumulated
Shares Amount Capital Stock Deficit)
- ---------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 15,589 $ 16 $ 18,559 $ - $ 6,948
Shares issued as compensation 2 - 7 - -
Exercise of stock options 198 - 314 - -
Previously issued shares submitted in
partial payment for options - - 14 (14) -
exercised
Repurchase of common stock - - - (3,215) -
Treasury stock retired (1,003) (1) (3,213) 3,213 -
Income tax benefit arising from
the disqualifying disposition of
incentive stock options - - 179 - -
Net income - - - - 204
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 14,786 15 15,860 (16) 7,152
Shares issued as compensation 3 - 11 - -
Exercise of stock options 3 - 6 - -
Repurchase of common stock - - - (278) -
Treasury stock retired (148) - (294) 294 -
Net loss - - - - (6,906)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 14,644 15 15,583 - 246
Shares issued for acquisition of 1,540 1 3,998 - -
assets
Net loss - - - - (3,302)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 16,184 $ 16 $ 19,581 $ - $ (3,056)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are a part of these consolidated financial statements.
<PAGE>
USMX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash from sales of precious metals $ - $ 2,678 $ 13,615
Cash paid to suppliers and employees (4,285) (4,831) (12,279)
Mining taxes paid - (14) (106)
Royalties paid in cash - (379) (665)
Royalties received 720 720 720
Interest received 275 525 518
Interest expense (511) (14) (22)
Other income, net 19 13 35
Income taxes paid, net of refunds received 12 11 1,311
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (3,770) (1,291) 3,127
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (25,679) (5,674) (4,221)
Proceeds from sales of property and equipment 24 449 380
Increase in restricted cash accounts, net (108) - -
Increase in reclamation surety and other assets (2,369) - (171)
Proceeds from sale of common stock held for investment 1,281 - -
Other, net - - 80
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (26,851) (5,225) (3,932)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 6 314
Repurchase of common stock - (278) (3,215)
Proceeds of notes payable 25,855 - -
Repayment of notes payable (222) - -
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 25,633 (272) (2,901)
- ------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (4,988) (6,788) (3,706)
Cash and cash equivalents at beginning of year 5,226 12,014 15,720
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 238 $ 5,226 $ 12,014
- ------------------------------------------------------------------------------------------------------------------------
(Continued)
</TABLE>
The accompanying notes are a part of these consolidated financial statements.
<PAGE>
USMX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Concluded)
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Reconciliation of Net Income to Net Cash (Amounts in thousands)
Provided by Operating Activities
<S> <C> <C> <C>
Net income (loss) $ (3,302) $ (6,906) $ 204
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation, depletion and amortization charged to costs and expenses 109 134 1,484
Asset abandonments, write downs and impairments 1,416 2,928 261
Gain on sale of common stock held for investment (936) - -
Unrealized gain on commodity futures and option contracts (884) - -
Other, net - (15) 14
Changes in operating assets and liabilities:
(Increase) decrease in deferred mining and processing costs (200) 2,344 1,647
(Increase) decrease in consumable inventories (488) 34 27
Depreciation, depletion and amortization
included in ending inventories - - 619
(Increase) decrease in federal income taxes receivable (43) (107) 744
(Increase) in other current assets (576) - -
Increase (decrease) in accounts payable 1,434 116 (1,044)
Increase (decrease) in accrued salaries 11 41 (153)
Increase (decrease) in other accrued liabilities 295 (45) (35)
Increase (decrease) in accrued and estimated reclamation liabilities (346) 335 (874)
Other changes in assets and liabilities, net (260) (150) 233
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $ (3,770) $(1,291) $3,127
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Noncash
Investing and Financing Activities
The Company issued 1,540,663 shares of the Company's common stock to North
Pacific Mining Corporation to acquire leasehold and other property interests in
the Illinois Creek Project in Alaska.
Assets acquired $ 4,000 $ - $ -
Market value of common stock issued 4,000 - -
- ------------------------------------------------------------------------------------------------------------------------
Cash paid $ - $ - $ -
- ------------------------------------------------------------------------------------------------------------------------
The Company received $400,000 and $380,000 cash, plus 184,438 and 168,273
shares of Alta Gold Co. common stock, in 1995 and 1994 respectively, as
payment for the purchase of the Company's interest in the Kinsley Mountain
Property.
Payment received $ - $ 560 $ 540
Discounted market value of common stock received - 160 160
- ------------------------------------------------------------------------------------------------------------------------
Cash received (included in proceeds from sale of property and equipment) $ - $ 400 $ 380
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are a part of these consolidated financial statements.
<PAGE>
USMX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. - The Company
USMX, INC. (the "Company") is a Delaware corporation which engages in the
exploration for, and development and operation of precious metal properties. The
Company also evaluates base metal and non-metallic situations. The Company
conducts its operations directly and through various operating subsidiaries. All
references herein to the Company include all subsidiaries of USMX, INC.
Note 2. - Summary of Significant Accounting Policies
Basis of presentation
The financial statements have been prepared assuming the company will
continue as a going concern. Certain factors, discussed below, raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company has incurred cost overruns associated with the construction of
the Illinois Creek Mine, has cash flow deficits from operations and currently
has no mines in operation. At December 31, 1996, the Company has an accumulated
deficit of $3,056,000, a working capital deficiency of approximately $26,359,000
and is not in compliance with certain covenants of its long term debt agreements
(see note 8.). In addition, significant additional funds will be required to
bring the Company's Illinois Creek Mine into production.
The Company has entered into a definitive merger agreement with Dakota
Mining Corporation ("Dakota") (see note 16). The merger is subject to the
approval of the Toronto Stock Exchange, stockholder and creditor approval,
review by other regulatory authorities, and other customary conditions. In
connection with the merger, Dakota has agreed to loan the Company US $5.0
million to be used to pay for work completed and ongoing work at the Illinois
Creek Mine prior to the merger. Concurrent with the merger agreement, Dakota
entered into an intercreditor agreement with the Company's principal lender, N M
Rothschild & Sons Limited ("Rothschild"), whereby Rothschild agreed not to
accelerate the due date of any loans to USMX or to exercise any rights it may
have to collateral security until the earlier of the consummation of the merger,
the termination of the merger agreement in accordance with its terms, or June
30,1997.
Should the Company be unable to complete the merger with Dakota, the
ability of the Company to continue as a going concern is dependent on the
continued forbearance of Rothschild, obtaining sufficient additional financing
to complete the Illinois Creek Mine, and the commencement of profitable
operations at the mine. Future profitability of the mine is dependent on the
Company's ability to produce gold from the mine in quantities and at costs
consistent with those projected by the Company.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
Management makes various estimates and assumptions in determining the
reported amounts of assets, liabilities revenues and expenses, and in the
disclosure of commitments and contingencies. These estimates and assumptions
will change with the passage of time and the occurrence of future events, and
actual results will differ from the estimates.
<PAGE>
Note 2. - Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company considers cash in banks and all highly liquid investments,
purchased with a maturity of three months or less, to be cash equivalents.
Production Costs
Production costs incurred are charged to Deferred mining and processing
costs as incurred. Cost of gold sold is based on the currently estimated life of
mine average cost. The amount carried in the Company's balance sheet for
Deferred mining and processing costs is the lower of the difference between
production costs incurred to date and the amount charged to Cost of gold sold to
date or net realizable value.
Mineral Properties
The Company's policy is to charge to operations, costs associated with
identifying prospective mineral properties and to capitalize the costs of
acquiring, exploring and developing unproven mineral properties. For properties
subsequently placed into production, the applicable capitalized costs are
amortized using the units-of-production method, based on the ratio of tons of
ore mined or processed during the year to the estimated total proven and
probable ore reserves of the project.
Capitalized costs related to sold or abandoned properties are charged
against operations at the time the property is sold or abandoned. Proceeds from
rentals and option fees relating to undeveloped mineral properties in which the
Company has an economic interest are credited against capitalized property costs
and no gain is recognized until all costs have been fully recovered.
Construction in Progress
Pre-production, development and asset construction costs related to new
mines and major programs at existing mines are capitalized to Construction in
progress during the construction phase. Upon completion of construction, the
costs are transferred to the appropriate asset accounts.
Interest Capitalized
Interest costs incurred during the construction of qualifying assets are
capitalized as part of the asset cost.
Depreciation and Amortization
Mine buildings and equipment are depreciated using the units-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. Vehicles, furniture and office equipment are depreciated using the
straight-line and the declining balance methods over estimated useful lives of
two to five years. The cost of normal repairs and maintenance is charged to
operations as incurred. Significant expenditures which increase the life of an
asset are capitalized and depreciated over the estimated remaining useful life
of the asset. Upon retirement or disposition of property and equipment, related
gains or losses are recorded in operations.
Impairment of Assets
In 1996 the Company adopted Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, ("SFAS 121").
Under SFAS 121, the Company periodically reviews the carrying value of its
assets by comparing the net book value of each asset to the estimated
undiscounted future cash flows from the asset. If the net book value exceeds the
undiscounted future cash flow, an impairment is recorded. Changes in estimates
and assumptions that underlie management's estimate of future cash flow from the
Company's assets can materially impact future carrying values and operating
results. The adoption of SFAS 121 had no effect on the Company's financial
statements.
<PAGE>
Note 2. - Summary of Significant Accounting Policies (continued)
Reclamation Costs
The Company records a liability for the estimated cost to reclaim mined
land by recording charges to production costs for each ton of ore mined. The
amount charged is based on management's estimate of reclamation costs to be
incurred. The estimate is based on the work which is to be performed as set
forth in the reclamation plan approved by the agencies responsible for granting
the related mining permits. The accrued reclamation liability is reduced as
reclamation expenditures are made. Certain reclamation work is performed
concurrently with mining. However, the majority of reclamation expenditures is
made after mining operations cease.
Revenue Recognition
The Company recognizes revenue as precious metals are delivered to the
purchaser.
Commodity Futures Contracts
In order to protect against the impact of falling gold prices, the Company
enters into hedging transactions, the goal of which is to provide a minimum
price for future production, and allow the Company to take advantage of short
term increases in the gold price. Hedging transactions include spot deferred and
forward sales contracts and option contracts. Contracted prices on spot deferred
and forward sales and options are recognized in gold sales as gold produced is
delivered to meet the commitment. The results of hedging activities are included
in revenue when gold is delivered against the contract or, if delivery under the
contract is deferred, the contract is marked to market and the Company
recognizes an unrealized gain or loss in operations. Spot deferred and forward
contracts that are not identified as hedges of specific anticipated future
production are recorded at market, with unrealized gains or losses recorded in
operations.
The Company also has written silver call option contracts. Premiums
received are deferred and recognized in income as the options expire or are
exercised. The open contracts are marked to market and the deferred premiums
adjusted accordingly, with changes in the market value of the contracts
reflected in unrealized gains or losses on commodity future and option contracts
in the consolidated statement of operations.
By-product Revenues
Revenues from sales of by-products (principally silver) are treated as a
reduction of the cost of sales.
Stock Options
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Accordingly no compensation costs
are recognized for stock options granted at fair market value.
Income Taxes
The Company follows Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, ("SFAS
109"). Under the asset and liability method of SFAS 109, deferred income taxes
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. 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 taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
<PAGE>
Note 2. - Summary of Significant Accounting Policies (concluded)
Net Income (Loss) per Common Share
Net income (loss) per common share is based on the weighted average number
of shares of common stock and common stock equivalents outstanding during the
year, unless they are anti-dilutive.
Reclassifications
Certain amounts in the accompanying consolidated financial statements for
the years ended December 31, 1994 and 1995, have been reclassified to conform to
the classifications used in 1996.
Note 3. - Deferred Mining and Processing Costs
Deferred mining and processing costs in the accompanying consolidated
statements of financial position represent mining, pad loading and processing
costs associated with gold in various stages of production. Approximately
$200,000 of costs were capitalized as of December 31, 1996 associated with ore
stockpiled and ore placed on the leech pad at the Illinois Greek Mine.
During 1995 the Company recorded an impairment of deferred mining and
processing costs of $1,620,000 relating to the Goldstrike Mine (see note 7.).
Note 4. - Undeveloped Mineral Properties
Capitalized costs at December 31, 1996 and 1995 associated with undeveloped
mineral properties were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
<S> <C> <C>
United States $ 166,000 $ 584,000
Mexico 1,660,000 2,081,000
Chile - 18,000
Ecuador - 230,000
==================== ---------------------
Total $ 1,826,000 $ 2,913,000
==================== ---------------------
</TABLE>
Note 5. - Mineral Properties Under Development
At December 31, 1996 and 1995, the Company had two mineral properties in various
stages of feasibility and development as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
<S> <C> <C>
Illinois Creek, Alaska $ 8,368,000 $ 4,038,000
Thunder Mountain, Idaho 3,675,000 2,307,000
==================== ---------------------
Total $ 12,043,000 $ 6,345,000
==================== ---------------------
</TABLE>
<PAGE>
Note 5. - Mineral Properties Under Development (Continued)
Illinois Creek, Alaska
The Illinois Creek Project is a moderate grade, near surface
gold-silver deposit. It consists of two State of Alaska Mining Leases, covering
62,480 acres. The project is located in the western interior of Alaska
approximately 57 miles southwest of Galena and 320 miles northwest of Anchorage.
The exploration and feasibility phases were completed in 1995. Site development
and construction commenced in May 1996, with anticipated completion scheduled
for June 1997.
Pursuant to an agreement (the "Agreement") with North Pacific Mining
Corporation ("NPMC"), the owner of the underlying leases, the Company made
initial payments to NPMC of $100,000 in 1994 to evaluate the Illinois Creek
property. The Company was required to make an additional payment to NPMC of $4
million in cash or common stock of the Company in exchange for title to the
underlying leases. The Company chose to make the payment in stock and effective
July 11, 1996, 1,540,663 shares of the Company's common stock were issued to
NPMC. The number of shares of common stock issued to NPMC was equal to $4
million divided by the 30-day average of the price of the Company's stock on the
Nasdaq Stock Market. In addition to these payments, NPMC will receive a 5% net
returns royalty.
Pursuant to the Agreement, the Company has until December 16, 1997, to
achieve Commercial Production (as defined) from the property. This period may be
extended at the option of the Company for two additional one year periods upon
payment by the Company of additional advance royalties of approximately $300,000
for each one year extension. The Agreement terminates on December 16, 1999, if
the Company has not achieved Commercial Production from the property by that
date.
The obligations of the Company to NPMC are secured by a subordinated
security interest in all of the Illinois Creek Project assets. The security
interest terminates at Commercial Production.
Thunder Mountain, Idaho
The Company proposes to conduct gold and silver mining activities at
the Dewey Mine in the Thunder Mountain Mining District in eastern Valley County,
Idaho, approximately 100 miles northeast of Boise, Idaho. The proposed Dewey
mining operations are part of the Thunder Mountain Project and consist of the
development of a gold and silver ore deposit located on patented mining claims
administered by the Idaho Department of Lands.
Effective July 9, 1993, the Company entered into an Exploration and
Option to Purchase Agreement ("Agreement") with Dewey Mining Company, Thunder
Mountain Gold, Inc. and two individuals (the foregoing companies and individuals
described below are collectively referred to as the "Owners"). The Owners
control approximately 5,500 acres in the Thunder Mountain Mining District
consisting of both patented and unpatented mining claims. Pursuant to the terms
of the Agreement, the Company was granted the sole and exclusive right to
explore for and develop minerals on the property in exchange for advance royalty
payments totaling $100,000. In addition, the Company committed to spend, and did
spend, a minimum of $500,000 evaluating the property prior to April 1, 1995.
The Agreement requires that, before the Company can put the property
into commercial production, it must prepare and deliver to the Owners a
feasibility study regarding the project. In 1995 and 1996, the Company extended
the term of the agreement through April 30, 1997, by making additional advance
royalty payments in the aggregate amount of $350,000. The Agreement further
provides the Company with the option for a final extension until April 30, 1998,
in exchange for an additional advance royalty payment of $250,000. The advance
royalty payments made may be recovered by the Company for seven years after
payment should the Owners elect to receive royalties under options (a) or (c)
described below. The Agreement terminates if the Company fails to deliver a
feasibility study to the Owners by the end of the last year's extension under
the Agreement or if the Company exercises its right to terminate the Agreement
at any time.
<PAGE>
Note 5. - Mineral Properties Under Development (Concluded)
Within 90 days after the Company provides the Owners with a feasibility
study, the Owners may elect to (a) participate in subsequent efforts to the
extent of a 30% working interest, plus receive a 1.5% royalty, or (b) receive a
30% net profits interest, or (c) receive a 5% net returns royalty from
production. If the Owners elect to receive a 5% net returns royalty, the Company
will be obligated to make advance royalty payments of $200,000 within thirty
days after commencement of Commercial Production (as defined in the Agreement),
and $250,000 each year thereafter.
The Agreement provides that, once the Owners have made their election,
the Company shall have one year within which to achieve Commercial Production.
If the Company fails to achieve Commercial Production within one year, the
Company must either re-convey the property to the Owners or extend by one year
the time period within which Commercial Production must commence by paying an
advance royalty of $200,000 to the Owners. If Commercial Production has not
commenced by the end of the extension period, the Company may obtain one final
extension of one year within which to achieve Commercial Production by paying
the Owners an additional advance royalty of $250,000. In addition to the advance
royalty payments and the work commitments outlined above, the Company is
obligated to pay all fees necessary to maintain the unpatented mining claims
through August 31 of the calendar year in which the extension year expires.
Note 6. - Developed Mineral Properties
The Company's investment in developed mining properties at December 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
<S> <C> <C>
Goldstrike Mine $ 364,000 $ 364,000
Montana Tunnels 556,000 556,000
-------------------- ---------------------
Total Cost 920,000 920,000
Less: Accumulated depletion and
amortization 914,000 892,000
==================== ---------------------
$ 6,000 $ 28,000
==================== ---------------------
</TABLE>
Goldstrike Mine
Effective November 1, 1992, the Company acquired from Tenneco
Corporation, the stock of Tenneco Minerals Company-Utah, owner and operator of
the Goldstrike Mine located approximately 35 miles northwest of St. George,
Utah. Soon after the acquisition, the name of this wholly owned subsidiary was
changed to USMX of Utah, Inc. Gold production from the Goldstrike Mine since
November 1, 1992, has been 77,182 ounces, including 6,266 ounces of gold
produced in 1995.
Mining operations at the Goldstrike Mine were completed in October
1994. Leaching was completed in December 1995. All disturbed areas at the
Goldstrike Mine were reclaimed during 1995 except for the heaps and the plant
site. Reclamation of these areas will continue into 1997.
Montana Tunnels
The Company owns a net profits royalty interest in this property and,
accordingly, the carrying value has been classified as a producing mineral
property in the Company's consolidated statements of financial position (see
note 12.). In June 1996, the Company and Pegasus Gold Inc. ("Pegasus"), an
affiliate, agreed to the sale of the Company's net profits royalty interest in
the Montana Tunnels property to Pegasus for $4,500,000. The sale is pending
definitive documentation and approval of the Company's stockholders (see note
8.).
<PAGE>
Note 7. - Asset abandonments and Write-downs
Mineral Property Abandonments
Mineral properties that management determined no longer hold sufficient
promise to justify the cost required to maintain them and which had historical
costs of $674,000, $772,000 and $261,000 were written off in 1996, 1995 and 1994
respectively. The write-offs during 1996 include several exploration targets
near the Goldstrike Mine in Utah with historical costs totaling $345,000 and
various other properties throughout the western United States with total
historical costs of $179,000. Six small properties in Mexico with historical
costs of $89,000 and one property in Chile with historical costs of $61,000 were
also written off in 1996.
Mineral Property Write-downs
During 1996 the Company wrote down the carrying value of the Nambija
property in Ecuador and the Amargosa and La Reserva properties in Mexico by
$335,000, $326,000 and $81,000 respectively. The carrying value of each of the
properties was reduced to zero. To date, no significant economic mineralization
has been encountered on the properties. The La Reserva property is currently
being explored in joint venture with another mining company. The Nambija and
Amargosa properties are being held for possible future joint venture
exploration. During 1995 the Company wrote down the Armagosa property by
$1,000,000.
In June 1995, the Commonwealth of Pueto Rico adopted legislation which
amended the island's mining law to prohibit future mining of metallic deposits
by open pit methods. Although the Company considered various strategies, the
effect of the mining law, as currently amended, is to render the Company's plan
for development of the Cala Abajo deposit uneconomic. As a result the Company
reduce the carrying value of the property to zero and recorded an impairment
loss of $1,039,000 during 1995.
Gold production at the Company's Goldstike Mine in Utah declined sharply in
August and September, 1995. This decline in gold recovery triggered a
reevaluation of the estimated remaining recoverable gold ounces in the heaps. It
was determined that it was no longer economically feasible to add cyanide to the
system and the rinsing of the heaps commenced in October 1995. As a result, the
carrying value of Deferred mining and processing costs was reduced to the fair
market value of the remaining gold bullion and dor, at the refinery and the
Company recorded an impairment loss of $1,620,000.
Note 8. - Long Term Debt and Note Payable to Related Party
Long Term Debt
On July 11, 1996 the Company closed a $22 million financing facility
with Rothschild. The facility consists of a $19.5 million project loan and a
$2.5 million convertible loan. Proceeds of the loans have been used to partially
fund the development of the Company's Illinois Creek Mine in Alaska. At December
31, 1996, the Company has drawn approximately $21,355,000 against the facility.
The $19.5 million project loan bears interest, payable quarterly, at
2.25% above LIBOR until certain tests related to project operations have been
completed to the satisfaction of the lender and 1.875% above LIBOR thereafter.
Principal payments are due in seven installments on September 30 and December 31
of each year, commencing September 30, 1997. The loan is payable by the
Company's operating subsidiary that owns the Illinois Creek property and is
secured by a first priority interest in the Illinois Creek Mine assets. The
Company has agreed to guarantee the $19.5 million project loan until it has been
demonstrated that the Illinois Creek Project is operating in a manner
satisfactory to Rothschild and that no defaults are outstanding. In addition,
the Company is a continuing guarantor of the covenant to comply with
environmental laws.
The Company's obligations under its guarantee and the $2.5 million
convertible loan are secured by subordinated security interests in the Illinois
Creek Mine assets and the outstanding shares of the operating subsidiary formed
to own and develop the mine.
Amounts drawn pursuant to the financing facility are deposited in the
Illinois Creek project proceeds account and may be used only for the benefit of
the project. Such amounts are reflected in the accompanying condensed
consolidated statements of financial position as Restricted cash. At December
31, 1996, approximately $108,000 remained in the account.
The $2.5 million convertible loan bears interest at 2% above LIBOR,
payable semi-annually. The note may be converted into Common Stock at a
conversion price of $1.74 per share at the option of the lender at any time
during the term of the note. The Company may also require conversion of the note
if the note is not in default and the daily closing price of the Common Stock
exceeds $4.75 for 30 consecutive trading days. The convertible loan is due
September 30, 2000.
<PAGE>
Note 8. - Long Term Debt and Note Payable to Related Party (Concluded)
Assuming the $2.5 million convertible loan is not converted, aggregate
maturites of the notes payable under the Rothschild's financing facility are as
follows:
Year ended
December 31,
---------------- --------------------
1997 $ 6,000,000
1998 6,000,000
1999 6,000,000
2000 3,355,000
====================
$ 21,355,000
====================
The loan agreements include financial, operating and other covenants,
including covenants regarding the maintenance of certain operating and financial
ratios, limitations on or prohibitions of dividends, indebtedness, liens,
investments, mergers, changes in capital structure and certain other items. At
December 31, 1996 the Company was not in compliance with certain of the loan
covenants.
Under the terms of the $22.0 million Rothschild financing facility, the
Company agreed to deposit $1.5 million in an escrow account by September 30,
1996. The Company was unable to comply with this requirement and Rothschild
agreed to waive this and certain financial ratio covenant requirements until
December 31, 1996, conditional upon the Company's agreements to, among other
things, (A) file a prospectus with the appropriate Canadian securities
regulatory authorities by November 1, 1996, and complete an offering by December
31, 1996, (B) adjust the price at which Rothschild may elect to convert the $2.5
million loan into the Company common shares to the price at which the shares
offered are sold, or if no sale, at the average trading price for the last ten
trading days of 1996 and (C) to pay Rothschild a fee of $100,000 which fee is
payable upon the first to occur of (i) a date upon which such payment can be
made without materially reducing the working capital reasonably required by the
Company for continued operations or (ii) April 15, 1997. At December 31, 1996,
the Company had not completed the offering and was unable to comply with the
requirement to deposit $1.5 million in an escrow account.
As a result of the covenant violations, Rothschild has the ability to
declare an event of default and require that the balance be paid currently.
Accordingly, the loans have been classified as a current liability. As discussed
in notes 2 and 16, subsequent to December 31, 1996, Rothschild has entered into
an intercreditor agreement, whereby Rothschild agreed not to accelerate the due
date of any loans to USMX or to exercise any rights it may have to collateral
security until the earlier of the consummation of the merger with Dakota, the
termination of the merger agreement in accordance with its terms, or June 30,
1997.
Note Payable to Related Party
During the second quarter of 1996 the Company arranged for a $4.5
million, 8.75% fixed rate loan from Pegasus, a shareholder of the Company. The
loan is repayable over a 50 month period beginning June 1, 1996. The loan is
collateralized by the Company's net profits royalty interest in the Montana
Tunnels property. In lieu of loan payments by the Company, Pegasus has agreed to
offset the $60,000 per month Montana Tunnels minimum advance royalty payments
that are otherwise payable to the Company (see note 12.)
against the payments due under the loan.
During the second quarter of 1996 the Company also agreed with Pegasus
to sell its net profits royalty interest in the Montana Tunnels property to
Pegasus for $4,500,000. Pegasus is the owner and operator of the Montana Tunnels
Mine. The net profits royalty interest entitles the Company to the greater of a
5% net profits royalty interest or minimum advance royalties of $60,000 per
month until certain construction, land acquisition, associated financing and
other costs have been recovered by Pegasus ("Payback"), and a 50% net profits
royalty interest thereafter. Payback is dependent upon several factors,
including future metal prices, production rates, and the life of the Montana
Tunnels Mine. It is unclear whether Payback will ever be achieved. Since
inception of the contract, the Company has only received the monthly minimum
advance royalties.
Loan proceeds received by the Company from Pegasus will be credited
against the sales price at closing and the loan will be extinguished. Closing of
the transaction is subject to completion of definitive documentation and
approval of the Company's stockholders.
<PAGE>
Note 9. - Gain on Sale of Common Stock
In April 1994, the Company sold its interest in the Kinsley Mountain
Project in Elko County Nevada to Alta Gold Co. ("Alta"). In April 1995, the
Company received a final cash payment of $400,000 and Alta restricted common
stock with a market value of $200,000 based on the average closing price of the
stock over the 30 trading days prior to issuance. The payment was in addition to
cash of $400,000 and Alta restricted common stock with a market value of
$200,000 previously received. The cash proceeds and discounted value of the
stock received were recorded as a reduction of the carrying value of the
property. During 1995, the carrying value of the property was reduced to zero
and a $1,000 loss was recorded. During 1996 all of the Alta common stock was
sold for $1,281,000, resulting in a gain of $936,000.
Note 10. - Stock Options
The Company has two stock option plans, the ("1987 Plan") and the
Non-discretionary Plan for Non-Employee Directors ("Directors' Plan"), which
cover a total of 1,700,000 shares of common stock available for grant to
employees and directors of the Company.
Under the 1987 Plan, the Company may grant incentive stock options as
well as non-incentive stock options. Incentive stock options granted under the
1987 Plan are exercisable at prices equal to the market value of the common
stock at the date of grant. The option prices of non-incentive stock options
granted under the 1987 Plan may be less than the market value of the common
shares as of the grant date. Options expire at such time as the Option Committee
of the Board of Directors determines, but no later than ten years from the grant
date.
The Directors' Plan was established in 1992 to afford non-employee
directors an opportunity for investment in the Company and the incentive
advantages inherent in stock ownership of the Company. Options granted under the
Directors' Plan are exercisable at prices equal to the market value of the
common stock at the date of grant and are exercisable in full on the date of
grant.
Shares acquired pursuant to the Directors' Plan may not be sold,
transferred or otherwise disposed of for a period of at least six months
following the date of grant. Under the terms of the Directors' Plan, the
directors who elected to participate were each issued options to purchase 10,000
shares of the Company's common stock upon adoption of the plan. Thereafter, each
non-employee director who elects to participate is automatically granted an
option to purchase 10,000 shares of the Company's common stock upon joining the
Board. In addition, on October 1 of each year each participant is automatically
granted an option to purchase an additional 5,000 shares. Options granted under
the Directors' Plan expire ten years from the date of grant except that an
option will expire, if not exercised, ninety days after the optionee ceases to
be a director of the Company.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its option plans. Accordingly, no compensation cost has been
recognized for options granted at fair market value under the plans. Had
compensation cost for the Company's stock option plans been determined
consistent with SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
1996 1995
---- ----
Net (loss)
As reported $ (3,302,000) $ (6,906,000)
Pro forma $ (3,493,000) $ (6,954,000)
Net (loss) per common share
As reported $ (0.22) $ (0.47)
Pro forma $ (0.23) $ (0.47)
<PAGE>
Note 11. - Stock Options (Concluded)
Changes in stock options for the years ended December 31, 1994, 1995
and 1996, are as follows:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
--------------- --------------
<S> <C> <C>
Outstanding at December 31, 1993 757,550 $1.13-5.50
Exercised (198,300) 1.13-3.06
Expired or canceled (39,000) 3.06-5.50
Granted 275,000 2.69-4.13
---------------
Outstanding at December 31, 1994 795,250 1.16-5.50
Exercised (3,000) 2.06
Expired or canceled (791,750) 1.16-5.50
Granted 1,137,250 1.16-5.50
---------------
Outstanding at December 31, 1995 1,137,750 1.16-5.50
Exercised - -
Expired or canceled 581,000 1.88-5.50
Granted 811,000 2.44-2.94
---------------
Outstanding at December 31, 1996 1,367,750 $1.13-5.50
===============
</TABLE>
During 1995, the terms of options to acquire 724,750 shares were
extended to ten years from the original date of grant. For accounting purposes
the extension was treated as the cancellation of the existing options and the
granting of new options.
At December 31, 1996, 1995 and 1994, the number of options exerciseable
was 707,096, 826,250 and 573,250 respectively, the weighted average exercise
price of those options was $3.14, $3.18 and $3.50 respectively, and the weighted
average remaining contractual life was 8.2, 7.8 and 2.2 years respectively. The
remaining 660,664 options at December 31, 1996, are exerciseable at various
dates through August 1999.
The weighted average fair value of options granted during the years
ending December 31, 1996 and 1995 were $1.38 and $0.97 respectively, assuming a
risk free rate of 6%, an expected volatility of 50%, and a weighted average
expected life of 9 years.
<PAGE>
Note 11. - Employees' Benefit Plans and Incentive Bonus Arrangements
Effective July 1, 1987, the Company adopted an Employee Savings and
Investment Plan under section 401(k) of the Internal Revenue Code, which covers
all full-time employees. The plan is a defined contribution plan and allows
employee contributions of up to ten percent of pre-tax compensation, limited to
the maximum deferral allowed by the Internal Revenue Service.
The Company may contribute at least ten percent and not more than one
hundred percent of the amount contributed by the employees, up to a maximum of
six percent of pre-tax compensation. For 1996, 1995 and 1994, the Board of
Directors has set the Company's contribution at fifty percent of the first six
percent of employee contributions. For 1996, 1995 and 1994, the Company's
contributions were approximately $53,000, $57,000, and $59,000, respectively.
Participants vest in the Company's contributions based upon years of service,
and are fully vested after four years of service.
The Company has an Exploration Discovery Bonus Plan under which bonuses
are paid in cash or in shares of the Company's common stock to certain employees
for discoveries of ore deposits that the Company's Board of Directors determines
can be operated at a profit. The bonus is based on the net present value of the
deposit and is calculated using a sliding scale ranging from 2% for deposits
with a net present value of up to $10 million, to 0.85% of the first $100
million of net present value plus 0.25% of that portion of the net present value
of the deposit that exceeds $100 million. Under the terms of the plan, 70% of
each discovery bonus is divided equally among the Company's explorationists and
the remainder is to be shared among those individuals designated by the
Company's President as playing an especially important role in the discovery. No
bonuses were paid in 1996, 1995 or 1994 under the plan.
Note 12. - Transactions With Affiliates
As of December 31, 1996, Pegasus owned 4,826,000 shares (29.9%) of the
Company's outstanding common stock. In January 1986, the Company entered into a
revised agreement with Centennial Minerals Ltd., a subsidiary of Pegasus for the
development of the Montana Tunnels property. Pursuant to the agreement, Pegasus
developed the property, acquired a 100 percent working interest in the project,
and commenced mine and mill operations in March 1987. The operations at Montana
Tunnels achieved defined operating status on October 1, 1987. Under the
agreement, the Company will receive the greater of a minimum advance royalty of
$60,000 per month or a five percent net profits interest until Pegasus recovers
payout of capital and other defined costs.
During the second quarter of 1996 the Company agreed with Pegasus to
sell its net profits royalty interest in the Montana Tunnels Mine to Pegasus for
$4,500,000. Closing of the transaction is subject to completion of definitive
documentation and approval of the Company's stockholders. Loan proceeds in the
amount of $4,500,000 previously received by the Company from Pegasus will be
credited against the sales price at closing and the loan will be extinguished
(see Note 7.).
For each of the years ended December 31, 1996, 1995, and 1994, the Company
received $720,000 in royalty income from the Montana Tunnels property.
In March 1995, the Company acquired all of the outstanding capital
stock of Mega Minerals S.A., an Ecuadorian company. The Company assumed
obligations of approximately $120,000, and agreed to pay the seller a 10% net
proceeds royalty on any production from the concessions after recovery of all
capital expenditures. A director and principal shareholder of the seller is also
a director of the Company. The assets of Mega Minerals S.A. consist of eight
exploration concessions and the rights to acquire four additional exploration
concessions, all located in the Nambija-Zamora gold belt of southern Ecuador.
<PAGE>
Note 13. - Income Taxes
Total income tax benefit for the years ended December 31, 1996, 1995
and 1994, was $55,000, $118,000 and $497,000 respectively. The entire income tax
benefit of $55,000 for the year ended December 31, 1996, is the result of an
adjustment to federal income taxes receivable related to net operating losses
carried back to prior years. Income tax expense (benefit) consists of the
following:
<TABLE>
<CAPTION>
Current Deferred Total
------------------ -------------- -----------------
<S> <C> <C> <C>
Federal tax provision $(55,000) $- $(55,000)
State tax provision - - -
================== ============== =================
Year ended December 31, 1996 $(55,000) $- $(55,000)
================== ============== =================
Federal tax provision $(118,000) $- $(118,000)
State tax provision - - -
================== ============== =================
Year ended December 31, 1995 $(118,000) $- $(118,000)
================== ============== =================
Federal tax provision $(416,000) $- $(416,000)
State tax provision (81,000) - (81,000)
================== ============== =================
Year ended December 31, 1994 $(497,000) $- $(497,000)
================== ============== =================
</TABLE>
The Company's effective tax rate for the years ended December 31, 1996, 1995 and
1994, differs from the federal statutory tax rate for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
Change in valuation allowance (40.9%) (22.4%) -
Revision of prior year's estimated tax 3.8% 1.7% 211.9%
Cost of sales for tax purposes less than financial
statements - 3.0% (184.5%)
Exploration and development deducted for tax
purposes not for financial statements - (13.7%) 77.4%
Royalty payments deducted for tax purposes not for
financial statements - - 22.3%
Mineral property disposal, tax gain greater than
financial statement gain - (2.9%) (44.4%)
Statutory depletion over cost basis - - 16.2%
Use of alternative minimum tax rate - (0.1%) 29.4%
State provision and other 4.4% 2.1% 7.6%
============== ============= =============
Effective tax rate 1.3% 1.7% 169.9%
============== ============= =============
</TABLE>
<PAGE>
Note 13. - Income Taxes (Concluded)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below:
<TABLE>
<CAPTION>
Deferred tax assets: 1996 1995
------------------ ------------------
<S> <C> <C>
Reclamation liabilities, accrued for financial
reporting purposes $ 310,000 $ 439,000
Deferred mining and processing costs, due to additional
costs deferred for tax purposes. 91,000 90,000
Alternative minimum tax credit carryforwards 157,000 157,000
Net operating loss carryforwards 3,826,000 3,343,000
Other - 8,000
------------------ ------------------
Total gross deferred tax assets 4,384,000 4,037,000
Less valuation allowance (3,838,000) (3,612,000)
------------------ ------------------
Total deferred tax assets 546,000 425,000
------------------ ------------------
Deferred tax liabilities:
Mineral properties, principally due to the
capitalization of exploration and development costs
for financial reporting purposes (397,000) (296,000)
Unrealized gain on commodity futures contracts
recognized for tax purposes (62,000) -
Plant and equipment, principally due to accelerated tax
depreciation. (87,000) (129,000)
------------------ ------------------
Total gross deferred tax liabilities (546,000) (425,000)
================== ==================
Net deferred income taxes $ $
- -
================== ==================
</TABLE>
The change in the valuation allowance for the years ending December 31, 1996 and
1995 was $226,000 and $3,247,000, respectively.
As of December 31, 1996, the Company has net operating loss
carryforwards for federal income tax purposes of approximately $9,799,000 which
are available to offset future federal taxable income, if any, through 2011. As
the result of an audit by the Internal Revenue Service ("IRS") during 1996, an
additional $3,151,000 of net operating loss carryforwards were disallowed by the
IRS. The Company is currently protesting the IRS findings. In addition, the
Company has net operating loss carryforwards for alternative minimum tax
purposes of approximately $8,640,000 which are available to offset future
alternative minimum taxable income, if any, through 2011.
Note 14. - Foreign Operations
In 1995 the Company held significant identifiable assets in foreign
jurisdictions, predominantly in Mexico. No revenue was derived from these
foreign assets.
<TABLE>
<CAPTION>
Other Foreign 1995
(Amounts in thousands) United States Mexico Jurisdictions Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss from operations $ 5,688 $ 1,428 $ 1,152 $ 8,268
- ---------------------------------------------------------------------------------------------------------
Identifiable assets $ 15,140 $ 2,081 $ 248 $ 17,469
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Note 15. - Commitments and Contingencies
Reclamation Surety
Pursuant to the mining reclamation and bonding regulations of the State
of Utah, Department of Natural Resources and the Bureau of Land Management, in
1993 the Company provided reclamation surety for the Goldstrike Mine in the
amount of $2,251,000. In October 1995, the Company was advised that, as a result
of the reclamation work accomplished by the Company at the Goldstrike Mine, the
required surety had been reduced by approximately $514,000 to $1,737,000. The
required surety is in the form of a certificate of deposit in the amount of
$800,000 and letters of credit in the amount of $937,000. The certificate of
deposit and restricted cash account supporting the letter of credit are
reflected in Reclamation surety and other assets in the accompanying
Consolidated Statements of Financial Position.
Pursuant to the mining reclamation and bonding regulations of the State
of Alaska, Department of Natural Resources, the Company provided reclamation
surety for the Illinois Creek Mine in the amount of $1,575,000 in 1996. The
required surety is in the form of certificates of deposit totaling $1,575,000
and is reflected in Reclamation surety and other assets in the accompanying
Consolidated Statements of Financial Position.
Hedging
As part of its gold hedging program the Company has entered into
agreements with a major financial institution to deliver gold. Realization under
these agreements is dependent upon the ability of the counterparties to perform
in accordance with the terms of the agreement. As of December 31, 1996, the
Company had entered into forward sales contracts for 140,900 ounces of gold for
delivery at various dates through December 31, 1999 at an average selling price
of $409 per ounce. Delivery under these spot deferred contracts can be deferred
at the Company's option up to forty months depending on the individual contract.
The aggregate unrealized excess of the net market value of the Company's forward
sales contracts over the spot gold price of $368 per ounce as of December 31,
1996, is approximately $5,875,000. The aggregate unrealized gain on the
Company's forward sales contracts accounted for as hedges of future production
were approximately $5,033,000 at December 31, 1996.
The Company has also written silver call options, which if exercised,
would become spot deferred contracts with delivery deferred as previously
described. At December 31, 1996 the Company had sold 825,300 ounces of silver
call option contracts all at a strike price of $5.50 per ounce expiring on dates
ranging from September 28, 1997 through December 29, 1999. Call options premiums
received amounted to approximately $424,000.
Operating Leases
The Company leases office space, office equipment and vehicles under
operating leases which expire through 2001.
Effective as of June 15, 1992, the Company entered into a new lease for
its corporate offices in Lakewood, Colorado. The lease was amended effective
June 1, 1996, to provide for additional office space and to extend the initial
term of the lease to May 31, 2001. The lease contains an option to renew for an
additional five year period at the market rate in effect at the time of renewal.
The lease provides for base rent of $12,917 per month with annual increases each
year beginning June 14, 1997. In addition, the Company is obligated to reimburse
the landlord for the Company's proportionate share of increases in real estate
taxes and operating expenses.
Effective as of July 1, 1996, the Company entered into a new lease for
its Alaska district offices in Anchorage, Alaska. The term of the lease is three
years, commencing July 1, 1996, and ending June 30, 1999. The lease provides for
aggregate rent of $121,284 payable in equal monthly installments of $3,369.
<PAGE>
Note 15. - Commitments and Contingencies (Concluded)
The following table sets forth the future minimum lease payment
obligations as of December 31, 1996:
Minimum
Year Lease Payments
--------------- ---------------------
1997 $298,000
1998 $249,000
1999 $191,000
2000 $173,000
2001 $76,000
--------------- ---------------------
Rent expense was $154,000, $113,000 and $139,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Contractor Claim
One of the construction contractors on the Illinois Creek Property in
Alaska working under an approximately $3 million contract with the Company has
submitted invoices and claims totaling approximately $7 million for work
completed in 1996. At December 31, 1996, the Company had paid the contractor
$1,772,000 and has recorded an additional liability to the contractor, based on
the Company's estimate of its obligation under the contract of $2,414,000. The
unpaid invoices and claims are currently being reviewed, and it is likely that a
significant portion of the invoices and claims will be disputed by the Company.
The contractor has threatened legal proceedings if the dispute is not informally
resolved. The Company and its representatives are currently reviewing the
relevant facts and until that review is complete the Company cannot estimate the
magnitude of any potential liability, possible counterclaims by the Company or
the outcome of arbitration or litigation if the dispute cannot be resolved by
negotiation. On November 8, 1996, the construction contractor also filed a lien
on the Illinois Creek Property for certain unpaid invoices and claims submitted
through that date.
Note 16 - Subsequent Events
Definitive merger agreement
On February 5, 1997, the Company signed a definitive merger agreement with
Dakota Mining Corporation ("Dakota") whereby the shareholders of the Company
will receive one share of Dakota common stock for every 1.1 shares of the
Company's common stock and the Company will become a wholly owned subsidiary of
Dakota (the "Merger"). The Merger is subject to the approval of the Toronto
Stock Exchange, stockholder and creditor approval, review by other regulatory
authorities, and other customary conditions.
As part of the merger agreement, Dakota and the Company agreed that Dakota
would provide a $5 million line of credit to the Company to provide interim
working capital to sustain the Company's operations until the Merger is
consummated. The line of credit bears interest at the rate of one per cent above
a quoted prime rate and is due August 31, 1997 or earlier if the merger
agreement is terminated before such date. The proceeds are to be used to pay
certain ongoing operating expenses of the Company, primarily in connection with
start-up activities associated with the Illinois Creek Mine and to partially pay
trade creditors of the Company and its subsidiaries.
The line of credit is evidenced by two promissory notes with similar terms
but different amounts and different security. The $2 million promissory note
("the first note") is secured by a second priority position all of the capital
stock of USMX of Alaska Inc. USMX of Alaska, Inc. is the Company's subsidiary
which holds title to the Illinois Creek Mine. A second promissory note for $ 3
million ("the second note") is secured by a first position on all of the capital
stock of the Company's Mexican subsidiary and a first position on the Company's
interest in the Thunder Mountain property in Idaho. Rothschild was granted a
second priority security position in the second note security. Funding for the
line of credit is being provided from the proceeds of a Special Warrant offering
by Dakota described below.
In February 1997, Dakota offered by way of private placement 25,000 Special
Warrants at a price of Cdn. $1,000 per Special Warrant resulting in gross
proceeds of Cdn. $25 million. Each Special Warrant entitles the holder to
receive one 7.5% unsecured subordinated convertible debenture in the amount of
Cdn. $1,000. Of the proceeds, US $5.0 million have been released immediately and
the remaining proceeds have been deposited in escrow pending completion of the
merger and approval by the Dakota shareholders of the issuance of the common
shares underlying the debentures. Completion of this offering was a condition of
the Company's obligation to proceed with the merger.
N. M. Rothschild & Sons Limited financing facility.
Rothschild's consent was required for the extension of the $5 million line of
credit and is required for the consummation of the Merger. Further, Dakota, as
the potential owner of the Company, desired certain changes to the agreements
underlying the Rothschild financing facility (the "Rothschild Credit
Agreements") in order to avoid immediate defaults under such facility after
closing of the Merger. Accordingly, the Rothschild and Dakota negotiated an
Intercreditor Agreement which provided, among other things:
i) The consent of Rothschild to the Merger and the extension of the $5 million
line of credit from Dakota to the Company on the terms described above.
ii) Rothschild's agreement to share, pari passu with Dakota, in any proceeds
from foreclosure on the capital stock of USMX of Alaska, Inc. in the ratio
of the amount outstanding under the first note to $22 million, but with
Rothschild retaining the right to deal with such security.
iii) Dakota's agreement to fund at least $2 million of its line of credit for
costs and expenses at the Illinois Creek Mine according to a plan prepared
by the Company and approved by Rothschild and Dakota.
iv) The agreement of Dakota to guarantee the Company's obligations under the
Rothschild Credit Agreements until "commercial completion" of the Illinois
Creek Mine.
v) The agreement of Rothschild to forebear from exercising its rights to
declare and enforce defaults (except payment or bankruptcy defaults) of the
Company under the Rothschild Credit Agreements until the earliest of the
consummation of the Merger, termination of the $5 million line of credit or
June 30, 1997.
vi) For the amendment of certain terms and covenants in the Rothschild Credit
Agreements, to be effective upon closing of the Merger, which include
revisions to the definition of "commercial completion," and amendments to
certain financial covenants.
vii) Dakota's and Rothschild's rights to share in the collateral terminate if
the Merger is consummated or the $5 million line of credit is extinguished.
viii)At the closing of the Merger, a $2.5 million convertible loan to the
Company under the Rothschild Credit Agreements will be extinguished by
payment of $1.5 million by Dakota and adding the balance to the outstanding
amounts under the project financing portion of the such agreements.
Note 17.- Generally Accepted Accounting Principles in the United States and
Canada
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States which differ in certain
respects from those principles that the Company would have followed had its
financial statements been prepared in accordance with accounting principles
generally accepted in Canada. Differences which materially affect these
consolidated financial statements are:
Convertible Debt Securities
The Company has recorded convertible debt due September 2000 using the
accounting principles generally accepted in the United States, whereby the
$2,500,000 due is presented as long term debt at December 31, 1996. Had the
Company prepared its financial statements using the accounting principles
generally accepted in Canada, as of December 31, 1996 the Company would have
recorded approximately $2,023,000 of additional paid in capital relating to the
conversion rights of the convertible debt, with the remaining $477,000 presented
as long term debt.
Cash Flow Presentation
The Company has presented its financial statements using the accounting
principles generally accepted in the United States, which requires that the cash
flow statement exclude all non cash activities. Had the Company presented its
financial statements using the accounting principles generally accepted in
Canada the Company additions to property, plant and equipment would have been
increased by $4,000,000 and proceeds from issuance of common stock would have
been increased by $4,000,000, for the year ended December 31, 1996, representing
the estimated fair value of the common stock issued to NPMC to acquire leasehold
and other property interests in the Illinois Creek Project.
<PAGE>
DAKOTA MINING CORPORATION PROXY CARD
PROXY SOLICITED BY MANAGEMENT OF THE CORPORATION
The undersigned shareholder of Dakota Mining Corporation ("Company") hereby
appoints Alan R. Bell, President and Chief Executive Officer, or, failing him,
Robert R. Gilmore, Vice President, Finance, Chief Financial Officer and
Secretary, or, failing him Joseph G. Kircher, Vice President, Operations, or,
failing him, Kayron L. McCoy, Assistant Secretary or, in place of the foregoing,
, as nominee of the undersigned to attend, vote and act for and in the name of
the undersigned at the Annual and Special Meeting of the Shareholders of the
Corporation (the"Meeting") to be held at the Toronto Hilton Hotel, 145 Richmond
Street , Toronto, Ontario on Tuesday, May 27, 1997, at the hour of 4:00 o'clock
in the afternoon (local time), and at every adjournment(s) thereof, and the
undersigned hereby revokes any former proxy given to attend and vote at the
meeting.
THE NOMINEE IS HEREBY INSTRUCTED TO VOTE AS FOLLOWS WITH RESPECT TO THE
FOLLOWING MATTERS:
1. FOR [ ] WITHHOLD [ ] To approve and adopt the Merger
Agreement and the transactions contemplated
thereby, including the issue of additional
common shares by Dakota as set out in
Appendix B to the Joint Proxy
Statement/Prospectus.
2. FOR [ ] AGAINST [ ] ABSTAIN [ ] To ratify
an amendment to the Share Incentive Plan of
the Company as set out in Appendix B to the
Joint Proxy Statement/Prospectus.
3. FOR [ ] AGAINST [ ] To approve the issuance
of up to 4,884,550 common shares of Dakota
issuable upon conversion of Debentures
issuable upon exercise of Series B. Special
Warrants as set out in Appendix B to the
Joint Proxy Statement/Prospectus.
4. FOR [ ] WITHHOLD [ ] To elect Alan R. Bell as a Director.*
5. FOR [ ] WITHHOLD [ ] To elect Landon T. Clay as a Director.*
6. FOR [ ] WITHHOLD [ ] To elect Stanley Dempsey as a Director.*
7. FOR [ ] WITHHOLD [ ] To elect Edward G. Thompson as a Director.*
8 FOR [ ] WITHHOLD [ ] To elect Tor Jensen as a Director.*
9. FOR [ ] WITHHOLD [ ] To elect D. James Rudack as a Director
10. FOR [ ] WITHHOLD [ ] To elect Donald P. Bellum as a Director
11. FOR [ ] WITHHOLD [ ] To elect Christopher M.T.Thompson as a
Director
12. FOR [ ] WITHHOLD [ ] To elect Gregory Pusey as a Director
*If the resolution set out in paragraph No. 1 is not approved, only those
nominees referred to in paragraphs 4 through 8 will stand for election.
13. FOR [ ] WITHHOLD [ ] To appoint KPMG Peat Marwick Thorne as the Auditors 14.
FOW [ ] WITHHOLD [ ] ABSTAIN [ ] To authorize the Directors to fix the Auditors
remuneration.
VOTE FOR OR AGAINST OR WITHHOLD OR ABSTAIN IN RESPECT OF THE MATTERS LISTED IN
ACCORDANCE WITH THE CHOICE, IF ANY, INDICATED IN THE SPACE PROVIDED. IF NO
CHOICE IS INDICATED, THE PROXY WILL BE VOTED FOR SUCH MATTER. IF ANY AMENDMENTS
OR VARIATIONS ARE TO BE VOTED ON, OR ANY FURTHER MATTERS COME BEFORE THE
MEETING, THIS PROXY WILL BE VOTED ACCORDING TO THE BEST JUDGMENT OF THE PERSON
VOTING THE PROXY AT THE MEETING. THIS FORM SHOULD BE READ IN CONJUNCTION WITH
THE ACCOMPANYING NOTICE OF THE MEETING AND MANAGEMENT PROXY CIRCULAR.
DATED this day of , 1997
Signature of Shareholder
(Please print name of Shareholder)
NOTES:
1. YOU HAVE THE RIGHT TO APPOINT A PERSON TO REPRESENT YOU AT THE MEETING
OTHER THAN THE PERSONS DESIGNATED IN THE FORM OF PROXY. IF YOU WISH TO
EXERCISE THIS RIGHT, INSERT THE NAME OF YOUR NOMINEE IN THE BLANK SPACE
PROVIDED FOR THAT PURPOSE IN THE FORM OF PROXY AND STRIKE OUT THE THREE
PRINTED NAMES.
2. Please date and sign (exactly as the shares represented by this proxy
are registered) and return promptly. Where the instrument is signed by
a corporation, its corporate seal must be affixed or executed must be
made by an officer or attorney thereof duly authorized. If no date is
stated by the shareholder, the proxy is deemed to bear the date upon
which it was mailed by Management to the shareholder.
3. To be valid, this proxy form, duly signed and dated, must arrive at the
office of the Company's transfer agent, the Montreal Trust Company of
Canada, 151 Front Street, Toronto, Ontario M5J 2N1 not less than
forty-eight (48) hours (excluding Saturdays, Sundays and holidays)
before the day of the Meeting or any adjournment(s) thereof.
4. All shares represented at the Meeting by properly executed proxies will
be voted or withheld from voting on any ballot that may be called for,
and where a choice with respect to any matter to be acted upon has been
specified in this proxy form, the shares represented by this proxy will
be voted in accordance with such specifications.
<PAGE>
USMX, INC. PROXY CARD
USMX, INC.
ANNUAL MEETING OF STOCKHOLDERS
PROXY SOLICITED BY BOARD OF DIRECTORS OF THE CORPORATION
The undersigned shareholder of USMX, Inc. ("Company") hereby appoints Donald P.
Bellum, President and Chief Executive Officer, or, failing him, Dennis L. Lance,
Vice President or, in place of the foregoing, , as nominee of the undersigned to
attend, vote and act for and in the name of the undersigned at the Annual and
Special Meeting of the Shareholders of the Corporation (the"Meeting") to be held
at the Sheraton Denver West, 360 Union Boulevard, Lakewood, Colorado, Tuesday,
May 20, 1997, at the hour of 10:00 o'clock in the morning (local time), and at
every adjournment(s) thereof, and the undersigned hereby revokes any former
proxy given to attend and vote at the meeting.
<TABLE>
<CAPTION>
THE NOMINEE IS HEREBY INSTRUCTED TO VOTE AS FOLLOWS WITH RESPECT TO THE
FOLLOWING MATTERS:
<S> <C> <C> <C> <C>
1. FOR [ ] AGAINST [ ] ABSTAIN [ ] To approve and adopt the Merger Agreement and the transactions
contemplated thereby, as set out in Appendix B to the Joint Proxy
Statement/Prospectus.
2. FOR [ ] AGAINST [ ] ABSTAIN [ ] To approve and adopt the Montana Tunnels Royalty
Agreement and the transactions contemplated thereby, as set out
in Appendix F to the Joint Proxy Statement/Prospectus.
3. FOR [ ] WITHHOLD [ ] To elect Donald P. Bellum as a Director.*
4. FOR [ ] WITHHOLD [ ] To elect Gregory Pusey as a Director.*
5. FOR [ ] WITHHOLD [ ] To appoint KPMG Peat Marwick Thorne as the Auditors
6. FOW [ ] WITHHOLD [ ] ABSTAIN [ ] To authorize the Directors to fix the Auditors remuneration.
<FN>
*If the resolution set out in paragraph No. 1 is not approved, only those
nominees referred to in paragraphs 3 and 4 will stand for election.
</FN>
</TABLE>
VOTE FOR OR AGAINST OR WITHHOLD OR ABSTAIN IN RESPECT OF THE MATTERS LISTED IN
ACCORDANCE WITH THE CHOICE, IF ANY, INDICATED IN THE SPACE PROVIDED. IF NO
CHOICE IS INDICATED, THE PROXY WILL BE VOTED FOR SUCH MATTER. IF ANY AMENDMENTS
OR VARIATIONS ARE TO BE VOTED ON, OR ANY FURTHER MATTERS COME BEFORE THE
MEETING, THIS PROXY WILL BE VOTED ACCORDING TO THE BEST JUDGMENT OF THE PERSON
VOTING THE PROXY AT THE MEETING. THIS FORM SHOULD BE READ IN CONJUNCTION WITH
THE ACCOMPANYING NOTICE OF THE MEETING AND JOINT PROXY STATEMENT/PROSPECTUS.
DATED this day of , 1997
Signature of Shareholder
(Please print name of Shareholder)
NOTES:
1. YOU HAVE THE RIGHT TO APPOINT A PERSON TO REPRESENT YOU AT THE MEETING
OTHER THAN THE PERSONS DESIGNATED IN THE FORM OF PROXY. IF YOU WISH TO
EXERCISE THIS RIGHT, INSERT THE NAME OF YOUR NOMINEE IN THE BLANK SPACE
PROVIDED FOR THAT PURPOSE IN THE FORM OF PROXY AND STRIKE OUT THE THREE
PRINTED NAMES.
2. Please date and sign (exactly as the shares represented by this proxy
are registered) and return promptly. Where the instrument is signed by
a corporation, its corporate seal must be affixed or executed must be
made by an officer or attorney thereof duly authorized. If no date is
stated by the shareholder, the proxy is deemed to bear the date upon
which it was mailed by Management to the shareholder.
<PAGE>
II-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Canada Business Corporations Act (under which the Registrant is
continued) provides that a corporation may indemnify a director or officer of
the corporation, a former director or officer of the corporation or a person who
acts or has acted at the corporation's request as a director or officer of a
body corporate of which the corporation is or was a shareholder or creditor, and
his heirs and legal representatives, against all costs, charges or expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of such corporation or body corporate, if (a) he acted
honestly and in good faith with a view to the best interests of the corporation;
and (b) in the case of a criminal or administrative action or proceeding that is
enforced by monetary penalty, he had reasonable grounds for believing that his
conduct was lawful. Such indemnification is not available in the case of a
derivative action brought by or on behalf of the corporation unless court
approval is obtained.
The Canada Business Corporations Act further provides that the persons
referred to in the preceding paragraph are entitled to indemnification as a
right in respect to all costs, charges and expenses reasonably incurred in
connection with the defense of any civil, criminal or administrative action or
proceeding to which they are made a party by reason of being or having been a
director or officer of the corporation if any such person seeking indemnity (a)
was substantially successful on the merits in his defense of the action or
proceeding, and (b) fulfills the conditions set out in clauses (a) and (b) of
the preceding paragraph.
The Canada Business Corporation Act also permits a corporation to purchase
and maintain insurance for the benefit of any person referred to in the first
paragraph under this item against any liability incurred by him (a) in his
capacity as a director or officer of the corporation, except where the liability
relates to his failure to act honestly and in good faith with a view to the best
interests of the corporation, or (b) in his capacity as a director or officer of
another body corporate where he acts or acted in that capacity at the
corporation's request, except where the liability relates to his failure to act
honestly and in good faith with a view to the best interests of the body
corporation.
The Bylaws of the Registrant provide that, subject to the Canada Business
Corporations Act, the Registrant shall indemnify a director or officer, a former
director or officer, or a person who acts or acted at the Registrant's request
as a director or officer of a body corporate of which the Registrant is or was a
shareholder or creditor, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal
or administrative action or proceeding to which he is made a party by reason of
being or having been a director or officer of the Registrant or such body
corporate, if (a) he acted honestly and in good faith with a view to the best
interests of the Registrant; and (b) in the case of a criminal or administrative
action or proceeding that is enforced by a monetary penalty, he had reasonable
grounds for believing that his conduct was lawful. The Bylaws of the Registrant
provide that the Registrant shall also indemnify such person in such other
circumstances as the Canada Business Corporations Act or law permits or
requires.
The Registrant, effective January 9, 1989, obtained a director's and
officer's liability policy for all of the directors and officers of the
Registrant and its subsidiaries with coverage currently in an amount of
$1,000,000 and such policy has been continuously in force since that date. The
policy provides coverage to the Registrant for payments made on behalf of its
directors and officers under the indemnity provisions of its Bylaws, and to the
individual directors and officers for losses arising during the performance of
their duties for which they are not indemnified by the Registrant.
Item 21. Exhibits and Financial Statement Schedules
Exhibits referenced herein and which are not specifically included herein
are included herein by reference to the document filed with the Securities and
Exchange Commission (the "Commission") which is set forth in the parenthetical
contained in the description of such exhibit.
2.1 Arrangement Agreement between the Registrant, VenturesTrident, L.P.,
VenturesTrident II, L.P., Holders of the Senior Exchangeable
Promissory Notes and Montreal Trust Company of Canada dated June 9,
1993 and Interim Order (see Schedules 2 and 3 to the Registrant's
Notice of Annual and Special Meeting of Shareholders and Management
Proxy Circular dated August 17, 1993)
2.2 Final Order from the Supreme Court of British Columbia dated September
14, 1993 (see Exhibit 4-e to the Registrant's Current Report on Form
8-K dated September 15, 1993)
2.3 Arrangement Agreement dated July 31, 1992 by and among the Registrant,
United Coin Mines Limited, Moruya Gold Mines of North America, Inc.,
Moruya Gold Mines of South Dakota, Inc. and Dakota Gold Mining Inc.
(see Exhibit 1 to the Registrant's Current Report on Form 8-K dated
October 8, 1992)
2.4*Agreement and Plan of Merger dated February 5, 1997 among the
Registrant, Dakota Merger Corporation and USMX, Inc. (see Appendix A
to the Joint Proxy Statement/Prospectus forming a part of this
Registration Statement)
3.1 Pro-Forma Articles of Continuance of the Registrant (see Exhibit 3.1
to the Registrant's Registration Statement on Form S-1, File No.
33-73958)
3.2 Bylaws of the Registrant, as amended (see Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, File No. 33-73958)
4.1 Specimen certificate for Common Stock, no par value (see Exhibit 1 to
the Registrant's Registration Statement on Form 8-A, as amended, filed
with the SEC on September 16, 1993)
4.2 Purchase Warrant Indenture dated February 14, 1996 between the
Registrant and Montreal Trust Company of Canada (see Exhibit 4.4 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995)
4.3*Trust Indenture dated February 4, 1997 between the Registrant and
Montreal Trust Company of Canada
4.4*Special Warrant Indenture dated February 4, 1997 between the Registrant
and Montreal Trust Company of Canada
5.1** Opinion of McCarthy Tetrault as to the legality of the Securities
8.1*Opinion of Coopers & Lybrand L.L.P. (see Appendix E to the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement)
10.1 Cactus Joint Venture Agreement dated November 1, 1993 among Middle
Buttes Partners Ltd., CoCa Mines Inc. and Compass Mining, Inc. (see
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989)
10.2 Limited Partnership Agreement of the Golden Reward Mining Company
Limited Partnership dated October 8, 1992 between Wharf Gold Mines
Inc., Dakota Gold Mining Inc. and Wharf Reward Mines Inc. (see Exhibit
10.20 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992)
10.3 Amending Agreement dated February 12, 1993 to the Asset Purchase
Agreement and Limited Partnership Agreement of the Golden Reward
Mining Company Limited Partnership between Wharf Gold Mines Inc.,
Dakota Gold Mining Inc. and Wharf Reward Mines Inc. (see Exhibit 10.23
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992)
10.4 Employment Contract dated May 19, 1992 between the Registrant and Alan
R. Bell (see Exhibit 10.24 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992)
10.5 Employment Contract dated June 17, 1991 between the Registrant and
Robert R. Gilmore (see Exhibit 10.25 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992)
10.6 ShareIncentive Plan (see Exhibit 28.1 to the Registrant's Registration
Statement on Form S-8 as filed with the Commission on September 16,
1993)
10.7 Option for Services Agreement dated July 21, 1992 between the
Registrant and Citibank N.A. (see Exhibit 10.20 to the Registrant's
Registration Statement on Form S-1, File No. 33-73958)
10.8 Agreement for the Sale of Equipment and Personal Property and the
Resolution of Contract Matters dated September 31, 1993 among Golden
Reward Mining Company, L.P., Wharf Resources Management Inc., Wharf
Gold Mines, Inc., Dakota Gold Mining, Inc., Wharf Reward Mines, Inc.
and Harley Hall, individually and d/b/a Hall Construction Company (see
Exhibit 10.24 to the Registrant's Registration Statement on Form S-1,
File No. 33-73958)
10.9 Net Smelter Return Royalty Agreement dated March 8, 1995 between the
Registrant, Brohm Mining Corp. and Repadre International Corporation
(see Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994)
10.10Demand Note as Proof of Financial Assurance dated March 16, 1995
between the Registrant, MinVen Gold (U.S.A.) Corporation and the State
of South Dakota (see Exhibit 10.20 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994)
10.11Revolving Loan Agreement dated April 12, 1996 between Registrant and
Gerald Metals Inc. (see Exhibit 10.18 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996)
10.12Stock Option Agreement between Registrant and Gerald Metals dated
September 21, 1995 (see Exhibit 10.15 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.13* Agency Agreement dated February 4, 1997 among the Registrant,
Canaccord Capital Corporation, Scotia McLeod, Inc. and Newcrest
Capital Inc.
10.14* Letter Agreement dated February 26, 1997 between Registrant and
Gerald Metals, Inc. regarding a $7.5 million working capital,
refinancing and hedging facility
10.15Support Agreement dated February 4, 1997 among the Registrant, USMX,
Inc. and Pegasus Gold, Inc. (see Exhibit 10(b) to Current Report on
Form 8-K of USMX, Inc. dated February 4, 1997)
10.16Option Agreement dated February 4, 1997 from USMX, Inc. to the
Registrant (see Exhibit 10(a) to Current Report on Form 8-K of USMX,
Inc. dated February 4, 1997)
10.17* Loan Agreement dated March 11, 1997 among the Registrant, USMX,
Inc., and USMX of Alaska, Inc.
10.18* Mortgage dated March 11, 1997 from USMX, Inc to the Registrant
10.19* Intercreditor Agreement dated March 11, 1997 between the Registrant
and N M Rothschild & Sons Limited
11.1* Statement re Computation of Per Share Earnings
13.1 1995 Annual Report to Shareholders (see Exhibit 13, to the
Registrant's Annual Report on From 10-K for the year ended December
31, 1995)
21.1* Subsidiaries of the Registrant
23.1*Consent of KPMG, Chartered Accountants, with respect to the Financial
Statements of the Registrant
23.2*Consent of KPMG, Chartered Accountants, with respect to Pro Forma
Consolidated Financial Information of the Registrant
23.3*Consent of KPMG, Chartered Accountants, with respect to the Financial
Statements of USMX, Inc.
23.4* Consent of Coopers & Lybrand L.L.P.
23.5** Consent of McCarthy Tetrault (contained in Exhibit 5.1).
23.6** Consent of Glenn R. Clark & Associates Limited
23.7** Consent of DMBW, Inc.
23.8** Consent of Roscoe Postle Associates, Inc.
- -------------------
* Filed herewith
** To be filed by amendment
Item 22. Undertakings
Registration on Form S-4
The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
The undersigned registrant hereby undertakes that every prospectus (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, an that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Indemnification For 1933 Act Liabilities
The undersigned registrant hereby undertakes that, insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Rule 415 Offering
The undersigned registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price present no more than 20
percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii)to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information int he registration statement.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to remove from registration by
means of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes, if the registrant is a
foreign private issuer, to file a post-effective amendment to the registration
statement to include any financial statements required by Rule 3-19 of this
chapter at the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided, that the registrant
includes in the prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (a)(4) and other information
necessary to ensure that all other information in the prospectus is at least as
current as the date of those financial statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of Colorado
on March __, 1997.
DAKOTA MINING CORPORATION
By: /s/ Alan R. Bell
Alan R. Bell
Principal Executive Officer
By: /s/ Robert R. Gilmore
Robert R. Gilmore
Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: March __, 1997 By: /s/ Alan R. Bell
----------------------
Alan R. Bell, Director
Date: March __, 1997 By: /s/ Stanley Dempsey
-------------------------
Stanley Dempsey, Director
Date: March __, 1997 By: /s/ Landon T. Clay
------------------------
Landon T. Clay, Director
Date: March __, 1997 By: /s/ Edward G. Thompson
---------------------------
Edward G. Thompson, Director
Date: March __, 1997 By: /s/ Tor Jensen
------------------
Tor Jensen, Director
DATED AS OF February 5, 1997
DAKOTA MINING CORPORATION
and
MONTREAL TRUST COMPANY OF CANADA,
AS TRUSTEE
- ------------------------------------------------------------------------------
TRUST INDENTURE
PROVIDING FOR THE ISSUE OF UP TO
$25,000,000 AGGREGATE PRINCIPAL AMOUNT OF
7.5% CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES DUE
FEBRUARY 5, 2004
- ------------------------------------------------------------------------------
<PAGE>
THIS TRUST INDENTURE made as of the 5th day of February, 1997,
B E T W E E N :
DAKOTA MINING CORPORATION, a corporation governed by the laws of
Canada, having its corporate head office at 410 Seventeenth
Street, Suite 2450, Denver, Colorado, U.S.A., 80202 (the
"Corporation");
- and -
MONTREAL TRUST COMPANY OF CANADA, a trust company governed by
the laws of Canada and having an office in Vancouver, British
Columbia at 510 Burrard Street, Vancouver, British Columbia,
V6C 3B9 (the "Trustee");
WHEREAS the Corporation considers it necessary for its corporate
purposes to create and issue Debentures (as defined below) in the
manner provided herein;
WHEREAS the Corporation is duly authorized to create and issue
the Debentures to be issued as provided herein; and
WHEREAS the foregoing recitals are made as representations and
statements of fact by the Corporation and not by the Trustee.
NOW THEREFORE THIS INDENTURE WITNESSETH and it is hereby
covenanted, agreed and declared as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Trust Indenture, unless there is something in the subject
matter or context inconsistent therewith:
(1) "Agency Agreement" means the agency agreement between the Corporation
and the Agents dated the date hereof;
(2) "Agents" means Canaccord Capital Corporation, ScotiaMcLeod Inc. and
Newcrest Capital Inc.;
144554\0512933.WP
<PAGE>
2
(3) "Business Day" means any day, other than Saturday, Sunday or any
statutory holiday in Vancouver, British Columbia, or Toronto, Ontario
or, in respect of any action to be taken in any city, a day when the
principal office of the Trustee in such city is not generally open to
the public for the transaction of business;
(4) "Capital Reorganization" has the meaning ascribed thereto in
subsection 4.3(6);
(5) "Certificate of the Corporation" means a certificate signed in the
name of the Corporation by any one of the President, the Chief
Executive Officer, the Chief Financial Officer, a Vice-President or
the Secretary of the Corporation, and may consist of one or more
instruments so executed;
(6) "Common Share Reorganization" has the meaning ascribed thereto in
subsection 4.3(3);
(7) "Common Shares" means the common shares without par value in the
capital of the Corporation, as such shares exist at the close of
business on the date of execution and delivery of this Indenture;
provided that, in the event of a subdivision, redivision, reduction,
combination or consolidation thereof, or successive such changes,
subdivisions, redivisions, reductions, combinations or consolidations,
or any combination thereof, then, subject to adjustments, if any,
having been made in accordance with section 4.3, "Common Shares" shall
thereafter mean the shares resulting from such change, subdivision,
redivision, reduction, combination or consolidation;
(8) "Conversion Price" has the meaning ascribed thereto in section 4.1;
(9) "Corporation" means Dakota Mining Corporation and includes any
successor corporation which shall have complied with the provisions of
Article Nine;
(10) "Counsel" means a lawyer or firm of lawyers, who may be counsel for
the Corporation, retained by the Trustee or, at the option of the
Trustee, retained by the Corporation and acceptable to the Trustee;
(11) "Current Market Price" of shares of any class on any date means the
weighted average price per share at which such shares have traded:
(a) on The Toronto Stock Exchange; or
(b) if such shares are not listed on The Toronto Stock Exchange, then
(except for purposes of sections 3.2, 3.9 and 3.10) on such stock
exchange on which such shares are listed as may be selected for
that purpose by the Directors; or
(c) if such shares are not listed on any stock exchange, then (except
for purposes of sections 3.2, 3.9 and 3.10) in the
over-the-counter market,
144554\0512933.WP
<PAGE>
3
during a period of 20 consecutive Trading Days ending not more
than five Trading Days before such date, provided that (except
for purposes of sections 3.2, 3.9 and 3.10) if such shares are
not listed on any stock exchange or traded in the
over-the-counter market, the Current Market Price of such shares
shall be determined by the Directors and approved by the Trustee;
and in each such case, the weighted average price shall be
determined by dividing the aggregate sales price of all such
shares sold on The Toronto Stock Exchange (or such other stock
exchange or in the over-the-counter market, as the case may be)
during such period of 20 consecutive Trading Days by the total
number of such shares so sold, as reported by The Toronto Stock
Exchange (or such other stock exchange or as quoted by the most
commonly quoted or carried source of quotations for shares traded
in the over-the-counter market, as the case may be);
(12) "Date of Conversion" has the meaning ascribed thereto in
subsection 4.2(2);
(13) "Debentures" means the 7.5% convertible unsecured subordinated
debentures of the Corporation due February 5, 2004 issued
hereunder whether in definitive or interim form;
(14) "Debentureholders" or "Holders" means the Persons for the time
being entered in the registers mentioned hereinafter as holders
of Debentures;
(15) "Debentureholders' Request" means an instrument signed in one or
more counterparts by the Holders of not less than 25% in
principal amount of the outstanding Debentures requesting the
Trustee to take the action or proceeding specified therein;
(16) "Director" means a director of the Corporation for the time being
and "Directors" means the board of directors of the Corporation
or, if duly constituted and whenever duly empowered, the
executive committee (if any) of the board of directors of the
Corporation for the time being, and reference to action by the
Directors means action by the directors as a board or action by
the executive committee of the board as a committee;
(17) "Dividends Paid in the Ordinary Course" means dividends paid on
the Common Shares in any financial year of the Corporation,
whether in (a) cash, (b) shares of the Corporation, (c) rights,
options or warrants to purchase any shares, property or other
assets of the Corporation, or (d) property or other assets of the
Corporation, in each case to the extent that the amount or value
of such dividends in the aggregate does not exceed the greater
of:
(i) 150% of the aggregate amount or value of dividends paid by
the Corporation on the Common Shares in its immediately
preceding financial year; or
(ii) 100% of the consolidated net income (before extraordinary or
unusual items but after dividends payable on all shares
prior to or on a parity with the Common Shares with respect
to the payment of dividends) of the Corporation for its
144554\0512933.WP
<PAGE>
4
immediately preceding financial year, determined in
accordance with Generally Accepted Accounting Principles;
and for the purpose of the foregoing, where any dividend is
paid (otherwise than in cash), any shares, any rights,
options or warrants to purchase any shares, property or
other assets or any property or other assets so distributed
by way of dividend shall be valued at the fair market value
of such securities, property or other assets, as the case
may be, as determined by the Directors, which determination
shall be conclusive;
(18) "Escrowed Proceeds" has the meaning ascribed thereto in the Special
Warrant Indenture;
(19) "Event of Default" has the meaning ascribed thereto in section 7.1;
(20) "Excluded Securities" has the meaning ascribed thereto in paragraph
5.2(1)(b);
(21) "Extraordinary Resolution" has the respective meanings ascribed
thereto in sections 10.12 and 10.15;
(22) "Generally Accepted Accounting Principles" means the generally
accepted accounting principles from time to time approved by the
Canadian Institute of Chartered Accountants as at the date, as
applicable, on which a calculation has been made, is made or required
to be made hereunder in accordance with Generally Accepted Accounting
Principles;
(23) "Indenture Legislation" has the meaning ascribed thereto in section
12.1;
(24) "Maturity Date" means February 5, 2004;
(25) "Notice of Non-Qualification" means notice in writing from the
Corporation to the Trustee to the effect that the Qualification Date
has not occurred prior to the Qualification Deadline;
(26) "notice of redemption" has the meaning ascribed thereto in section 3.4
hereof;
(27) "Officer's Certificate" means a certificate signed in the name of the
Corporation by any one of the President, the Chief Executive Officer,
the Chief Financial Officer, a Vice-President and the Secretary of the
Corporation, and may consist of one or more instruments so executed;
(28) "Person" means an individual, legal person, corporation, company,
cooperative, partnership, trust, unincorporated association or
governmental body, and pronouns have a similarly extended meaning;
(29) "Qualification Date" means the date on which a receipt is issued for a
final prospectus of the Corporation qualifying for sale the Debentures
and the Common Shares issuable
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upon conversion of the Debentures by the last of the securities
commissions or other securities regulatory authorities in each of the
Qualifying Jurisdictions to issue a receipt for such final prospectus;
(30) "Qualification Deadline" means May 31, 1997 or such later date as may
be determined in a written notice to the Company and the Trustee from
Canaccord Capital Corporation, on behalf of the Agents, in accordance
with the Agency Agreement;
(31) "Qualifying Jurisdictions" means British Columbia, Alberta, Ontario
and Quebec;
(32) "Redemption Price" has the meaning ascribed thereto in section 3.1;
(33) "Rights Offering" and "Rights Period" have the respective meanings
ascribed thereto in subsection 4.3(4);
(34) "Rights Offering Price" has the meaning ascribed thereto in subsection
4.3(7);
(35) "Senior Liabilities" means:
(a) indebtedness of the Corporation (other than indebtedness
evidenced by the Debentures) whether outstanding on the date of
this Indenture or thereafter created, incurred, assumed or
guaranteed, for money borrowed or raised by the Corporation by
whatever means (including, without limitation, by means of
acceptances, debt instruments and finance leases and any
liability evidenced by bonds, debentures, notes or similar
instruments);
(b) indebtedness of the Corporation whether outstanding on the date
of this Indenture or thereafter created, incurred, assumed or
guaranteed by the Corporation in connection with the acquisition
by the Corporation or by others of any assets or services;
(c) any trade debts of the Corporation whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed
or guaranteed by the Corporation; and
(d) renewals, extensions or refundings of any indebtedness referred
to in paragraph (a), (b) or (c) of this definition; unless in any
case it is provided by the terms of the instrument creating or
evidencing such indebtedness or an instrument pursuant to which
such indebtedness is outstanding that such indebtedness does not
rank prior in right of payment to the Debentures but ranks pari
passu with, or subordinate in right of payment to, the
Debentures;
(36) "Special Distribution" has the meaning ascribed thereto in subsection
4.3(5);
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(37) "Special Warrants" means the Special Warrants created and issued
pursuant to the Special Warrant Indenture;
(38) "Special Warrant Indenture" means the special warrant indenture dated
the date hereof between the Corporation and Montreal Trust Company of
Canada, as trustee;
(39) "Successor Corporation" has the meaning ascribed thereto in section
9.1;
(40) "this Indenture", "this Trust Indenture", "hereto", "hereby",
"hereunder", "hereof", "herein" and similar expressions refer to this
indenture and not to any particular Article, section, subsection,
paragraph, subdivision or other portion hereof, and include any and
every supplemental indenture; and "supplemental indenture" and
"Indenture supplemental hereto" include any and every instrument
supplemental or ancillary hereto or in implementation hereof;
(41) "Time of Expiry" has the meaning ascribed thereto in section 4.1;
(42) "Trading Day" means, with respect to any stock exchange or
over-the-counter market, a day on which shares or other securities may
be traded through the facilities of such stock exchange or in such
over-the-counter market;
(43) "Trustee" means Montreal Trust Company of Canada and its successors
for the time being; and
(44) "United States" means the United States of America, its territories
and possessions, any state of the United States, and the District of
Columbia;
(45) "U.S. Person" means a U.S. person as that term is defined in
Regulation S;
(46) "U.S. Securities Act" means the United States Securities Act of 1933,
as amended;
(47) "Written Order of the Corporation", "Written Request of the
Corporation" and "Written Direction of the Corporation" mean,
respectively, an order, a request or a direction signed in the name of
the Corporation by any one of the President, the Chief Executive
Officer, the Chief Financial Officer, a Vice-President the Secretary
of the Corporation, and may consist of one or more instruments so
executed.
Words importing the singular include the plural and vice versa and words
importing the masculine gender include the feminine gender and vice versa.
1.2 Meaning of "outstanding" for Certain Purposes
Every Debenture certified and delivered by the Trustee hereunder shall be deemed
to be outstanding until it shall be cancelled or delivered to the Trustee for
cancellation or conversion, or a new Debenture shall be issued in substitution
therefor under section 2.13, or
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7
money, securities or other property for the payment or redemption thereof shall
be set aside under Article Three or Eight, provided that:
(1) where a new Debenture has been issued in substitution for a
Debenture which has been mutilated, lost, stolen or destroyed,
only one of such Debentures shall be counted for the purpose
of determining the aggregate principal amount of Debentures
outstanding;
(2) Debentures which have been partially redeemed, purchased or
converted shall be deemed to be outstanding to, but only to,
the extent of the unredeemed, unpurchased or unconverted part
of the principal amount thereof; and
(3) for the purpose of any provision of this Indenture entitling
Holders of outstanding Debentures to vote, sign consents,
requests, requisitions or other instruments, take other action
or to constitute a quorum at any meeting of Holders under this
Indenture, Debentures owned legally by the Corporation shall
be disregarded, except that:
(a) for the purpose of determining whether the Trustee
shall be protected in relying on any such vote,
consent, request, requisition or other instrument or
other action or on the Holders present or represented
at any meeting of Holders only the Debentures of
which the Trustee has notice that they are so owned
shall be so disregarded; and
(b) Debentures so owned which have been pledged in good
faith other than to the Corporation or any of its
affiliates (as such term is defined in the Securities
Act (British Columbia) shall not be so disregarded if
the pledgee shall establish to the satisfaction of
the Trustee the pledgee's right to vote, sign
consents, requests, requisitions or other instruments
or take such other actions in his discretion free
from the control of the Corporation or any of its
affiliates.
1.3 Interpretation Not Affected by Headings, etc. - The division of this
Indenture into --------------------------------------------- Articles,
sections, subsections and paragraphs, the provision of a table of contents
and the insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation of this Indenture or of
the Debentures.
1.4 Statute References - Any reference in this Indenture to a statute or other
legislation shall be deemed to be a reference to such legislation, and all
regulations thereunder, as now enacted or as the same may from time to time
be amended, re-enacted or replaced.
1.5 Monetary References - Any reference in this Indenture to currency or
"Dollars", "dollars" or "$" shall be deemed to be a reference to lawful
money of Canada.
1.6 Day Not a Business Day - In the event that any day on or before which any
action is required to be taken or any computation is required to be made
hereunder is not a Business
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8
Day, then such action or computation shall be required to be taken or made
on or before the requisite time on the first Business Day thereafter.
1.7 Invalidity of Provisions - Each of the provisions contained in this
Indenture or the Debentures is distinct and severable and a declaration of
invalidity or unenforceability of any such provision by a court of
competent jurisdiction shall not affect the validity or enforceability of
any other provision hereof or thereof.
1.8 Governing Law - This Indenture and the Debentures shall be governed by and
construed in accordance with the laws of British Columbia and the laws of
Canada applicable therein and shall be treated in all respects as British
Columbia contracts.
ARTICLE 2
THE DEBENTURES
2.1 Limitation on Issue and Designation - The aggregate principal amount of
Debentures which may be issued and certified hereunder shall consist of and
be limited to $25,000,000 and such Debentures will be designated "7.5%
Convertible Unsecured Subordinated Debentures due February 5, 2004".
2.2 Terms of Debentures
(1) The Debentures shall be dated February 5, 1997 regardless of the date
on which Debentures are issued hereunder, shall mature on the Maturity
Date and shall bear interest (subject to section 2.7) from the date of
issue at the rate of 7.5% per annum (after as well as before maturity,
default and judgment, with interest on amounts in default at the same
rate) payable in arrears in equal semi-annual payments on June 30 and
December 31 of each year. The first date on which interest is payable
is June 30, 1997 and such payment will represent interest accrued from
and including the date of issue of the Debentures.
(2) Interest on the Debentures shall accrue from day to day and shall be
calculated on the basis of the actual number of days elapsed and on
the basis of a year of 365 days or 366 days in a leap year.
(3) Subject to section 3.9, the principal of the Debentures due on
maturity or redemption will be payable, on presentation and surrender
of the Debentures at one of the principal offices of the Trustee in
Vancouver, Toronto or Montreal.
2.3 Form of Debentures
(1) The Debentures shall be issued upon exercise or deemed exercise of the
Special Warrants in accordance with the Special Warrant Indenture only
as fully registered Debentures in denominations of $1,000 and integral
multiples thereof.
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9
(2) The Debentures and the certificate of the Trustee endorsed thereon
shall be substantially in the form set out in the Schedule to this
Indenture with such appropriate additions, deletions, substitutions
and variations as the Trustee may approve, may, at the election of the
Corporation, be translated into the French language and shall bear
such legends and such distinguishing letters and numbers as the
Trustee may approve and such legends as Counsel may advise are
necessary in order for the Corporation to comply with applicable
securities laws, such approval of the Trustee to be conclusively
evidenced by its certification of the Debentures. In the event of any
contradiction, discrepancy or difference between the English language
version and the French language version, if any, of the text of the
form of Debentures, the English language version of the text will
govern.
(3) The Debentures may be engraved, lithographed or printed (the
expression "printed" including for the purposes hereof both original
typewritten material as well as mimeographed, mechanically,
photographically, photostatically or electronically reproduced,
typewritten or other written material), or partly in one form and
partly in another, as the Corporation may determine.
(4) The Trustee understands and acknowledges that the Debentures have not
been and will not be registered under the U.S. Securities Act. Each
Debenture Certificate originally issued in the United States or to a
U.S. Person, and each Debenture Certificate issued in exchange
therefor or in substitution thereof shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE
ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY (A) TO THE ISSUER, (B) OUTSIDE THE UNITED
STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE
U.S. SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE
144 THEREUNDER, IF AVAILABLE, AND THE COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR (D) IN COMPLIANCE WITH
CERTAIN OTHER PROCEDURES SATISFACTORY TO THE COMPANY. DELIVERY
OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE. A
NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL
CONSTITUTE "GOOD DELIVERY', MAY BE OBTAINED FROM THE TRANSFER
AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO THE TRANSFER AGENT AND
THE COMPANY, TO THE EFFECT THAT THE SALE OF THE SECURITIES
REPRESENTED HEREBY IS BEING MADE IN
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COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE
U.S. SECURITIES ACT.
provided, however, that if the Debentures are being sold under
paragraph (B) above, the legend may be removed by providing a
declaration to the Trustee as transfer agent for the securities to the
following effect:
The undersigned (A) acknowledges that the sale of the
securities to which this declaration relates is being made in
reliance on Rule 904 of Regulation S under the United States
Securities Act of 1933, as amended (the "U.S. Securities Act")
and (B) certifies that (1) it is not an affiliate (as defined
in Rule 405 under the U.S. Securities Act) of Dakota Mining
Corporation, (2) the offer of such securities was not made to
a person in the United States and either (A) at the time the
buy order was originated, the buyer was outside the United
States, or the seller and any person acting on its behalf
reasonably believe that the buyer was outside the United
States, or (B) the transaction was executed on or through the
facilities of The Toronto Stock Exchange, the Montreal
Exchange, the Vancouver Stock Exchange or the Alberta Stock
Exchange and neither the seller nor any affiliate of the
seller nor any person acting on any of their behalf has
engaged or will engage in any directed selling efforts in the
United States in connection with the offer and sale of such
securities, (4) the sale is bona fide and not for the purpose
of "washing off" the resale restrictions imposed because the
securities are "restricted securities" (as such term is
defined in Rule 144(a)(3) under the U.S. Securities Act), (5)
the seller does not intend to replace the securities and (6)
the contemplated sale is not a transaction, or part of a
series of transactions which, although in technical compliance
with Regulation S, is part of a plan or scheme to evade the
registration provisions of the U.S. Securities Act. Terms used
herein have the meanings given to them by Regulation S.
2.4 Issue of Debentures - Debentures in the aggregate principal amount of
$25,000,000 may forthwith and from time to time be executed by the
Corporation and delivered to the Trustee and shall be certified by the
Trustee and delivered to or to the order of the Corporation pursuant
to a Written Order of the Corporation, without the Trustee receiving
any consideration therefor.
2.5 Execution of Debentures - The Debentures shall be signed (either
manually or reproduced in facsimile) by at least one of the President,
Chief Executive Officer, the Chief Financial Officer, a Vice-President
or the Secretary of the Corporation. A facsimile signature reproduced
upon any of the Debentures shall for all purposes of this Indenture be
deemed to be the signature of the individual whose signature it
purports to be and to have been signed at the time such facsimile
signature is reproduced. In the event that any officer of the
Corporation who shall have signed any of the Debentures shall cease to
be such officer before the Debentures so signed shall have
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11
been authenticated by the Trustee and delivered or disposed of by the
Corporation, such Debentures nevertheless may be authenticated and
delivered or disposed of as though the Person who signed such
Debentures had not ceased to be such officer of the Corporation; and
any Debenture may be signed on behalf of the Corporation by such Person
as, at the actual date of the execution of such Debenture, shall be the
proper officer of the Corporation, although at the date of such
Debenture or of the execution of this Indenture such Person was not
such officer.
2.6 Certification
(1) No Debenture shall be issued or, if issued, shall be obligatory
or shall entitle the Holder thereof to the benefits of this
Indenture until it has been certified by manual signature by or
on behalf of the Trustee substantially in the form set out in the
Schedule hereto or in some other form approved by the Trustee,
whose approval shall be conclusively evidenced by the
certification thereof. Such certificate on any Debenture shall be
conclusive evidence that such Debenture has been duly issued
hereunder and is a valid obligation of the Corporation and that
the Holder is entitled to the benefits of this Indenture.
(2) The certificate of the Trustee on any Debenture shall not be
construed as a representation or warranty by the Trustee as to
the validity of this Indenture or of the Debentures (except the
due certification thereof and any other warranties implied by
law) and the Trustee shall in no respect be liable or answerable
for the use made of the Debentures or any of them or the proceeds
thereof. The certificate of the Trustee on any Debenture shall,
however, be a representation and warranty by the Trustee that
such Debenture has been duly certified by or on behalf of the
Trustee pursuant to the provisions of this Indenture.
2.7 Concerning Interest
(1) Every Debenture, whether issued originally or in exchange or
substitution for previously issued Debentures, shall bear
interest from and including the date of issue or from and
including the last interest payment date to which interest shall
have been paid or made available for payment on the Debentures,
whichever is later, provided that for the period from the date of
issue of the Debentures to the first interest payment date, the
interest rate will be such that, when the interest for such
period is added to the interest earned on the Escrowed Proceeds
and paid to holders of Special Warrants upon exercise or deemed
exercise of Special Warrants for Debentures under the Special
Warrant Indenture, it is equivalent to 7.5% per annum calculated
from the date of issuance of the Special Warrants.
(2) Interest on such Debenture shall cease to accrue on the earliest
of the Maturity Date or, if such Debenture is called for
redemption, the date fixed for redemption unless, upon due
presentation and surrender thereof for payment on or after the
Maturity Date or the date fixed for redemption, as the case may
be, such payment is improperly withheld or refused or, if such
Debenture is converted, the date stipulated in subsection 4.2(4).
(3) Wherever in this Indenture or the Debentures there is mention, in
any context, of the payment of interest, such mention shall be
deemed to include the payment of interest
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12
on amounts in default to the extent that, in such context, such
interest is, was or would be payable pursuant to section 2.2, and
the express mention of interest on amounts in default in any of
the provisions hereof shall not be construed as excluding such
interest in those provisions hereof where such express mention is
not made.
2.8 Debentures to Rank Equally - The Debentures may be issued in such
amounts, to such Persons and on such terms not inconsistent with the
provisions of this Indenture as the Directors may determine. Each
Debenture as soon as it is issued shall, subject to the terms hereof,
be equally and rateably entitled to the benefits hereof as if all the
Debentures had been issued and negotiated simultaneously.
2.9 Registration of Debentures
(1) The Corporation shall cause to be kept by and at the principal
office of the Trustee in Vancouver a central register, and by and
at the principal offices of the Trustee in Vancouver, Toronto and
Montreal, or by such other registrar or registrars, if any, as
the Corporation with the approval of the Trustee may designate,
branch registers, in which shall be entered the names and
addresses of the Holders, particulars of the principal amount of
Debentures held by them respectively and the particulars of all
transfers of Debentures and such other particulars of the
Debentures, as may be prescribed by law. No transfer of a
Debenture shall be effective as against the Corporation unless
made on one of the registers upon surrender of such Debenture to
the Trustee or other registrar by the Debentureholder or his
executors, administrators or other legal representatives or his
or their attorney duly appointed by an instrument in form and
execution satisfactory to the Trustee or other registrar and upon
compliance with such requirements as the Trustee or other
registrar may prescribe.
(2) The registers referred to in this section shall at all reasonable
times be open for inspection by the Corporation, the Trustee and
any Debentureholder.
(3) The Holder of a Debenture may at any time and from time to time
have such Debenture transferred at any of the places at which a
register is kept pursuant to the provisions of this section in
accordance with such reasonable regulations as the Trustee may
prescribe.
(4) Neither the Corporation nor the Trustee nor any registrar shall
be required to transfer or exchange any Debentures during the ten
Business Days immediately preceding any interest payment date.
(5) Subject to applicable law, neither the Corporation, nor the
Trustee nor any registrar shall be bound to take notice of or to
see to the execution of any trust, whether express, implied or
constructive, in respect of any Debenture and the Trustee and any
registrar may transfer any Debenture on the direction of the
Holder thereof, whether named as trustee or otherwise, as though
that Person were the beneficial owner thereof.
(6) Except in the case of the central register required to be kept at
Vancouver, British Columbia, the Corporation shall have power at
any time to close any branch register, in which event it shall
transfer the records thereof to another existing register or to a
new
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13
register, and thereafter such Debentures shall be deemed to be
registered on such existing or new register, as the case may be.
In the event that the register in any place is closed and the
records transferred to a register in another place, notice of
such change shall be given to the Holders of the Debentures
registered in the register so closed and the particulars of such
change shall be recorded in the central register required to be
kept in Vancouver, British Columbia.
(7) The Trustee and every registrar shall, when requested to do so by
the Corporation or the Trustee, furnish the Corporation or the
Trustee, as the case may be, with a list of the names and
addresses of the Holders of Debentures showing the principal
amounts and serial numbers of such Debentures held by each
Holder.
2.10 Payment of Principal and Interest in Respect of Debentures
(1) As the interest on Debentures becomes due (except interest
payable on the Maturity Date or on redemption, which may, at the
option of the Corporation, be paid upon presentation of such
Debentures for payment), at least three Business Days prior to
each date on which interest on such Debentures becomes due, the
Corporation shall forward or cause to be forwarded a cheque for
such interest (less any tax required by law to be deducted or
withheld) payable to the order of such Holder and negotiable at
par at each of the places at which interest upon such Debentures
is payable, by ordinary mail, postage prepaid (or in the event of
mail service interruption, by such other means as the Trustee and
the Corporation shall determine to be appropriate) to the Holder
at his last address appearing on the appropriate register
hereinbefore mentioned. The forwarding of such cheque shall
satisfy and discharge the liability for the interest on such
Debentures to the extent of the sum represented thereby (plus the
amount of any tax deducted or withheld as aforesaid) unless such
cheque is not paid on presentation. In the event that such cheque
is not received by the Holder or is lost or destroyed prior to
being cashed, the Corporation (or the Trustee at the request of
the Corporation), upon being furnished with evidence of
non-receipt, loss or destruction and indemnity reasonably
satisfactory to it, shall issue or cause to be issued to such
Holder a replacement cheque for the amount of such cheque.
(2) Subject to section 3.9, where Debentures are registered in more
than one name, the principal and interest from time to time
payable in respect thereof shall be paid by cheque payable to the
order of all such Holders, unless the Corporation has received
written instructions from them to the contrary, and the receipt
of any one of such Holders therefor shall be a valid receipt on
behalf of the Holders with respect thereto and shall discharge
the Trustee, any registrar of Debentures and the Corporation from
their obligations with respect thereto.
2.11 Payment Agreements for Debentures - Notwithstanding anything contained
in this Indenture to the contrary, the Corporation may enter into an
agreement with any Holder or with the Person for whom such Holder is
acting as nominee providing for the payment, without presentation or
surrender of the Debenture or notation of payment thereon, to such
Holder of the principal amount and interest on such Debenture and all
other moneys payable hereunder at a place, and by wire transfer of
funds or in such other manner, other than the
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14
places or the manner specified in this Indenture and in such Debenture
as the places and the manner for such payment. Any payment of the
principal and interest on any such Debenture and other money payable
hereunder at such other place or in such other manner pursuant to such
agreement shall, notwithstanding any other provision of this Indenture
or the Debentures, be valid and binding on the Corporation, the
Trustee and all Holders.
2.12 Ownership of Debentures
(1) The Holder of any Debenture shall be deemed to be the owner
thereof for all purposes of this Indenture and payment of or on
account of the principal of, and interest on, such Debenture
shall be made only to or upon the order in writing of the Holder
thereof and such payment shall be complete satisfaction for the
amounts so paid and discharge to the Trustee, any registrar of
Debentures and the Corporation for the amounts so paid.
(2) The Holder of any Debenture shall be entitled to the principal
and interest evidenced by such Debenture, free from all equities
or rights of compensation, set-off or counterclaim between the
Corporation and any prior Holder thereof and all Persons may act
accordingly. A transferee of a Debenture shall, upon compliance
with all of the requirements for the transfer of Debentures set
out in this Indenture, in the Debenture or established by the
Trustee or the Corporation pursuant thereto and any other
requirements of law with respect to such transfer, be entitled to
be entered on the appropriate register or on any one of the
appropriate registers as the owner of such Debenture, free from
all rights of compensation, set-off or counterclaim between the
Corporation and the transferor or any previous Holder thereof.
2.13 Exchange of Debentures
(1) Debentures of any denomination may be exchanged for Debentures of
any other authorized denomination or denominations of an
equivalent aggregate principal amount. Exchanges of Debentures
may be made at the principal offices of the Trustee in the cities
of Vancouver, Toronto or Montreal and at such other place, if
any, or places as may from time to time be designated by the
Corporation with the approval of the Trustee. Any Debentures
tendered for exchange shall be surrendered to the Trustee and
shall be cancelled. The Corporation shall execute, and the
Trustee shall certify, all Debentures necessary to carry out such
exchanges.
(2) Debentures issued in exchange for Debentures which at the time of
such issue have been selected or called for redemption at a later
date shall be deemed to have been selected or called for
redemption in the same manner as the Debentures for which they
were exchanged and, upon issuance of such Debentures the Trustee
shall note thereon a statement to that effect.
(3) Except as otherwise provided herein, upon any exchange of
Debentures of any denomination for Debentures of any other
authorized denominations and upon any transfer of Debentures, the
Trustee or other registrar of Debentures may charge the Holder or
the transferor such reasonable fee as may be necessary to
discharge any stamp tax, security
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15
transfer tax or other governmental charge required to be paid and
payment of such charges shall be made by the party requesting
such exchange or transfer as a condition precedent thereto.
(4) Notwithstanding the foregoing, no charge (other than for
insurance on any Debentures forwarded by mail) shall be made by
the Trustee, any other registrar of Debentures or the Corporation
for an exchange, registration or transfer of any Debentures
applied for within a period of 45 days from the date hereof.
(5) Neither the Corporation, the Trustee nor any other registrar of
Debentures shall be required to exchange any Debentures on the
day of any selection by the Trustee of any Debentures to be
redeemed or during the ten Business Days following the day of
selection by the Trustee.
2.14 Replacement of Debentures - If any of the Debentures shall become
mutilated or be lost, stolen or destroyed, the Corporation in its
discretion may issue, and thereupon the Trustee shall certify and
deliver, a new Debenture upon surrender and cancellation of the
mutilated Debenture, or, in the case of a lost, stolen or destroyed
Debenture, in lieu of and in substitution for the same, and the
substituted Debenture shall be in a form approved by the Trustee and
the Holder thereof shall be entitled to the benefits of this Indenture
equally with all other Debentures issued or to be issued hereunder. In
case of loss, theft or destruction the applicant for a new Debenture
shall furnish to the Corporation and to the Trustee such evidence of
such loss, theft or destruction as shall be satisfactory to them in
their discretion and shall also furnish an indemnity and surety bond
in amount and form satisfactory to the Corporation and the Trustee in
their discretion. The applicant shall pay reasonable expenses
incidental to the issuance of any such new Debenture.
2.15 Interim Debentures
(1) Pending delivery to the Trustee of definitive Debentures the
Corporation may execute in lieu thereof (but subject to the same
provisions, conditions and limitations as herein set forth), and
the Trustee may certify, interim printed, mimeographed or
typewritten Debentures, in such form and in such denominations as
may be approved by the Trustee and any one of the President, the
Chief Executive Officer, the Chief Financial Officer, a
Vice-President or the Secretary of the Corporation (whose
certification or signature, either manual or in facsimile, as the
case may be, on any such interim Debentures shall be conclusive
evidence of such approval) entitling the Holders thereof to
definitive Debentures in any authorized denominations when the
same are ready for delivery, without expense to such Holders, but
the total amount of interim Debentures so issued shall not exceed
the aggregate principal amount of Debentures authorized to be
issued hereunder. Forthwith after the issuance of any such
interim Debentures the Corporation shall cause to be prepared the
appropriate definitive Debentures for delivery to the Holders of
such interim Debentures.
(2) Interim Debentures which have been duly issued shall, until
exchanged for definitive Debentures, entitle the Holders thereof
to rank for all purposes as Debentureholders and otherwise in
respect of this Indenture to the same extent and in the same
manner as
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though such exchange had actually been made. When exchanged for
definitive Debentures such interim Debentures shall forthwith be
cancelled by the Trustee.
ARTICLE 3
REDEMPTION AND PURCHASE FOR CANCELLATION
OF DEBENTURES AND ISSUE OF COMMON SHARES
3.1 Redemption of Debentures - Subject to section 3.2, the Debentures
shall be redeemable prior to maturity, in whole at any time or in part
from time to time, at the option of the Corporation (in the manner
hereinafter provided and in accordance with and subject to the
provisions hereinafter set forth) at a price equal to the principal
amount thereof to be redeemed, together with accrued and unpaid
interest on the principal amount of the Debentures, or part thereof,
so redeemed to but not including the date fixed for redemption (such
price, including accrued and unpaid interest) at which Debentures may
be redeemed being hereinafter referred to as the "Redemption Price").
3.2 Limitation on Redemption - Notwithstanding section 3.1, the Debentures
shall not be redeemable prior to February 4, 2001. From thereafter,
the Debentures shall not be redeemable unless the Corporation shall
have filed with the Trustee, on or before the day that the applicable
notice of redemption of such Debentures is given pursuant to section
3.4, a Certificate of the Corporation certifying that the Current
Market Price of the Common Shares on the date on which such notice of
redemption is given exceeds 125% of the Conversion Price.
3.3 Partial Redemption of Debentures
(1) If less than all the Debentures are to be redeemed, the
Corporation shall in each such case, at least 15 days before the
date upon which notice of redemption is to be given pursuant to
section 3.4, notify the Trustee by Written Direction of the
Corporation of its intention to redeem Debentures and of the
aggregate principal amount of Debentures to be redeemed. If at
the time of giving such notice the Corporation has determined
that it will exercise its right pursuant to section 3.9 to
satisfy its obligation hereunder to pay the aggregate principal
amount payable to the Holders of Debentures on redemption by the
issue to such Holders of Common Shares, the Corporation will, at
the time of notifying the Trustee of its intention to redeem
Debentures as provided in this section, notify the Trustee
regarding such determination, provided that such notification
will be without prejudice to the right of the Corporation to
thereafter determine not to exercise such right. The Debentures
to be redeemed shall be redeemed on a pro rata basis or drawn by
lot or otherwise selected by the Trustee in such manner as the
Trustee, in its discretion, may consider equitable, provided that
if an Event of Default hereunder has occurred and is continuing
on the date of such selection, such selection shall be
proportionate to the principal amount of Debentures held (to the
nearest $1,000). For this purpose, the Trustee may make, and from
time to time amend or vary, regulations with respect to the
manner in which such Debentures may be so selected and
regulations so made shall be valid and binding upon all Holders
of Debentures notwithstanding
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17
the fact that, as a result thereof, one or more of such
Debentures become subject to redemption in part only.
(2) Debentures in denominations in excess of $1,000 may be selected
and called for redemption in part only (such part being $1,000 or
an integral multiple thereof) and, unless the context otherwise
requires, references to Debentures in this Article 3 shall be
deemed to include any such part of the principal amount of
Debentures which shall have been so selected and called for
redemption. The Holder of any Debenture called for redemption in
part only, upon surrender of such Debenture for payment, shall be
entitled to receive, without expense to such Holder, a new
Debenture for the unredeemed part of the Debenture so
surrendered, and the Corporation shall execute and the Trustee
shall certify and deliver, at the expense of the Corporation,
such new Debenture upon receipt of the Debenture so surrendered.
3.4 Notice of Redemption
(1) Notice of intention to redeem any Debentures (a "notice of
redemption") shall be given by or on behalf of the Corporation to
the Holders of the Debentures which are to be redeemed, not more
than 60 days and not less than 30 days prior to the date fixed
for redemption, in the manner provided in Article 11. The notice
of redemption shall, unless all the Debentures then outstanding
are to be redeemed, specify the distinguishing letters and
numbers of the Debentures which are to be redeemed and, if a
Debenture is to be redeemed in part only, shall specify that part
of the principal amount thereof to be redeemed, and shall specify
the redemption date, the Redemption Price and places of payment
and shall state that all interest on the Debentures called for
redemption shall cease from and after such redemption date.
(2) If at the time of giving a notice of redemption referred to in
this section the Corporation has determined that it will exercise
its right pursuant to section 3.9 to satisfy its obligation
hereunder to pay the aggregate principal amount payable to the
Holders of Debentures on redemption by the issue to such Holders
of Common Shares, the Corporation will give the notice to the
Holders of Debentures to be given by the Corporation pursuant to
section 3.9 contemporaneously with the notice of redemption
pursuant to this section (and for greater certainty, the notice
to the Holders of Debentures to be given by the Corporation
pursuant to section 3.9 and the notice of redemption pursuant to
this section may be combined in a single notice).
3.5 Debentures Due on Redemption Dates
(1) Upon notice having been given in accordance with section 3.4, the
Debentures so called for redemption shall thereupon become due
and payable at the Redemption Price and on the redemption date
specified in such notice, in the same manner and with the same
effect as if it were the Maturity Date specified in such
Debentures, notwithstanding anything contained therein or herein
to the contrary, and from and after such redemption date, if (i)
the money necessary to redeem such Debentures, less applicable
withholding tax, if any, shall have been deposited as hereinafter
provided or, if the Corporation has elected pursuant to section
3.9 to satisfy its obligation to pay the aggregate principal
amount of Debentures by the
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issue of Common Shares, the Corporation has complied with the
requirements of sections 3.9 and 3.10, and (ii) affidavits or
other proof satisfactory to the Trustee as to the mailing of such
notices shall have been delivered to it, such Debentures shall
not be considered as outstanding hereunder and interest upon such
Debentures shall cease to accrue after such redemption date,
subject to the provisions of section 3.3.
(2) If any question shall arise as to whether notice of redemption or
deposit of the redemption monies has been given or made or as to
whether the Corporation has complied with the requirements of
sections 3.9 and 3.10 as provided above, such question shall be
decided by the Trustee whose decision shall be final and binding
upon all interested parties.
3.6 Deposit of Redemption Moneys - Subject to section 3.9, upon Debentures
having been called for redemption, the Corporation shall deposit with
the Trustee, prior to the redemption date fixed in the relevant notice
of redemption, such sums as may be sufficient to pay the Redemption
Price of the Debentures to be redeemed, together with a sum sufficient
to pay estimated charges and expenses which may be incurred by the
Trustee in connection with such redemption. From the sums so deposited
the Trustee shall pay or cause to be paid to the Holders of the
Debentures called for redemption, upon surrender of such Debentures,
the principal and interest to which they are respectively entitled on
redemption less applicable withholding tax, if any.
3.7 Failure to Surrender Debentures Called for Redemption - If the Holder
of any Debentures called for redemption shall, within 30 days from the
date fixed for redemption, fail to surrender any of such Debentures or
shall not within such time accept payment of the Redemption Price
payable in respect thereof which has been deposited with the Trustee
pursuant to section 3.6 or give such receipt therefor, if any, as the
Trustee may require, such Redemption Price so deposited, if any, shall
be set aside in trust for such Holder, in accordance with section
12.8, and such setting aside shall for all purposes be deemed a
payment to the Debentureholder of the sum so set aside, and to that
extent such Debentures shall thereafter not be considered as
outstanding hereunder and the Debentureholder shall have no right
except to receive payment out of the moneys so paid and deposited,
upon surrender of his Debentures, of the Redemption Price less
applicable withholding tax, if any, of such Debentures, without
interest thereon.
3.8 Surrender of Debentures for Cancellation - If the principal moneys due
upon any Debenture shall become payable by redemption or otherwise
before the Maturity Date, the Person presenting such Debenture for
payment must surrender the same for cancellation, the Corporation
nevertheless paying or causing to be paid the interest accrued and
unpaid thereon (computed on a per diem basis if the date fixed for
payment is not an interest payment date).
3.9 Payment in Common Shares on Redemption of Debentures or Maturity Date
(1) Subject to section 3.10, applicable law and regulatory approvals,
and notwithstanding any other provision of this Indenture, the
Corporation, at its option, on at least 30 days and not more than
60 days notice given in accordance with section 3.11 and Article
11 (which notice, in the case of a redemption, in the
circumstances specified in
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19
subsection 3.4(2), will be given contemporaneously with notice of
such redemption pursuant to section 3.4 as set out in subsection
3.4(2)), may satisfy its obligation hereunder to pay the
aggregate principal amount payable to the Holders of Debentures
on the redemption date or on the Maturity Date by the issue to
such Holders of that number of Common Shares determined by
dividing such aggregate principal amount by 95% of the Current
Market Price of the Common Shares on the redemption date or the
Maturity Date, as the case may be, provided that, in the event
that the Current Market Price of the Common Shares on the
Maturity Date is less than $2.00, the Corporation, at its option,
may satisfy its obligation hereunder to pay the aggregate
principal amount payable to the Holders of Debentures by the
issue to such Holders of that number of Common Shares equal to
the lesser of:
(a) the number determined by dividing such aggregate principal
amount by 95% of the Current Market Price of the Common
Shares on the Maturity Date ; and
(b) the number determined by dividing such aggregate principal
amount by the closing market price of the Common Shares on
The Toronto Stock Exchange on the Maturity Date.
(2) The Corporation may not exercise the right referred to in this
section if an Event of Default hereunder has occurred and is
continuing at the redemption date or on the Maturity Date, as the
case may be.
(3) In the event the Corporation exercises the right referred to in
this section to satisfy its obligation hereunder to pay the
aggregate principal amount payable to the Holders of Debentures
on the redemption date, the Corporation shall not be obliged to
deposit money with the Trustee pursuant to section 3.6, and the
obligation of the Corporation hereunder to pay the Redemption
Price of the Debentures to be redeemed shall be satisfied in the
manner provided in this section and in sections 3.10, 3.11 and
3.12.
(4) The Corporation shall satisfy its obligation hereunder to pay the
aggregate principal amount payable to the Holders of Debentures
on redemption or on the Maturity Date, as the case may be, in
cash, instead of in Common Shares as provided in this section, to
Holders of Debentures not residing in Canada, if any.
3.10 Issue of Common Shares on Redemption of Debentures or Maturity Date
(1) Subject to section 3.9(4), the redemption date or the Maturity
Date, as the case may be, and if otherwise permitted to do so by
law, the Corporation may issue that number of Common Shares
determined under section 3.9, and, in such case, will deliver to
the Trustee the following:
(a) an Officer's Certificate certifying that no Event of Default
hereunder has occurred and is continuing as at the
redemption date or on the Maturity Date, as the case may be;
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20
(b) an Officer's Certificate specifying the Current Market Price
of the Common Shares on the redemption date or the Maturity
Date, as the case may be;
(c) an opinion of counsel that (i) all requirements imposed by
this Indenture or by law in connection with the proposed
issue of Common Shares have been complied with and such
Common Shares may be freely traded, through persons
registered as securities dealers if required under
applicable laws, (ii) upon receipt by the Corporation of the
consideration therefor the Common Shares to be so issued
will be validly issued and will be outstanding as fully paid
and non- assessable shares and (iii) if the Common Shares
are listed on any stock exchange, such stock exchange has
conditionally approved the listing of the Common Shares to
be so issued and any conditions stipulated by such stock
exchange to be fulfilled before the date such Common Shares
are to be so issued, have been completely fulfilled; and
(d) a Written Order of the Corporation authorizing and directing
the Trustee to issue certificates for Common Shares
representing the Common Shares issuable on the redemption
date or the Maturity Date, as the case may be.
(2) The Corporation will deliver to the Trustee the items referred to
in paragraph 3.10(1)(b) and (d) not less than five days prior to
the redemption date or the Maturity Date, as the case may be, or
on such later date as may be acceptable to the Trustee.
(3) If any registration or filing pursuant to any securities laws of
Canada or any province thereof is required to ensure that any
Common Shares issuable on the redemption date or the Maturity
Date, as the case may be, are issued in compliance with all such
laws or to ensure that any such Common Shares, once issued, may
be freely traded, the Corporation covenants that it will take all
such action as may be necessary to make or obtain such
registration or filing, as the case may be, including making an
application for discretionary relief, if advisable.
(4) Subject to section 3.3, the issue by the Corporation of that
number of Common Shares determined under section 3.9 to satisfy
its obligation hereunder to pay the aggregate principal amount
payable to the Holders of Debentures on the redemption date or on
the Maturity Date, shall fully satisfy and discharge the
obligation of the Corporation to pay the principal amount of such
Debentures.
3.11 General Requirements
(1) The notice to the Holders of Debentures to be given by the
Corporation pursuant to section 3.9 must:
(a) state that the Corporation has exercised its option to pay
the aggregate principal amount payable to the Holders of
Debentures on the redemption date or the Maturity Date, as
the case may be, by the issue of Common Shares to the
Holders of Debentures;
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21
(b) state that to receive a certificate for Common Shares on the
redemption date or the Maturity Date, as the case may be,
the Holders of Debentures must surrender their Debentures to
the Trustee at its principal offices in the cities of
Vancouver, Toronto or Montreal;
(c) advise each Holder of Debentures that the Common Shares to
be issued in respect of such Holder's Debenture will be
registered in the name of the Holder unless the Trustee, or
its agent, receives from such Holder, on or before the tenth
Business Day prior to the redemption date or the Maturity
Date, as the case may be, at its principal offices in the
cities of Vancouver, Toronto or Montreal, written notice in
form and execution satisfactory to the Trustee directing the
Corporation to register such Common Shares in the name or
names of another Person or Persons and stating the name or
names (with addresses) of such Person or Persons and, unless
such Holder presents and surrenders such Holder's Debenture
either with the transfer form appearing on or appended to
such Debenture properly completed or together with any other
written transfer in a form satisfactory to the Trustee (in
either case duly executed by the Holder or his executors or
administrators or other legal representatives or his or
their attorney duly appointed by an instrument in writing in
form and executed in a manner satisfactory to the Trustee),
to transfer such Holder's Debenture or the Common Shares to
be issued in respect of such Holder's Debenture to such
Person or Persons, accompanied by payment to the Trustee of
any stamp tax, security transfer tax or other governmental
charge which may be payable by reason thereof; and
(d) advise each Holder that such Holder may, on or after the
redemption date or the Maturity Date, as the case may be,
and on proof of identity satisfactory to the Trustee, upon
presentation and surrender of such Holder's Debenture, take
personal delivery of the share certificates representing
that Holder's Common Shares so issued, at the principal
offices of the Trustee in the cities of Vancouver, Toronto
or Montreal, if the Trustee receives from such Holder at one
of such principal offices, in addition to any other notice
or delivery required by this subsection and on or before the
tenth Business Day prior to the redemption date or the
Maturity Date, as the case may be, written notice in form
and execution satisfactory to the Trustee, stating that such
Holder wishes to take personal delivery of such Common
Shares, and specifying the principal office of the Trustee
at which such delivery is to be made.
(2) On the redemption date or the Maturity Date, as the case may be,
the Corporation will:
(a) cause to be sent to each Holder in respect of which
Debentures have been surrendered in accordance with the
requirements of the notice given pursuant to subsection
3.11(1), at the address of the Holder as shown on the
records of the Corporation, by prepaid ordinary insured mail
(or in the event of mail service interruption by such other
means as the Trustee and the Corporation will
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22
determine to be appropriate), share certificates for Common
Shares issued pursuant to section 3.10 in the name of such
Holder or, if the Trustee has received the written notice
and other documents and any payment contemplated by
paragraph 3.11(1)(c), in the name of such other Person or
Persons as are identified in such written notice; or
(b) make available for personal delivery, on proof of identity
satisfactory to the Trustee, to each Holder who has
delivered a notice to the Trustee in accordance with
paragraph 3.11(1)(d), share certificates for Common Shares
issued pursuant to section 3.10 to such Holder in respect of
which Debentures have been surrendered in accordance with
the requirements of the notice given pursuant to subsection
3.11(1).
(3) On or after the redemption date or the Maturity Date, as the case
may be, the Corporation will deliver share certificates
representing the Common Shares issued pursuant to section 3.10 to
any other registered holder thereof, upon presentation and
surrender of the Debentures in respect of which such Common
Shares were issued.
(4) Each share certificate delivered pursuant to this section 3.11
will be for that number of Common Shares that is the Holder's
proportionate share of the number of Common Shares determined in
accordance with section 3.9.
(5) Interest accrued and unpaid on the Debentures on the redemption
date or the Maturity Date, as the case may be, will be paid to
the Holders of Debentures in the manner contemplated in sections
2.10 or 2.11.
(6) If the Holder of any Debentures, in respect of which the
Corporation has elected pursuant to section 3.9 to satisfy its
obligation to pay the aggregate principal amount of such
Debentures by the issue of Common Shares, shall fail to surrender
any of such Debentures or shall not accept delivery of
certificates representing the Common Shares issuable to such
Holder, such Debentures shall, subject to section 3.3, after the
redemption date or the Maturity Date, as the case may be, not be
considered as outstanding hereunder, and the Debentureholder
shall have no right in respect thereof except to receive
certificates representing the Common Shares issuable to such
Holder upon surrender of such Debentures.
3.12 No Requirement to Issue Fractional Shares
The Corporation shall not be required to issue fractional Common Shares
upon the issue of Common Shares pursuant to section 3.10. If any fractional
interest in a Common Share would, except for the provisions of this section, be
deliverable upon the issue of any Common Shares pursuant to section 3.10, the
Corporation shall, in lieu of delivering any certificate representing such
fractional interest, satisfy such fractional interest by paying to the
registered holder of such Shares an amount in lawful money of Canada equal
(computed to the nearest cent) to an identical fraction of the Current Market
Price of the Common Shares on the redemption date or the Maturity Date, as the
case may be.
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3.13 Purchase of Debentures
(1) The Corporation may purchase all at any time or any from time to
time of the Debentures in the open market, by pro rata offer or
invitation for tenders made to all of the Debentureholders, or
otherwise; provided that the price at which the Corporation may
purchase the Debentures shall not, except in the case of a
purchase in the open market or a pro rata offer or invitation to
tender made to Holders of all Debentures then outstanding, exceed
the principal amount of the Debentures so purchased plus accrued
and unpaid interest thereon to the date of purchase plus costs of
purchase.
(2) If upon an invitation for tenders more Debentures are tendered
than the Corporation is prepared to accept at the lowest price
that the Corporation is prepared to accept, the Debentures to be
purchased by the Corporation will be selected by the Trustee by
lot, or in such other manner as the Trustee, in its discretion,
may consider equitable, from the Debentures tendered by each
tendering Debentureholder who tendered at such lowest price. For
the purpose of such selection, the Trustee may make, and from
time to time amend or vary, regulations with respect to the
manner in which such Debentures may be so selected and
regulations so made shall be valid and binding upon all Holders
of Debentures notwithstanding the fact that, as a result thereof,
one or more of such Debentures become subject to purchase in part
only.
(3) The Corporation may not exercise the right referred to in this
section if an Event of Default hereunder has occurred and is
continuing at the date of purchase.
3.14 Cancellation of Debentures - All Debentures redeemed and all
Debentures purchased under this Article 3 shall forthwith be
delivered to the Trustee and shall be cancelled by it and no
Debentures shall be issued in substitution therefor.
3.15 U.S. Legend - The Trustee understands and acknowledges that the
Common Shares have not been and will not be registered under the
U.S. Securities Act. Each Common Share certificate originally
issued in the United States or to a U.S. Person, and each Common
Share Certificate issued in exchange therefor or in substitution
thereof shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES
MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER,
(B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION
S UNDER THE U.S. SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER, IF AVAILABLE, AND THE COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR (D) IN COMPLIANCE WITH CERTAIN OTHER PROCEDURES
SATISFACTORY TO
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THE COMPANY. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD
DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE.
A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE
"GOOD DELIVERY", MAY BE OBTAINED FROM THE TRANSFER AGENT UPON DELIVERY
OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM
SATISFACTORY TO THE TRANSFER AGENT AND THE COMPANY, TO THE EFFECT THAT
THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT.
provided, however, that if the Common Shares are being sold under paragraph (B)
above, the legend may be removed by providing a declaration to the Trustee as
transfer agent for the securities to the following effect:
The undersigned (A) acknowledges that the sale of the securities to
which this declaration relates is being made in reliance on Rule 904 of
Regulation S under the United States Securities Act of 1933, as amended
(the "U.S. Securities Act") and (B) certifies that (1) it is not an
affiliate (as defined in Rule 405 under the U.S. Securities Act) of
Dakota Mining Corporation, (2) the offer of such securities was not
made to a person in the United States and either (A) at the time the
buy order was originated, the buyer was outside the United States, or
the seller and any person acting on its behalf reasonably believe that
the buyer was outside the United States, or (B) the transaction was
executed on or through the facilities of The Toronto Stock Exchange,
the Montreal Exchange, the Vancouver Stock Exchange or the Alberta
Stock Exchange and neither the seller nor any affiliate of the seller
nor any person acting on any of their behalf has engaged or will engage
in any directed selling efforts in the United States in connection with
the offer and sale of such securities, (4) the sale is bona fide and
not for the purpose of "washing off" the resale restrictions imposed
because the securities are "restricted securities" (as such term is
defined in Rule 144(a)(3) under the U.S. Securities Act), (5) the
seller does not intend to replace the securities and (6) the
contemplated sale is not a transaction, or part of a series of
transactions which, although in technical compliance with Regulation S,
is part of a plan or scheme to evade the registration provisions of the
U.S. Securities Act. Terms used herein have the meanings given to them
by Regulation S.
ARTICLE 4
CONVERSION
4.1 Conversion Privilege - Subject to and upon compliance with the
provisions of this Article 4, the Holder of each Debenture shall have
the right, at his option, at any time up to and including the close of
business on the last Business Day immediately preceding the Maturity
Date, or if such Debenture shall have been called for
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25
redemption prior to such date, then up to, but not after, the close of
business on the last Business Day immediately preceding the date fixed
for redemption (such time and date being referred to as the "Time of
Expiry"), to convert such Debenture or any portion of the principal
amount thereof which is $1,000 or an integral multiple of $1,000 into
fully paid and non-assessable Common Shares at the conversion price in
effect on the date hereof of $2.00 (the "Conversion Price") per Common
Share, being a rate of 500 Common Shares for each $1,000 principal
amount of Debentures, subject to adjustment as set forth in sections
4.3 and 4.4.
4.2 Manner of Exercise of Right to Convert
(1) The Holder of a Debenture wishing to convert such Debenture in
whole or in part into Common Shares shall surrender such
Debenture, prior to the Time of Expiry, to the Trustee, at its
principal offices in any of the cities of Vancouver, Toronto or
Montreal with the conversion form appearing thereon or appended
thereto, in either case duly executed by the Holder or his
executors or administrators or other legal representatives or his
or their attorney duly appointed by an instrument in form and
substance satisfactory to the Trustee, irrevocably exercising his
right to convert such Debenture in accordance with the provisions
of this Article 4. Thereupon, subject to subsection 4.3(8), such
Debentureholder or, subject to compliance with all reasonable
requirements of the Trustee (including, if required by the
Trustee, execution and delivery to the Trustee of a form of
transfer satisfactory to the Trustee duly executed by the Holder
or his executors or administrators or other legal representatives
or his or their attorney duly appointed by an instrument in
writing in form and executed in a manner satisfactory to the
Trustee, to transfer such Holder's Debenture or the Common Shares
to be issued on conversion of such Holder's Debenture and payment
of all applicable stamp taxes, security transfer taxes or other
governmental charges), his nominee or assignee, shall be entitled
to be entered in the books of the Corporation as at the Date of
Conversion (or such later date as is specified in subsection
4.2(2)) as the holder of the number of Common Shares into which
such Debenture is convertible in accordance with the provisions
hereof and, as soon as practicable thereafter, the Corporation
shall deliver to such Debentureholder or, subject as aforesaid,
his nominee or assignee, a certificate for such Common Shares
and, if applicable, a cheque for any amount payable under section
4.5.
(2) For the purposes hereof, a Debenture shall be deemed to be
surrendered for conversion on the date (the "Date of Conversion")
on which it is so surrendered in accordance with the provisions
hereof and, in the case of a Debenture so surrendered by mail or
other means of delivery, on the date on which it is received by
the Trustee at one of its offices specified in subsection 4.2(1),
provided that if a Debenture is surrendered for conversion on a
day on which the register of Common Shares is closed, the Person
entitled to receive Common Shares shall become the holder of
record of such Common Shares as at the date on which such
register is next reopened but such Common Shares will be issued
on the basis of the number of Common Shares to which such person
or persons were entitled on the Date of Conversion and provided
that if a Debenture is surrendered for conversion on any interest
payment date or the day of selection by the Trustee of any
Debentures for redemption, or in either case during the ten
preceding Business Days, such Debenture shall be deemed to be
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26
surrendered for conversion on the Business Day immediately
following such interest payment date or date on which Debentures
are selected for redemption.
(3) Any part, being $1,000 or an integral multiple thereof, of a
Debenture of a denomination in excess of $1,000 may be converted
as provided herein and all references in this Indenture to
conversion of Debentures shall be deemed to include conversion of
such parts. The Holder of any Debenture of which part only is
converted shall, upon the exercise of his right of conversion,
surrender such Debenture to the Trustee, and the Trustee shall
cancel the same and shall, without charge, forthwith certify and
deliver to the Holder a new Debenture or Debentures in an
aggregate principal amount equal to the unconverted part of the
principal amount of the Debenture so surrendered.
(4) The Holder of a Debenture surrendered for conversion in
accordance with this section 4.2 shall be entitled to receive
accrued and unpaid interest in respect thereof only for the
period up to the interest payment date, if any, which falls on
the Date of Conversion or, if the Date of Conversion is not an
interest payment date, for the period up to the interest payment
date immediately preceding the Date of Conversion; and there
shall be no payment or adjustment by the Corporation on account
of any interest accrued or accruing on such Debenture from the
date of the latest interest payment date. The Common Shares
issued upon conversion shall rank and bear entitlement only in
respect of dividends declared in favour of holders of record of
Common Shares on and after the Date of Conversion or such later
date as such Holder shall become the holder of record of such
Common Shares pursuant to subsection 4.2(2), from which
applicable date they will for all purposes be and be deemed to be
issued and outstanding as fully paid and non-assessable Common
Shares.
4.3 Adjustment of Conversion Price
(1) The Conversion Price will be subject to adjustment from time to
time in the events and in the manner provided as follows.
(2) Upon the Trustee receiving a Notice of Non-Qualification, then
the Conversion Price will immediately be adjusted to equal $1.82,
being a rate of 550 Common Shares for each $1,000 principal
amount of Debentures.
(3) If and whenever, at any time after the date hereof and prior to
the Time of Expiry, the Corporation:
(a) issues Common Shares (or securities convertible into or
exchangeable for Common Shares) to holders of Common Shares
as or by way of a stock dividend or other distribution
(other than Dividends Paid in the Ordinary Course or
dividends pursuant to any dividend reinvestment plan in
force from time to time or by way of dividends to holders of
Common Shares where such holders may elect to receive such
dividends in the form of Common Shares (or securities
convertible into or exchangeable for Common Shares) instead
of by way of cash Dividends Paid in the Ordinary Course);
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(b) makes a distribution to holders of Common Shares on its
outstanding Common Shares payable in Common Shares (or
securities convertible into or exchangeable for Common
Shares) (other than Dividends Paid in the Ordinary Course);
(c) subdivides its outstanding Common Shares into a greater
number of Common Shares; or
(d) consolidates its outstanding Common Shares into a smaller
number of Common Shares, (any of such events in paragraphs
(a), (b), (c) and (d) herein referred to as a "Common Share
Reorganization"), then the Conversion Price will be
adjusted, effective immediately after the effective date or
record date for the occurrence of a Common Share
Reorganization, as the case may be, at which the holders of
Common Shares are determined for the purpose of the Common
Share Reorganization, by multiplying the Conversion Price in
effect immediately prior to such effective date or record
date by a fraction, the numerator of which will be the
number of Common Shares outstanding on such effective date
or record date before giving effect to such Common Share
Reorganization and the denominator of which will be the
number of Common Shares that are or would be outstanding
immediately after such date after giving effect to such
Common Share Reorganization (including, in the case where
securities exchangeable for or convertible into Common
Shares are distributed, the number of Common Shares that
would have been outstanding had all such securities been
exchanged for or converted into Common Shares on such
effective date or record date).
(4) If and whenever, at any time after the date hereof and prior to
the Time of Expiry, the Corporation fixes a record date for the
issue of rights, options or warrants to all or substantially all
of the holders of Common Shares under which such holders are
entitled, during a period expiring not more than 45 days after
the date of such issue (the "Rights Period"), to subscribe for or
purchase Common Shares (or securities convertible into or
exchangeable for Common Shares) at a price per share to the
holder (or at a conversion or exchange price per share during the
Rights Period to the holder in the case of securities convertible
into or exchangeable for Common Shares) of less than 95% of the
Current Market Price for the Common Shares on such record date,
other than rights to receive dividends, in lieu of receiving cash
Dividends Paid in the Ordinary Course, in Common Shares, or
securities convertible into or exchangeable for Common Shares
having a fair market value, as determined by the Directors at the
time such dividend is declared, based upon the Current Market
Price of the Common Shares at such time, that is substantially
equivalent to the amount of such cash dividend (any of such
events herein referred to as a "Rights Offering"), then the
Conversion Price will be adjusted, effective immediately after
the end of the Rights Period, to a price determined by
multiplying the Conversion Price in effect immediately prior to
the end of the Rights Period by a fraction:
(a) the numerator of which will be the aggregate of:
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(i) the number of Common Shares outstanding as of the
record date for the Rights Offering; and
(ii) a number determined by dividing (A) either (I) the
product of the number of Common Shares issued or
subscribed for during the Rights Period upon the
exercise of the rights, warrants or options under the
Rights Offering and the price at which such Common
Shares are offered, or, as the case may be, (II) the
product of the exchange or conversion price of such
securities exchangeable for or convertible into Common
Shares and the number of Common Shares for or into
which the securities so offered pursuant to the Rights
Offering could have been exchanged or converted during
the Rights Period, by (B) the Current Market Price of
the Common Shares as of the record date for the Rights
Offering, and
(b) the denominator of which will be the number of Common Shares
outstanding, or the number of Common Shares which would be
outstanding if all the exchangeable or convertible
securities were exchanged for or converted into Common
Shares during the Rights Period, after giving effect to the
Rights Offering and including the number of Common Shares
actually issued or subscribed for during the Rights Period
upon exercise of the rights, warrants or options under the
Rights Offering.
Any Debentureholder who has exercised the right to convert Common Shares in
accordance with this Article 4 during the period beginning immediately after the
record date for a Rights Offering and ending on the last day of the Rights
Period for the Rights Offering will, in addition to the Common Shares to which
that holder would otherwise be entitled upon such conversion, be entitled to
that number of additional Common Shares equal to the result obtained when the
difference, if any, between the Conversion Price in effect immediately prior to
the end of such Rights Period and the Conversion Price, as adjusted for such
Rights Offering pursuant to this subsection, is multiplied by the number of
Common Shares received upon the conversion of the Debentures held by such Holder
during such period, and the resulting product is divided by the Conversion Price
as adjusted for such Rights Offering pursuant to this subsection; provided that
the provisions of section 4.5 will be applicable to any fractional interest in a
Common Share to which such Holder might otherwise be entitled under the
foregoing provisions of this subsection. Such additional Common Shares will be
deemed to have been issued to the Debentureholder immediately following the end
of the Rights Period and a certificate for such additional Common Shares will be
delivered to such Holder within 15 Business Days following the end of the Rights
Period. To the extent that any such rights, options or warrants are not so
exercised on or before the expiry thereof, the Conversion Price will be
readjusted to the Conversion Price which would then be in effect based on the
number of Common Shares (or the securities convertible into or exchangeable for
Common Shares) actually delivered on the exercise of such rights, options or
warrants.
(5) If and whenever, at any time after the date hereof and prior to
the Time of Expiry, the Corporation fixes a record date for the
issue or the distribution to all or
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29
substantially all the holders of Common Shares of (a) securities
of the Corporation, including rights, options or warrants to
acquire securities of the Corporation or any of its cash,
property or assets and including evidences of indebtedness or (b)
any cash, property or other assets, including evidences of
indebtedness, and if such issuance or distribution does not
constitute a Dividend Paid in the Ordinary Course, a Common Share
Reorganization or a Rights Offering (any of such non-excluded
events herein referred to as a "Special Distribution"), the
Conversion Price will be adjusted effective immediately after
such record date to a price determined by multiplying the
Conversion Price in effect on such record date by a fraction:
(i) the numerator of which will be:
(A) the product of the number of Common Shares outstanding
on such record date and the Current Market Price of the
Common Shares on such record date; less
(B) the fair market value, as determined by the Directors
(whose determination will be conclusive), to the
holders of Common Shares of such securities, cash,
property or other assets so issued or distributed in
the Special Distribution; and
(ii) the denominator of which will be the product of the
number of Common Shares outstanding on such record date
and the Current Market Price of the Common Shares on
such record date.
To the extent that any Special Distribution is not so made or to the extent that
any such rights, options or warrants so issued or distributed are not exercised
prior to the expiry thereof, the Conversion Price will be immediately
readjusted, with retroactive effect to the record date, to the Conversion Price
which would then be in effect based upon such securities or property or other
assets as actually distributed.
(6) If and whenever, at any time after the date hereof and prior to
the Maturity Date, there is a reclassification of the Common
Shares at any time outstanding or a change or exchange of the
Common Shares into or for other shares or into or for other
securities or any other capital reorganization (other than a
Common Share Reorganization), or a consolidation, amalgamation,
merger, arrangement or other form of business combination of the
Corporation with or into any other company or other entity (other
than a consolidation, amalgamation, merger, arrangement or
business combination which does not result in any
reclassification of the outstanding Common Shares or a change or
exchange of the Common Shares into or for other shares or into or
for other securities), or a transfer of the undertaking or assets
of the Corporation as an entirety or substantially as an entirety
to another corporation or other entity in which the holders of
Common Shares are entitled to receive shares, other securities or
other property (any of such events herein referred to as a
"Capital Reorganization"), any Holder of Debentures who exercises
the right to convert Debentures into Common Shares pursuant to
Debentures then held after the effective date of such Capital
Reorganization will be entitled to receive, and will accept for
the same aggregate consideration, in lieu of the number of Common
Shares to which such Holder was previously entitled upon
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30
such conversion, the aggregate number of shares, other securities
or other property (including cash) which such holder would have
been entitled to receive as a result of such Capital
Reorganization if, on the effective date thereof, the holder had
been the registered holder of the number of Common Shares to
which such holder was previously entitled upon conversion. The
Corporation will take all steps necessary to ensure that, on a
Capital Reorganization, the Holders of Debentures will receive
the aggregate number of shares, other securities or other
property to which they are entitled as a result of the Capital
Reorganization. Appropriate adjustments will be made as a result
of any such Capital Reorganization in the application of the
provisions set forth in this Article 4 with respect to the rights
and interests thereafter of holders of Debentures, such that the
provisions set forth in this Article 4 will thereafter
correspondingly be made applicable as nearly as may reasonably be
in relation to any shares, other securities or other property
thereafter deliverable upon the conversion of any Debenture. Any
such adjustment, subject to any approval required to be obtained
from any stock exchange on which the Common Shares are listed,
will be made by and set forth in an indenture supplemental hereto
approved by action of the Directors and by the Trustee and
entered into pursuant to the provisions of Article 13 and will
for all purposes be conclusively deemed to be an appropriate
adjustment.
(7) If the purchase price provided for in any rights, options or
warrants (the "Rights Offering Price") referred to in subsections
4.3(4) or (5) is decreased, the Conversion Price will forthwith
be changed so as to decrease the Conversion Price to the
Conversion Price that would have been obtained if the adjustment
to the Conversion Price made under subsection 4.3(4) or (4), as
the case may be, with respect to such rights, options or warrants
had been made on the basis of the Rights Offering Price as so
decreased, provided that the terms of this subsection will not
apply to any decrease in the Rights Offering Price resulting from
terms in any such rights, options or warrants designed to prevent
dilution except to the extent that the resulting decrease in the
Conversion Price under this subsection would be greater than the
decrease, if any, in the Conversion Price to be made under the
terms of this section by virtue of the occurrence of the event
giving rise to such decrease in the Rights Offering Price.
(8) In any case in which this section 4.3 shall require that an
adjustment shall become effective on or immediately after a
record date for or effective date of an event referred to herein,
the Corporation may defer, until the occurrence of such event,
issuing to the Holder of any Debenture converted after such
record date or effective date and before the occurrence of such
event the additional Common Shares issuable upon such conversion
or the additional securities or property to which such Holder is
entitled by reason of the adjustment required by such event;
provided, however, that the Corporation shall deliver to such
Holder an appropriate instrument evidencing such Holder's right
to receive such additional Common Shares, securities or property
upon the occurrence of such event and the right to receive any
distributions made on such additional Common Shares, securities
or property on and after the Date of Conversion or such later
date on which such Holder would, but for the provisions of this
subsection (8), have become the holder of record of such
additional Common Shares, securities or property pursuant to
subsection 4.2(2).
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4.4 Adjustment of Conversion Price for Take Over Bid
(1) If and whenever at any time on or before February 5, 2000,
there is a take-over bid for consideration per Common Share
equal to or greater than $1.80 (adjusted appropriately to
give effect to any subdivisions, redivisions, reductions,
combinations or consolidations), then the Conversion Price
will be adjusted effective upon the last Common Share
tendered to the take-over bid having been taken up to be the
aggregate of (i) $1.80 (adjusted as aforesaid); and (ii) the
interest paid plus the interest accrued and unpaid on each
Debenture in the principal amount of $1,000 divided by
either (A) a factor of 500 (as such number may be adjusted
in accordance with the provisions hereof), or (B) in the
case where the Qualification Date has not occurred on or
before the Qualification Deadline, a factor of 550 (as such
number may be adjusted in accordance with the provisions
hereof), in either case subject to a maximum Conversion
Price of $2.00.
(2) For the purposes of subsection 4.4(1), the term "take-over
bid" means an offer to acquire outstanding Common Shares
made to a Person where the shares subject to the offer to
acquire, together with the offeror's shares, constitute in
the aggregate 20% or more of the outstanding Common Shares
on the date of the offer to acquire.
4.5 Rules Regarding Calculation of Adjustment of Conversion Price
For the purposes of sections 4.3 and 4.4:
(1) The adjustments provided for in sections 4.3 and 4.4 are
cumulative and will be computed to the nearest one-tenth of
one cent and will be made successively (without duplication)
whenever an event referred to therein occurs, subject to the
following subsections of this section.
(2) No adjustment in the Conversion Price will be required
unless such adjustment would result in a cumulative change
of at least 1% in the prevailing Conversion Price; provided,
however, that any adjustments which, except for the
provisions of this subsection would otherwise have been
required to be made, will be carried forward and taken into
account in any subsequent adjustment.
(3) No adjustment in the Conversion Price will be required upon
the Shares pursuant to the exercise from time to time of
options under any stock option plan adopted by the
Corporation from time to time.
(4) No adjustment in the Conversion Price will be made in
respect of any event described in section 4.3, other than
the events referred to in paragraphs 4.3(3)(c) and (d), if
Debentureholders are entitled to participate in such event
on the same terms, mutatis mutandis, as if they had
converted their Debentures prior to or on the effective date
or record date of such event. Any such participation will be
subject to the prior consent of each stock exchange on which
the Common Shares are listed.
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(5) If at any time a dispute arises with respect to adjustments
provided for in section 4.3, such dispute will be
conclusively determined by the Corporation's auditors, or if
they are unable or unwilling to act, by such other firm of
independent chartered accountants as may be selected by the
Directors and approved by the Trustee and any such
determination will be binding upon the Corporation, the
Trustee, the Debentureholders and shareholders of the
Corporation; such auditors or accountants will be given
access to all necessary records of the Corporation. If any
such determination is made, the Corporation will deliver a
Certificate of the Corporation to the Trustee describing
such determination.
(6) If the Corporation sets a record date to determine the
holders of Common Shares for the purpose of entitling them
to receive any dividend or distribution or sets a record
date to take any other action and thereafter and before the
distribution to such shareholders of any such dividend or
distribution or the taking of any other action, legally
abandons its plan to pay or deliver such dividend or
distribution or take such other action, then no adjustment
in the Conversion Price shall be made.
(7) In the absence of a resolution of the Directors fixing a
record date for a Special Distribution or Rights Offering,
the Corporation will be deemed to have fixed as the record
date therefor the date on which the Special Distribution or
Rights Offering is effected.
(8) For greater certainty, Debentureholders shall have no right
to convert Debentures into any security other than Common
Shares unless an appropriate adjustment is made by and set
forth in an indenture supplemental hereto.
4.6 No Requirement to Issue Fractional Shares - The Corporation shall
not be required to issue fractional Common Shares upon the
conversion of Debentures. If more than one Debenture shall be
surrendered for conversion at one time by the same Holder, the
number of whole Common Shares issuable upon conversion thereof
shall be computed on the basis of the aggregate principal amount
of the Debentures to be converted. If any fractional interest in
a Common Share would, except for the provisions of this section,
be deliverable upon the conversion of any principal amount of
Debentures, the Corporation shall, in lieu of delivering any
certificate of such fractional interest, satisfy such fractional
interest by paying to the Holder of such surrendered Debentures
an amount in lawful money of Canada equal (computed to the
nearest cent) to the appropriate fraction of the Conversion Price
then in effect.
4.7 Corporation to Reserve Shares - The Corporation covenants that it
will at all times reserve and keep available out of its
authorized but unissued Common Shares solely for the purpose of
issue upon conversion of Debentures as provided herein, and
conditionally allot to Holders of Debentures who may exercise
their conversion rights hereunder, such number of Common Shares
as shall then be issuable upon the conversion of all outstanding
Debentures (taking into account the provisions of subsection
4.3(2)) and that all such Common Shares shall be listed for
trading upon their issuance on each stock exchange on which the
Common Shares are then listed for trading. All Common Shares
which shall be so issuable shall be duly and validly issued as
fully paid and non-assessable.
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4.8 Corporation to Qualify Shares - If at any time any registration
or filing pursuant to any securities laws of Canada or any
province thereof is required to ensure that any Common Shares
issuable upon the conversion of the Debentures are issued in
compliance with all such laws or to ensure that any such Common
Shares, once issued, are not subject to any restriction as to the
resale thereof, the Corporation covenants that it will take all
such action as may be necessary to make or obtain such
registration or filing, as the case may be.
4.9 Taxes and Charges on Conversion - The Corporation will from time
to time promptly pay or make provision satisfactory to the
Trustee for the payment of all taxes and charges which may be
imposed by the laws of Canada or any province thereof (except
income tax or security transfer tax, if any) which shall be
payable with respect to the issuance or delivery of Common Shares
to the Holders of Debentures upon the exercise of their right of
conversion pursuant to the terms of the Debentures and of this
Indenture.
4.10 Cancellation of Converted Debentures - All Debentures converted
in whole or in part shall be forthwith delivered to and cancelled
by the Trustee and, subject to subsection 4.2(3), no Debenture
shall be issued in substitution therefor.
4.11 Certificate as to Adjustment - The Corporation shall from time to
time, immediately after the occurrence of any event which
requires an adjustment or readjustment as provided in sections
4.3 and 4.4, deliver a Certificate of the Corporation to the
Trustee specifying the nature of the event requiring the same and
the amount of the adjustment or readjustment necessitated thereby
and setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based. Such
Certificate of the Corporation and the amount of the adjustment
specified therein shall, subject to the provisions of subsections
4.3(5), 4.3(8) and 4.5(5), be conclusive and binding on all
interested parties. Except in respect of any subdivision,
revision, reduction, combination or consolidation of the Common
Shares, the Corporation shall forthwith give notice to the
Debentureholders specifying the event requiring such adjustment
or readjustment and the amount thereof, including the resulting
Conversion Price; provided that if the Corporation has given
notice under section 4.12, covering all the relevant facts in
respect of such event, no such notice need be given under this
section 4.11.
4.12 Notice of Special Matters - The Corporation covenants that, so
long as any Debentures remain outstanding, it will, whenever
practicable, give notice to the Trustee and to the
Debentureholders of its intention to fix a record date for any
event referred to in subsections 4.3(3), (4) or (5) (other than
the subdivision, redivision, reduction, combination or
consolidation of Common Shares) or for a cash dividend (other
than a Dividend Paid in the Ordinary Course) which may give rise
to an adjustment in the Conversion Price, and such notice shall
specify the particulars of such event and the record date and the
effective date for such event; provided that the Corporation
shall only be required to specify in such notice such particulars
of such event as shall have been fixed and determined on the date
on which such notice is given. Such notice shall be given not
less than 14 days prior to the applicable record date.
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4.13 Notice of Expiry of Conversion Right - The Corporation covenants
that, so long as any Debentures remain outstanding, it will give
notice to the Trustee and the Debentureholders in the manner
provided in Article 11, not less than 21 days prior to the Time
of Expiry, of the expiry of the right of the Holders of the
Debentures to convert their Debentures.
4.14 Revival of Right to Convert - If the Corporation shall fail to
redeem any Debenture which has been called for redemption upon
due surrender of such Debenture, any right to convert such
Debenture as provided in this Article 4 shall revive and continue
as if such Debenture had not been called for redemption.
4.15 Protection of Trustee - Subject to section 12.3 and 12.4, the
Trustee shall not at any time be under any duty or responsibility
to any Debentureholder to determine whether any facts exist which
may require any adjustment in the Conversion Price, or with
respect to the nature or extent of any such adjustment when made,
or with respect to the method employed in making the same; and
shall not be accountable with respect to the validity or value
(or the kind or amount) of any Common Shares or of any shares or
other securities or other property which may at any time be
issued or delivered upon the conversion of any Debenture; and
shall not be responsible for any failure of the Corporation to
make any cash payment, or to issue, transfer or deliver Common
Shares or share certificates upon the surrender of any Debenture
for the purpose of conversion, or to comply with any of the
covenants contained in this Article 4.
ARTICLE 5
SUBORDINATION OF DEBENTURES
5.1 Agreement to Subordinate
(1) The Corporation covenants and agrees, and each Holder of a
Debenture, by his acceptance thereof, likewise agrees, that
the payment of the principal of and interest on the
Debentures is hereby expressly subordinated, subject and
junior, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of
all Senior Liabilities.
(2) Nothing contained in this Article 5 is intended to or shall
restrict the Corporation from incurring additional
indebtedness or from mortgaging, pledging or otherwise
charging its undertaking, property or assets to secure any
indebtedness or liability.
5.2 Distribution on Insolvency or Winding-up
(1) Upon any dissolution, winding-up, liquidation,
reorganization or other similar proceedings relative to the
Corporation or its property or assets, resulting from
bankruptcy, insolvency, involuntary reorganization or
receivership proceedings or upon an assignment for the
benefit of creditors or other marshalling of the assets and
liabilities of the Corporation for the benefit of creditors,
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(a) the holders of all Senior Liabilities will first be
entitled to receive payment in full of the principal
thereof, premium, if any, and interest due thereon,
before the Debentureholders are entitled to receive any
payment on account of the principal of, premium, if
any, or interest on the Debentures;
(b) any payment by, or distribution of assets of, the
Corporation of any kind or character, whether in cash,
property or securities (other than securities
("Excluded Securities") of the Corporation or any other
corporation provided for by a plan of reorganization or
arrangement the payment of which is subordinate, at
least to the extent provided in this Article 5 with
respect to the Debentures, to the payment of all Senior
Liabilities, provided that (i) the Senior Liabilities
are assumed by the new corporation, if any, resulting
from such reorganization or arrangement and (ii) the
rights of the holders of Senior Liabilities are not
altered adversely by such reorganization or
arrangement), to which the Debentureholders or the
Trustee would be entitled except for the provisions of
this Article 5, will be paid or delivered by the person
making such payment or distribution, whether a trustee
in bankruptcy, a receiver, a receiver- manager, an
assignee for benefit of creditors, a liquidator or
otherwise, directly to the holders of Senior
Liabilities or their representative or representatives
or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Senior
Liabilities may have been issued, ratably according to
the aggregate amounts remaining unpaid on account of
the Senior Liabilities held or represented by each, to
the extent necessary to make payment in full of all
Senior Liabilities remaining unpaid after giving effect
to any concurrent payment or distribution (or provision
therefor) to the holders of such Senior Liabilities;
(c) subject to section 5.6, if, notwithstanding the
foregoing, any payment by, or distribution of assets
of, the Corporation of any kind or character, whether
in cash, property or securities (other than Excluded
Securities), is received by the Trustee or the
Debentureholders before all Senior Liabilities are paid
in full, such payment or distribution, unless received
by the Trustee or the Debentureholders prior to the
commencement of an event resulting in a payment or
distribution as contemplated in this section and held
under sections 2.10(1), 3.6, 3.7, 3.11(6), 7.7, 7.8,
8.2 or 12.8, will be held in trust for the benefit of,
and will be paid over to the holders of such Senior
Liabilities or their representative or representatives
or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Senior
Liabilities may have been issued, ratably as aforesaid,
for application to the payment of all Senior
Liabilities remaining unpaid until such Senior
Liabilities have been paid in full, after giving effect
to any concurrent payment or distribution (or provision
therefor) to the holders of such Senior Liabilities;
(d) each holder of Debentures, by his acceptance thereof,
authorizes the Trustee to take such steps as may be
necessary or appropriate to entitle the holder or
holders of Senior Liabilities to receive payment or
distribution from the trustee
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in bankruptcy, receiver, receiver-manager, assignee for
benefit of creditors, or other liquidating agent making such
payment or distribution, all to the extent necessary to
provide for payment of all Senior Liabilities in full, in
money or money's worth, in priority to any payment of the
indebtedness represented by the Debentures as hereinabove
provided; and
(e) whenever the Senior Liabilities shall have been paid in
full, in money or money's worth, the holders of
Debentures shall be entitled to receive payment or
distribution from the trustee in bankruptcy, receiver,
receiver-manager, assignee for the benefit of the
creditors, or other liquidating agent making such
payment or distribution, and further assets available
for purposes of such payment or distribution.
(2) Upon any payment or distribution of assets of the
Corporation referred to in this Article 5, the Trustee and
the holders of the Debentures shall be entitled to rely upon
a certificate of the trustee in bankruptcy, receiver,
receiver-manager, assignee for benefit of creditors or other
liquidating agent making such payment or distribution,
delivered to the Trustee or to the holders of Debentures,
for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior
Liabilities and other indebtedness of the Corporation, the
amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent
thereto or to this Article 5. The Trustee, however, shall
not be deemed to owe any fiduciary duty to the holders of
Senior Liabilities and neither the Trustee nor any Holders
of Debentures shall be liable to any such holders if the
Trustee shall mistakenly pay over or distribute to Holders
of Debentures or the Corporation or any other person, moneys
or assets to which any holders of Senior Liabilities shall
be entitled by virtue of Article 5 of this Indenture or
otherwise.
5.3 Subrogation of Debentures - Subject to the payment in full of all
Senior Liabilities, the Debentureholders shall be subrogated to
the rights of the holders of Senior Liabilities to receive
payments and distributions of assets of the Corporation in
respect of and on account of Senior Liabilities, to the extent of
the application thereto of moneys or other assets which would
have been received by the Debentureholders but for the provisions
of this Article 5, until the principal of and interest on the
Debentures shall be paid in full. No payment or distribution of
assets of the Corporation to the Debentureholders which would be
payable or distributable to the holders of Senior Liabilities
pursuant to this Article 5 shall, as between the Corporation, its
creditors (other than the holders of Senior Liabilities) and the
Debentureholders, be deemed to be a payment by the Corporation to
or on account of the Debentureholders, it being understood that
the provisions of this Article 5 are, and are intended, solely
for the purpose of defining the relative rights of the
Debentureholders, on the one hand, and the holders of the Senior
Liabilities, on the other hand. Nothing contained in this Article
5 or elsewhere in this Indenture or in the Debentures is intended
to or shall impair, as between the Corporation and its creditors
(other than the holders of Senior Liabilities and the
Debentureholders), the obligation of the Corporation, which is
unconditional and absolute, to pay to the Debentureholders the
principal of and interest on the Debentures as and when the same
shall become due and payable in accordance with their terms,
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or to affect the relative rights of the Debentureholders and
creditors of the Corporation other than the holders of the Senior
Liabilities, nor shall anything herein or therein prevent the
Trustee or the holder of any Debenture from exercising all
remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article
5, of the holders of Senior Liabilities upon the exercise of any
such remedy.
5.4 No Payment to Debentureholders if Event of Default under the
Senior Liabilities
(1) Nothing contained in this Article 5 or elsewhere in this
Indenture, or in any of the Debentures, shall affect the
obligation of the Corporation to make, or prevent the
Corporation from making, any payment of principal of or
interest on the Debentures, except that the Corporation
shall not, until any payment contemplated pursuant to
section 5.2 has been made (but may do so thereafter, or if
no payment is required thereunder), make any such payment,
other than as contemplated by section 5.2 hereof:
(a) at any time during the pendency of any dissolution,
winding-up or liquidation of the Corporation or
reorganization or other similar proceedings specified
in section 5.2 affecting the affairs of the
Corporation; or
(b) if such payment would be prohibited under subsection
5.4(2); provided that no such dissolution, winding-up
or liquidation or reorganization or other similar
proceedings nor any event of default referred to in
subsection 5.4(2) shall prevent any payment being made
by the Corporation or the Trustee in connection with
the redemption of Debentures with respect to which
notice of redemption shall have been given prior to the
commencement of such dissolution, winding-up or
liquidation or reorganization or other similar
proceedings or the occurrence of such event of default
or in connection with any tenders made pursuant to any
call for tenders for purchase by the Corporation of
Debentures where such call shall have been made prior
to the commencement of such dissolution, winding-up or
liquidation or reorganization or other similar
proceedings or the occurrence of such event of default.
The fact that any such payment is prohibited by this
section 5.4 shall not prevent the failure to make such
payment from being an Event of Default hereunder.
(2) Except as hereinafter otherwise provided in subsections
5.4(3) and (4) and section 5.6, the Corporation shall not
make any payment, and the Trustee shall not be entitled to
demand, institute proceedings for the collection of, or
receive any payment or benefit (including without limitation
by compensation, set-off, combination of accounts or
realization of security or otherwise in any manner
whatsoever) on account of indebtedness represented by the
Debentures (i) in a manner inconsistent with the terms (as
they exist on the date hereof) of this Indenture or of the
Debentures, or (ii) at any time when an event of default, as
defined in any Senior Liabilities or any instrument
evidencing the same and permitting the holders thereof to
accelerate the maturity thereof, has occurred and is
continuing and notice of such event of default has been
given by or on behalf of the holders of Senior Liabilities
to the Corporation and the Trustee, in each case unless and
until the Senior Liabilities have been
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38
paid and satisfied in full or unless and until such event of
default shall have been cured or waived or shall have ceased
to exist.
(3) Nothing contained in this Article 5 or elsewhere in this
Indenture, or in any of the Debentures shall be construed so
as to prevent the Trustee from receiving, retaining and
making any payments on account of Debentures which are made
(i) in a manner that is consistent with the terms of this
Indenture or of the Debentures and (ii) at any time when no
event of default, as defined in any Senior Liabilities or
the instrument creating the same and permitting the holders
thereof to accelerate the maturity thereof, has occurred and
is continuing in respect of which notice has been given by
or on behalf of the holders of Senior Liabilities to the
Corporation and the Trustee.
(4) Nothing contained in this Article 5 or elsewhere in this
Indenture or in any of the Debentures shall be construed so
as to prevent the payment or distribution of Excluded
Securities to the Debentureholders or the payments or
distributions contemplated by paragraph 5.2(1)(c) to be made
to the Debentureholders.
5.5 Authorization of Debentureholders to Trustee to Effect
Subordination - Each Holder of a Debenture, by his
acceptance thereof, authorizes and directs the Trustee on
his behalf to take such action as may be necessary or
appropriate to effect the subordination provided for in this
Article 5 and appoints the Trustee his attorney-in-fact for
any and all such purposes. Upon request of the Corporation,
and upon being furnished with a Certificate of the
Corporation stating that one or more named persons are
holders of Senior Liabilities, or the representative or
representatives of such holders, or the trustee or trustees
under which any instruments evidencing such Senior
Liabilities may have been issued, and specifying the amount
and nature of such Senior Liabilities, the Trustee shall
enter into a written agreement or agreements with the
Corporation and the person or persons named in such
Certificate of the Corporation, providing that such person
or persons are entitled to all the rights and benefits of
this Article 5 as the holder or holders, representative or
representatives, or trustee or trustees of the Senior
Liabilities specified in such Certificate of the Corporation
and in such agreement. Such agreement shall be conclusive
evidence that the indebtedness specified therein is Senior
Liabilities. Nothing herein shall impair the rights of any
holder of Senior Indebtedness who has not entered into such
an agreement.
5.6 Knowledge of Trustee - Notwithstanding the provisions of
this Article 5 or any provisions of this Indenture or of the
Debentures, the Trustee shall not be charged with knowledge
of the existence of any Senior Liabilities or of any default
in the payment thereof or occurrence of an event of default
in respect thereof or of the terms of any instrument
evidencing Senior Liabilities, and the Trustee shall be
entitled to assume that no such event of default has
occurred or that no such facts exist, unless and until the
Trustee shall have received written notice thereof from the
Corporation or from the holder of any Senior Liabilities or
from the representative of any such holder, and, with
respect to any money which may at any time be received by
the Trustee in trust pursuant to any provision of this
Indenture, unless and until such written notice has been
received, nothing in this Indenture shall prevent the
Trustee from applying such money to the purposes for which
the same was so received,
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39
notwithstanding the occurrence or continuance of such
default or the existence of such facts with respect to such
Senior Liabilities.
5.7 Trustee May Hold Senior Liabilities - The Trustee is
entitled to all the rights set forth in this Article 5 with
respect to any Senior Liabilities at the time held by it, to
the same extent as any other holder of Senior Liabilities,
and nothing in this Indenture deprives the Trustee of any of
its rights as such holder.
5.8 Rights of Holders of Senior Liabilities Not Impaired - No
right of any present or future holder of any Senior
Liabilities to enforce the subordination herein will at any
time or in any way be prejudiced or impaired by any act or
failure to act on the part of the Corporation or by any
non-compliance by the Corporation with the terms, provisions
and covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged
with.
5.9 Altering the Senior Liabilities - The holders of the Senior
Liabilities have the right to extend, renew, modify or amend
the terms of the Senior Liabilities or any security therefor
and to release, sell or exchange such security and otherwise
to deal freely with the Corporation, all without notice to
or consent of the Debentureholders and without affecting the
liabilities and obligations of the parties to this Indenture
or the Debentureholders.
ARTICLE 6
COVENANTS OF THE CORPORATION
6.1 General Covenants
The Corporation covenants with the Trustee for the benefit of the
Trustee and the Debentureholders as follows:
(1) the Corporation will duly and punctually pay or cause to be
paid to every Debentureholder the principal of and interest
accrued on the Debentures of which he is the Holder
(including, in the case of default, interest on the amount
in default) on the dates, at the places, in the currency,
and in the manner mentioned herein and in the Debentures;
(2) except as herein otherwise expressly provided, the
Corporation will at all times maintain its corporate
existence and at all reasonable times it will furnish or
cause to be furnished to the Trustee or its duly authorized
agent or attorney such information relating to its business
as the Trustee may reasonably require and such books of
account of the Corporation as the Trustee may reasonably
request shall at all reasonable times be open for inspection
by the Trustee or such agent or attorney;
(3) the Corporation will furnish to the Trustee a copy of all
financial statements, whether annual or interim, of the
Corporation and the report, if any, of the
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Corporation's auditors thereon and of all annual and other
periodic reports of the Corporation furnished to its
shareholders at the same time as they are furnished to such
shareholders, and the Trustee shall have no obligation to
review or analyse such statements; and
(4) the Corporation will duly and punctually perform and carry
out all of the acts or things to be done by it as provided
in this Indenture.
6.2 Not to Extend Time for Payment of Interest or Principal
(1) The Corporation covenants that, in order to prevent any
accumulation after maturity of unpaid interest or of unpaid
Debentures, the Corporation will not directly or indirectly
extend or assent to the extension of time for payment of any
interest upon any Debentures or of any principal payable in
respect of any Debentures and that it will not directly or
indirectly be or become a party to or approve any such
arrangement by purchasing or funding any interest on the
Debentures or any principal thereof or in any other manner.
(2) If the time for the payment of any interest or principal
shall be so extended, whether or not such extension is by or
with the consent of the Corporation, notwithstanding
anything herein or in the Debentures contained, such
interest or principal shall not be entitled, in case of
default hereunder, to the benefit of this Indenture except
subject to the prior payment in full of the principal of all
the Debentures then outstanding and of all matured interest
on such Debentures the payment of which has not been so
extended.
6.3 To Provide Annual Certificate of Compliance - The Corporation
covenants that, on or before February 4, 1998 and on or before
February 4 in each subsequent year and at any other time if
requested by the Trustee, the Corporation will furnish to the
Trustee a Certificate of the Corporation stating:
(1) that the Corporation has complied with all covenants,
conditions and other requirements contained in this
Indenture, non-compliance with which would, with the giving
of notice or the lapse of time or both, constitute an Event
of Default hereunder or, if such is not the case, specifying
the covenant, condition or other requirement which has not
been complied with and giving particulars of such
non-compliance and the action, if any, the Corporation
proposes to take with respect thereto; and
(2) the Conversion Price then in effect, and, if there has been
any event within the 12 months prior to the date of such
Certificate which requires an adjustment or readjustment of
the Conversion Price as provided in sections 4.3 and 4.4 and
in respect of which a Certificate of the Corporation has not
been delivered as provided in section 4.10, specifying the
nature of the event requiring the same and the amount of the
adjustment or readjustment necessitated thereby and setting
forth in reasonable detail the method of calculation and the
facts on which the calculation is based.
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6.4 To Pay Trustee's Remuneration
(1) The Corporation covenants that it will pay to the Trustee
reasonable remuneration for its services as Trustee and will
pay all costs, charges and expenses (including reasonable
fees and disbursements of its counsel and all other advisors
not regularly in its employ) properly incurred by the
Trustee in connection herewith, on demand by the Trustee,
and also (in addition to any right of indemnity given to the
Trustee by law) will at all times keep indemnified the
Trustee against all liabilities, losses, damages, actions,
proceedings, costs, claims, expenses and demands in respect
of any matter or thing done or omitted by the Trustee (other
than through negligence of the Trustee) in any way relating
to this Indenture.
(2) Any amount due under this section 6.4 and unpaid 30 days
after demand for such payment shall bear interest from the
expiration of such 30 day period at a rate per annum equal
to the prime rate designated from time to time by Canadian
Imperial Bank of Commerce as its prime rate for commercial
loans in Canadian funds at Vancouver. After default all
amounts so payable and the interest thereon shall be payable
out of any funds coming into possession of the Trustee in
priority to any payment of the principal of and interest on
the Debentures.
6.5 Trustee may Perform Covenants - If the Corporation shall fail to
perform any of its covenants contained herein, the Trustee may in
its discretion, but (subject to section 7.2) need not, notify the
Debentureholders of such failure or may itself perform any of
such covenants capable of being performed by it and, if any such
covenant requires the payment of money, it may make such payment
with its own funds, or with money borrowed by it for such
purpose, but shall be under no obligation to do so; and all sums
so paid shall be payable by the Corporation in accordance with
the provisions of section 6.4. No such performance by the Trustee
of any covenant contained herein or payment by the Corporation of
any sums advanced or borrowed by the Trustee pursuant to the
foregoing provisions shall be deemed to relieve the Corporation
from any default hereunder.
ARTICLE 7
DEFAULT AND ENFORCEMENT
7.1 Events of Default - Each of the following events is hereinafter
sometimes referred to ----------------- as an "Event of Default":
(1) if the Corporation makes default in payment of the principal
of any Debenture when the same becomes due under any
provision hereof or of such Debenture; or
(2) if the Corporation makes default in payment of any interest
due on any Debenture and such default shall have continued
for a period of 30 days; or
(3) if a decree or order of a court having jurisdiction in the
premises is entered adjudging the Corporation a bankrupt or
insolvent under the Bankruptcy and Insolvency Act (Canada)
or any other bankruptcy, insolvency or analogous laws, or
issuing sequestration or
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process of execution against, or against any substantial
part of, the property of the Corporation, or appointing a
receiver of the Corporation or any substantial part of its
property, or ordering the winding-up or liquidation of its
affairs unless the Corporation actively and diligently
contests in good faith such decree or order and has such
decree or order stayed on or before 60 days after the issue
of such decree or order by a court; or
(4) if an order is made or a resolution is passed for the
winding-up or liquidation of the Corporation except in the
course of carrying out or pursuant to a transaction in
respect of which the conditions of section 9.1 are duly
observed and performed or if the Corporation institutes
proceedings to be adjudicated a bankrupt or insolvent, or
consents to the institution of bankruptcy or insolvency
proceedings against it under the Bankruptcy and Insolvency
Act (Canada), the Companies' Creditors Arrangement Act
(Canada) or any other bankruptcy, insolvency or analogous
laws, or consents to the filing of any petition therefor or
to the appointment of a receiver of the Corporation or any
substantial part of its property, or makes a general
assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they
become due or takes corporate action in furtherance of any
of the aforesaid purposes; or
(5) if an encumbrancer takes possession of all or substantially
all of the property of the Corporation and such taking of
possession shall have continued for a period of 60 days, or
if any process of execution is levied or enforced upon or
against all or substantially all of the property of the
Corporation and remains unsatisfied for such period as would
permit any such property to be sold thereunder, unless the
Corporation actively and diligently contests in good faith
such process, but in that event the Corporation shall, if
the Trustee so requires, give security which, in the
discretion of the Trustee, is sufficient to pay in full the
amount thereby claimed in case the claim is held to be
valid; or
(6) if the Corporation makes default in observing or performing
any other covenant or condition of this Indenture on its
part to be observed or performed and if such default
continues for a period of 60 days after notice in writing
has been given to the Corporation by the Trustee specifying
such default and requiring the Corporation to rectify the
same, unless the Trustee (having regard to the subject
matter of the default) shall have agreed to a longer period
and, in such event, for the period agreed to by the Trustee.
7.2 Notice of Events of Default
(1) If an Event of Default shall occur and is continuing the
Trustee shall, within 30 days after it becomes aware of the
occurrence of such Event of Default, give notice thereof to
the Debentureholders, provided that, notwithstanding the
foregoing, the Trustee shall not be required to give such
notice if the Trustee in good faith shall have decided that
the withholding of such notice is in the best interests of
the Debentureholders and shall have so advised the
Corporation in writing.
(2) Where notice of the occurrence of an Event of Default has
been given and the Event of Default is thereafter cured,
notice that the Event of Default is no longer continuing
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shall be given by the Trustee to the Debentureholders within
15 days after the Trustee becomes aware that the Event of
Default has been cured.
7.3 Acceleration on Default - If any Event of Default has occurred
and is continuing, the Trustee may in its discretion, and shall
upon receipt, of a Debentureholders' Request, subject to section
7.4, by notice in writing to the Corporation declare the
principal of and interest on the Debentures then outstanding and
any other moneys payable hereunder to be due and payable and the
same shall forthwith become immediately due and payable to the
Trustee, notwithstanding anything contained therein or herein to
the contrary, and the Corporation shall pay forthwith to the
Trustee for the benefit of the Debentureholders the principal of
and accrued and unpaid interest (including interest on amounts in
default) on such Debentures and all other moneys payable
hereunder, together with subsequent interest thereon at the rate
borne by the Debentures from the date of such declaration until
payment is received by the Trustee. Such payment when made shall
be deemed to have been made in discharge of the Corporation's
obligations hereunder and any moneys so received by the Trustee
shall be applied as provided in section 7.7.
7.4 Waiver of Default - If an Event of Default shall have occurred:
-----------------
(1) the Holders of not less than 66 2/3% of the principal amount
of the Debentures then outstanding shall have the power (in
addition to the powers exercisable by Extraordinary
Resolution as hereinafter provided) by instrument signed by
such Holders to instruct the Trustee to waive any Event of
Default hereunder and/or to cancel any declaration made by
the Trustee pursuant to section 7.3 and the Trustee shall
thereupon waive the Event of Default and/or cancel such
declaration upon such terms and conditions as such
Debentureholders shall prescribe; and
(2) the Trustee, so long as it has not become bound to institute
any proceedings hereunder, shall have the power to waive any
Event of Default hereunder, if, in the Trustee's opinion,
the same shall have been cured or adequate satisfaction made
therefor, and in such event to cancel any such declaration
theretofore made by the Trustee in the exercise of its
discretion, upon such terms and conditions as the Trustee
may consider advisable; provided that no delay or omission
of the Trustee or of the Debentureholders to exercise any
right or power accruing upon any Event of Default shall
impair any such right or power or shall be construed to be a
waiver of any such Event of Default or acquiescence therein
and provided further that no act or omission either of the
Trustee or of the Debentureholders shall extend to or be
taken in any manner whatsoever to affect any subsequent
Event of Default hereunder or the rights resulting
therefrom.
7.5 Enforcement by the Trustee - If an Event of Default shall have
occurred, but subject -------------------------- to section 7.4
and to the provisions of any Extraordinary Resolution that may be
passed by the Debentureholders hereinafter provided:
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(1) the Trustee may in its discretion proceed to enforce the
rights of the Trustee and of the Debentureholders by any
action, suit, remedy or proceeding authorized or permitted
by this Indenture or by law or equity; and may file such
proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the
Trustee and of the Debentureholders filed in any bankruptcy,
insolvency, winding-up or other judicial proceedings
relating to the Corporation;
(2) no such remedy for the enforcement of the rights of the
Trustee or the Debentureholders shall be exclusive of or
dependent on any other such remedy but any one or more of
such remedies may from time to time be exercised
independently or in combination;
(3) all rights of action hereunder may be enforced by the
Trustee without the possession of any of the Debentures or
the production thereof at the trial or other proceedings
relating thereto; and
(4) upon receipt of a Debentureholders' Request and upon
receiving sufficient funds and being indemnified to its
satisfaction as provided in subsection 12.3(2), the Trustee
shall exercise or take such one or more of such remedies as
the Debentureholders's Request may direct, provided that if
any such Debentureholders' Request directs the Trustee to
take proceedings out of court the Trustee may in its
discretion take judicial proceedings in lieu thereof.
7.6 Debentureholders May Not Sue
(1) No Holder of any Debenture shall have the right to institute
any action, suit or proceeding or to exercise any other
remedy authorized or permitted by this Indenture or by law
or by equity for the purpose of enforcing payment of
principal or interest owing on any Debenture or for the
execution of any trust or power hereunder, unless:
(a) the Debentureholders, by Extraordinary Resolution,
shall have made a request to the Trustee to take action
hereunder or the Debentureholders' Request referred to
in subsection 7.5(4) shall have been delivered to the
Trustee, and the Trustee shall have been offered a
reasonable opportunity either itself to proceed to
exercise the powers hereinbefore granted or to
institute an action, suit or proceeding in its name for
such purpose;
(b) the Debentureholders or any of them shall have
furnished to the Trustee, when requested by the
Trustee, sufficient funds and an indemnity in
accordance with subsection 12.3(2); and
(c) the Trustee shall have failed to act within a
reasonable time thereafter.
(2) In such event but not otherwise any Debentureholder, acting
on behalf of himself and all other Debentureholders, shall
be entitled to take proceedings in any court of competent
jurisdiction such as the Trustee might have taken under
section 7.5, but in no event shall any Debentureholder or
combination of Debentureholders have any right to take any
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45
other remedy or proceedings; it being understood and
intended that no one or more Holders of Debentures shall
have any right in any manner whatsoever to enforce any right
hereunder or under any Debenture except subject to the
conditions and in the manner herein provided, and that all
powers and trusts hereunder shall be exercised and all
proceedings at law shall be instituted, had and maintained
by the Trustee, except only as herein provided, and in any
event for the equal benefit of all Holders of outstanding
Debentures.
7.7 Application of Moneys - Except as otherwise provided herein, any
moneys arising from any enforcement hereof, whether by the
Trustee or any Holder of a Debenture, shall be held by the
Trustee and applied by it, together with any moneys then or
thereafter in the hands of the Trustee available for the purpose,
as follows:
(1) first, in payment or reimbursement to the Trustee of the
remuneration, expenses, disbursements and advances of the
Trustee earned, incurred or made in the administration or
execution of the trusts hereunder or otherwise in relation
to this Indenture with interest thereon as herein provided;
(2) second, (but subject to section 6.2) in or towards payment
of the principal of all of the Debentures then outstanding
and thereafter in or towards payment of the accrued and
unpaid interest and interest on overdue interest on such
Debentures (or if the Debentureholders, by instrument signed
by the Holders of more than 50% of the principal amount of
the Debentures then outstanding or by Extraordinary
Resolution passed at a meeting of Debentureholders, shall
have directed payments to be made in accordance with any
other order of priority, or without priority as between
principal and interest, then such moneys shall be applied in
accordance with such direction); and
(3) third, the surplus (if any) of such moneys shall be paid to
the Corporation or as it may direct; provided, however, that
no payments shall be made in respect of the principal or
interest on any Debenture held by or for the benefit of the
Corporation (other than any Debenture pledged for value and
in good faith to a Person other than the Corporation, but
only to the extent of such Person's interest therein) except
subject to the prior payment in full of the principal of and
interest on all Debentures which are not so held.
7.8 Distribution of Moneys - Payments to Holders of Debentures
pursuant to ---------------------- subsection 7.7 (2) shall be
made as follows:
(1) at least ten day's notice of every such payment shall be
given in the manner provided in Article Eleven specifying
the date and time when and the place or places where such
payments are to be made and the amount of the payment and
the application thereof as between principal and interest;
(2) payment of any Debenture shall be made upon presentation
thereof at any one of the places specified in such notice
and any such Debenture thereby paid in full shall be
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surrendered, otherwise a notation of such payment shall be
endorsed thereon; but the Trustee may in its discretion
dispense with presentation and surrender or endorsement in
any special case upon receipt by it of such indemnity as it
shall consider sufficient;
(3) from and after the date of payment specified in the notice,
interest shall accrue only on the amount owing on each
Debenture after giving credit for the amount of the payment
specified in such notice unless the Debenture in respect of
which such amount is owing is duly presented on or after the
date so specified and payment of such amount is not made;
and
(4) the Trustee shall not be required to make any partial or
interim payment to Debentureholders unless the moneys in its
hands, after reserving therefrom such amount as the Trustee
may think necessary to provide for the payments mentioned in
subsection 7.7 (1), exceed 5% of the aggregate principal
amount of the outstanding Debentures, but it may retain the
moneys so received by it and deal with the same as provided
in section 12.8 until the money or investments representing
the same, with the income derived therefrom, together with
any other moneys for the time being under its control shall
be sufficient for such purpose or until it shall consider it
advisable to apply the same in the manner hereinbefore set
forth.
7.9 Persons Dealing with Trustee - No Person dealing with the Trustee
or any of its agents shall be concerned to enquire whether an
Event of Default has occurred, or whether the powers which the
Trustee is purporting to exercise have become exercisable, or
whether any moneys remain due under this Indenture or on the
Debentures, or to see to the application of any moneys paid to
the Trustee; and in the absence of fraud on the part of such
Person, such dealing shall be deemed to be within the powers
hereby conferred and to be valid and effective accordingly.
7.10 Trustee Appointed Attorney - The Corporation irrevocably appoints
the Trustee to be the attorney of the Corporation in the name and
on behalf of the Corporation to execute any instruments and do
any things which the Corporation ought to execute and do, and has
not executed or done, under the covenants and provisions
contained in this Indenture and generally to use the name of the
Corporation in the exercise of all or any of the powers hereby
conferred on the Trustee with full powers of substitution and
revocation.
7.11 Remedies Cumulative - No remedy herein conferred upon or reserved
to the Trustee or the Holders of Debentures is intended to be
exclusive of any other remedy, but each and every such remedy
shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing by law or by
statute.
7.12 Immunity of Shareholders, Directors and Others - The
Debentureholders and the Trustee waive and release any right,
cause of action or remedy now or hereafter existing in any
jurisdiction against any past, present or future incorporator,
shareholder, director of officer of the Corporation or of any
Successor Corporation for the payment of the principal of or
interest on any of the Debentures or on any covenant, agreement,
representations or warranty by the Corporation contained herein
or in the Debentures except in the case where such individual has
acted fraudulently.
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7.13 Judgment Against the Corporation - In the case of any judicial or
other proceedings to obtain judgment for the principal of or
interest on the Debentures, judgment may be rendered against the
Corporation in favour of the Debentureholders or in favour of the
Trustee, as Trustee for the Debentureholders, for any amount
which may remain due in respect of the Debentures.
ARTICLE 8
SATISFACTION AND DISCHARGE
8.1 Cancellation and Destruction - All matured Debentures shall
forthwith after payment thereof be delivered to the Trustee and
cancelled by it. Subject to trust industry practice, all
Debentures which are cancelled or required to be cancelled under
this or any other provision of this Indenture shall be destroyed
by the Trustee and, if required by the Corporation, the Trustee
shall furnish to it a destruction certificate setting out the
designating numbers and denominations of the Debentures so
destroyed.
8.2 Non-Presentation of Debentures - Subject to section 2.11, if the
Holder of any Debenture shall fail to present the same for
payment on the date on which the principal thereof and/or the
interest thereon or represented thereby becomes payable either at
maturity or on redemption or otherwise or shall not accept
payment on account thereof and give such receipt therefor (if
any) as the Trustee may require:
(1) the Corporation shall be entitled to pay to the Trustee and
direct it to set aside; or
(2) in respect of moneys in the hands of the Trustee which may
or should be applied to the payment of the Debentures, the
Corporation shall be entitled to direct the Trustee to set
aside; or
(3) if the redemption was pursuant to notice given by the
Trustee, the Trustee may itself set aside; the principal
moneys and/or the interest, as the case may be, in trust to
be paid to the Holder of such Debenture upon due
presentation and surrender thereof in accordance with the
provisions of this Indenture; and thereupon the principal
moneys and/or the interest payable on or represented by each
Debenture in respect whereof such moneys have been set aside
shall be deemed to have been paid and thereafter such
Debentures shall not be considered as outstanding hereunder
and the Holders thereof shall thereafter have no right in
respect thereof except that of receiving payment of the
moneys so set aside by the Trustee (without interest
thereon) upon due presentation and surrender thereof,
subject always to the provisions of section 8.3. Any moneys
so set aside may, and, if remaining unclaimed for 60 days
shall be held by the Trustee in a non-interest bearing
account.
8.3 Repayment of Unclaimed Moneys - Any moneys set aside under
section 8.2 and not ----------------------------- claimed by and
paid to Holders of Debentures as provided in section 8.2 within
six years after
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the date of such setting aside shall be repaid to the Corporation
by the Trustee on demand and thereupon the Trustee shall be
released from all further liability with respect to such moneys
and thereafter the Holders of the Debentures in respect of which
such moneys were so repaid to the Corporation shall have no
rights in respect thereof except to obtain payment of the moneys
due thereon from the Corporation.
8.4 Discharge - Upon proof being given to the reasonable satisfaction
of the Trustee that all the Debentures and interest (including
interest on amounts in default) thereon have been paid or
satisfied or that, all the outstanding Debentures having matured
or having been duly called for redemption or the Trustee having
been given irrevocable instructions by the Corporation to give
within 90 days notice of redemption of all the outstanding
Debentures, such payment or redemption has been duly provided for
by payment to the Trustee or otherwise, and upon payment of all
costs, charges and expenses properly incurred by the Trustee in
relation to this Indenture and all interest thereon and the
remuneration of the Trustee, or upon provision satisfactory to
the Trustee being made therefor, the Trustee shall, at the
request and at the expense of the Corporation, execute and
deliver to the Corporation such deeds or other instruments as
shall be necessary to evidence the satisfaction and discharge of
this Indenture and to release the Corporation from its covenants
contained herein except those relating to the indemnification of
the Trustee.
ARTICLE 9
SUCCESSOR CORPORATION
9.1 Certain Requirements in Respect of Merger, etc. - The Corporation
shall not enter into any transaction, whether by way of
amalgamation, merger, reconstruction, reorganization,
consolidation, transfer, sale, lease or otherwise whereby all or
substantially all of its undertaking, property and assets would
become the property of any other Person or, in the case of any
such amalgamation, of the continuing corporation resulting
therefrom, but may do so if:
(1) such other Person or continuing corporation is a corporation
(the "Successor Corporation") incorporated under the laws of
Canada or any province thereof;
(2) the Successor Corporation shall perform such acts and
execute, prior to or contemporaneously with the completion
of such transaction, such indenture supplemental hereto and
other instruments (if any) as in the opinion of Counsel are
necessary or advisable to evidence the assumption by the
Successor Corporation of the liability for the due and
punctual payment of all the Debentures and the interest
thereon and all other moneys payable hereunder and the
covenant of such Successor Corporation to pay the same and
its agreement to observe and perform all the covenants and
obligations of the Corporation under this Indenture;
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(3) the Debentures will be valid and binding obligations of the
Successor Corporation entitling the Holders, as against the
Successor Corporation, to all of the rights they have under
this Indenture; and
(4) no condition or event shall exist in respect of the
Corporation or the Successor Corporation, either at the time
of such transaction or immediately thereafter after giving
full effect thereto, which constitutes or would, after the
giving of notice or the lapse of time or both, constitute an
Event of Default hereunder.
9.2 Vesting of Powers in Successor - Whenever the conditions of
section 9.1 have been duly ------------------------------
observed and performed, the Trustee shall execute and deliver the
supplemental indenture provided for in Article 13 and thereupon:
(1) the Successor Corporation shall possess and from time to
time may exercise each and every right and power of the
Corporation under this Indenture in the name of the
Corporation or otherwise, and any act or proceeding by any
provision of this Indenture required to be done or performed
by any Directors or officers of the Corporation may be done
and performed with like force and effect by the like
directors or officers of such Successor Corporation; and
(2) if, immediately after giving effect to the relevant
transaction referred to in section 9.1 on a pro forma basis,
the Successor Corporation shall have Consolidated Net Worth
in an amount which is not less than the Consolidated Net
Worth of the Corporation immediately prior to such
transaction, the Corporation shall be released and
discharged from liability under this Indenture and the
Trustee may execute any documents which it may be advised
are necessary or advisable for effecting or evidencing such
release and discharge (for purposes of this clause,
"Consolidated Net Worth" of any Person means the total of
the amounts shown on the balance sheet of such Person and
its consolidated subsidiaries, determined on a consolidated
basis in accordance with generally accepted accounting
principles in Canada, as of the end of the most recent
fiscal quarter of such Person ending at least 60 days prior
to the date of the relevant transaction referred to in
section 9.1, as the share capital plus any retained earnings
of such Person less any accumulated deficit of such Person).
ARTICLE 10
MEETINGS OF DEBENTUREHOLDERS
10.1 Right to Convene Meetings - The Trustee or the Corporation may at any
time and from time to time and the Trustee shall, upon receipt of a
written request of the Corporation or a Debentureholders' Request and
of sufficient funds and upon being indemnified to its reasonable
satisfaction by the Corporation or by the Debentureholders signing
such Debentureholders' Request against the costs which may be incurred
in connection with the calling and holding of such meeting, convene a
meeting of the Debentureholders. If the Trustee fails within 30 days
after receipt of such written request or Debentureholders' Request and
such indemnity to give notice convening a meeting, the Corporation or
such
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Debentureholders, as the case may be, may convene such meeting. Every
such meeting shall be held in the City of Vancouver or at such other
place as may be approved by the Trustee.
10.2 Notice of Meetings - Subject to section 10.12, not more than 60 and
not less than 30 days' notice of any meeting shall be given to the
Debentureholders and a copy thereof shall be sent by mail to the
Trustee unless the meeting has been called by it and to the
Corporation unless the meeting has been called by it. Such notice
shall state the time when and the place where the meeting is to be
held and shall state briefly the general nature of the business to be
transacted thereat, but it shall not be necessary for any such notice
to set out the terms of any resolution to be proposed at the meeting
or any of the provisions of this Article Ten.
10.3 Chairman - An individual, who need not be a Debentureholder, nominated
in writing by the Trustee shall be chairman of the meeting and if no
individual is so nominated or if the individual so nominated is unable
or unwilling to act or if the individual so nominated is not present
within 15 minutes from the time fixed for the holding of the meeting,
the Debentureholders present in person or by proxy shall choose an
individual present to be chairman.
10.4 Quorum - At any meeting of the Debentureholders other than a meeting
convened for the purpose of considering a resolution proposed to be
passed as an Extraordinary Resolution, as to which the provisions of
section 10.12 shall be applicable, a quorum shall consist of
Debentureholders present in person or by proxy and representing at
least 50% in principal amount of the outstanding Debentures. If a
quorum of the Debentureholders shall not be present within 30 minutes
from the time fixed for holding any such meeting, the meeting, if
convened by the Debentureholders or pursuant to a Debentureholder's
Request, shall be dissolved; but in any other case the meeting shall
be adjourned to the same day in the next week (unless such day is not
a Business Day, in which case it shall be adjourned to the next
following Business Day) at the same time and place and no notice shall
be required to be given in respect of the adjourned meeting. At the
adjourned meeting the Debentureholders present in person or by proxy
shall form a quorum and may transact the business for which the
meeting was originally convened notwithstanding that they may not
represent 50% of the principal amount of the outstanding Debentures.
10.5 Power to Adjourn - The chairman of any meeting at which a quorum of
the Debentureholders is present may, with the consent of the Holders
of a majority in principal amount of the Debentures present or
represented by proxy thereat, adjourn any such meeting and no notice
of such adjournment need be given except such notice, if any, as the
meeting so adjourned may prescribe.
10.6 Show of Hands - Every question submitted to a meeting shall be decided
in the first place by a majority of the votes given on a show of hands
except that votes on Extraordinary Resolutions shall be given in the
manner hereinafter provided. At such meeting unless a poll is duly
demanded as herein provided, a declaration by the chairman that a
resolution has been carried or carried unanimously or by a particular
majority or lost or not carried by a particular majority shall be
conclusive evidence of the fact. The Chairman of any meeting shall be
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entitled, both on a show of hands and on a poll, to vote with respect
to Debentures held by him or in respect of which he is a proxy.
10.7 Poll - On every Extraordinary Resolution, and on any other question
submitted to a meeting, when directed by the chairman or demanded by
one or more Debentureholders and/or proxies for Debentureholders
holding at least 5% of the principal amount of the Debentures
represented thereat, a poll shall be taken in such manner as the
chairman shall direct. Questions other than Extraordinary Resolutions
shall, if a poll is taken, be decided by the votes of the Holders of a
majority in principal amount of the Debentures represented at the
meeting and voted on the poll.
10.8 Voting - On a show of hands, every Person who is present and entitled
to vote, whether as a Debentureholder or as proxy for one or more
Debentureholders or both, shall have one vote. On a poll each
Debentureholder present in person or represented by a proxy duly
appointed by an instrument in writing shall be entitled to one vote in
respect of each $1,000.00 principal amount of Debentures of which he
shall then be the Holder. A proxy need not be a Debentureholder. In
the case of joint registered Holders of a Debenture, any one of them
present in person or by proxy at the meeting may vote in the absence
of the other or others; but in case more than one of them are present
in person or by proxy, they shall vote together in respect of the
Debentures of which they are joint registered Holders.
10.9 Regulations
(1) The Trustee or the Corporation, with the approval of the Trustee,
may from time to time make and from time to time vary such
regulations as it shall from time to time think fit providing
for:
(a) voting by proxy and the form of the instrument appointing a
proxy (which shall be in writing) and the manner in which
the same shall be executed and for the production of the
authority of any Person signing on behalf of a
Debentureholder;
(b) the deposit of instruments appointing proxies at such place
as the Trustee, the Corporation or the Debentureholders
convening a particular meeting, as the case may be, may in
the notice convening the meeting direct and the time, if
any, before the holding of the meeting or any adjournment
thereof by which the same shall be deposited; and
(c) the deposit of instruments appointing proxies at some
approved place or places other than the place at which a
particular meeting is to be held and enabling particulars of
instruments appointing proxies to be mailed, cabled,
telegraphed, telecopied or sent by telex before the meeting
to the Corporation or to the Trustee at the place where the
same is to be held and for the voting of proxies so
deposited as though the instruments themselves were produced
at the meeting.
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(2) Any regulations so made shall be binding and effective and the
votes given in accordance therewith shall be valid and shall be
counted. Save as such regulations may provide, the only Persons
who shall be recognized at any meeting as the Holders of any
Debentures, or as entitled to vote or be present at the meeting
in respect thereof, shall be Debentureholders and persons whom
Debentureholders have by instrument in writing duly appointed as
their proxies.
10.10Corporation and Trustee May Be Represented - The Corporation and the
Trustee, by their respective officers and directors, and the legal
advisers of the Corporation and the Trustee may attend any meeting of
the Debentureholders, but shall have no vote as such.
10.11Powers Exercisable by Extraordinary Resolution - In addition to the
powers conferred upon them by any other provisions of this Indenture
or by law, a meeting of the Debentureholders shall have the following
powers exercisable from time to time by Extraordinary Resolution:
(1) power to approve any change whatsoever in any of the provisions
of this Indenture or the Debentures and any modification,
abrogation, alteration, compromise or arrangement of the rights
of the Debentureholders and/or the Trustee against the
Corporation or against its undertaking, property and assets or
any part thereof, whether such rights arise under this Indenture
or the Debentures or otherwise;
(2) power to approve any scheme for the reconstruction or
reorganization of the Corporation or for the consolidation,
amalgamation or merger of the Corporation with any other
corporation or entity or for the selling or leasing of the
undertaking, property and assets of the Corporation or any part
thereof, provided that no such approval shall be necessary in
respect of any such transaction if the provisions of Article Nine
shall have been complied with;
(3) power to direct or authorize the Trustee to exercise any power,
right, remedy or authority given to it by this Indenture or the
Debentures in any manner specified in such Extraordinary
Resolution or to refrain from exercising any such power, right,
remedy or authority;
(4) power to waive and direct the Trustee to waive any default or
Event of Default hereunder and/or cancel any declaration made by
the Trustee pursuant to section 7.3 either unconditionally or
upon any conditions specified in such Extraordinary Resolution;
(5) power to restrain any Debentureholder from taking or instituting
any suit, action or proceeding for the purpose of enforcing
payment of the principal or interest of any Debenture, or for the
execution of any trust or power hereunder;
(6) power to direct any Debentureholder who, as such, has brought any
action, suit or proceeding to stay or discontinue or otherwise
deal with the same in the manner directed by such Extraordinary
Resolution upon payment, if the taking of such action, suit or
proceeding shall have been permitted by section 7.6, of the
costs, charges and expenses reasonably and properly incurred by
such Debentureholder in connection therewith;
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(7) power to appoint a committee to consult with the Trustee (and to
remove any committee so appointed) and to delegate to such
committee (subject to such limitations, if any, as may be
prescribed in such Extraordinary Resolution) all or any of the
powers which the Debentureholders may exercise by Extraordinary
Resolution under this section 10.11; the Extraordinary Resolution
making such appointment may provide for payment of the expenses
and disbursements of and compensation to such committee; such
committee shall consist of such number of individuals (who need
not be Debentureholders) as shall be prescribed in the
Extraordinary Resolution appointing it; subject to the
Extraordinary Resolution appointing it, every such committee may
elect its chairman and may make regulations respecting its
quorum, the calling of its meetings, the filling of vacancies
occurring in its number, the manner in which it may act and its
procedure generally and such regulations may provide that the
committee may act at a meeting at which a quorum is present or
may act by resolution signed in one or more counterparts by a
majority of the members thereof or the number of members thereof
necessary to constitute a quorum, whichever is the greater; all
acts of any such committee within the authority delegated to it
shall be binding upon all Debentureholders;
(8) power to agree to any compromise or arrangement with any creditor
or creditors or any class or classes of creditors, whether
secured or otherwise, and with holders of any shares or other
securities of the Corporation;
(9) power to authorize the distribution in specie of any shares,
bonds, debentures or other securities or obligations and/or cash
or other consideration received or the use or disposition of the
whole or any part of such shares, bonds, debentures or other
securities or obligations and/or cash or other consideration in
such manner and for such purpose as may be considered advisable
and specified in such Extraordinary Resolution;
(10) power to approve the exchange of the Debentures for or the
conversion thereof into shares, bonds, debentures or other
securities or obligations of the Corporation or of any company or
other entity formed or to be formed;
(11) power to remove the Trustee from office and to appoint a new
Trustee or Trustees; and
(12) power to amend, alter or repeal any Extraordinary Resolution
previously passed or approved by the Debentureholders or by any
committee appointed pursuant to subsection 10.11(7).
10.12 Meaning of "Extraordinary Resolution"
(1) The expression "Extraordinary Resolution" when used in this
Indenture means, subject as hereinafter provided in this Article
Ten, a resolution proposed to be passed as an Extraordinary
Resolution at a meeting of Debentureholders duly convened for the
purpose and held in accordance with the provisions of this
Article Ten at which the Holders of more than 50% of the
principal amount of the Debentures then outstanding are present
in person or by proxy and passed by the favourable votes of the
Holders of not less than 66 2/3% of the
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principal amount of Debentures represented at the meeting and
voted on a poll upon such resolution.
(2) If at any such meeting the holders of more than 50% of the
principal amount of the Debentures then outstanding are not
present in person or by proxy within 30 minutes after the time
appointed for the meeting, then the meeting, if convened by the
Debentureholders or pursuant to a Debentureholder's Request,
shall be dissolved; but in any other case it shall be adjourned
to such date, being not less than 21 nor more than 60 days later,
and to such place and time as may be appointed by the chairman.
Not less than ten days' notice shall be given of the time and
place of such adjourned meeting in the manner provided in Article
11. Such notice shall state that at the adjourned meeting the
Debentureholders present in person or by proxy shall form a
quorum, but it shall not be necessary to set forth the purposes
for which the meeting was originally called or any other
particulars. At the adjourned meeting the Debentureholders
present in person or by proxy shall form a quorum and may
transact the business for which the meeting was originally
convened and a resolution proposed at such adjourned meeting and
passed in accordance with subsection 10.12(1) shall be an
Extraordinary Resolution within the meaning of this Indenture,
notwithstanding that the Holders of more than 50% of the
principal amount of the Debentures then outstanding are not
present in person or by proxy at such adjourned meeting.
(3) Votes on an Extraordinary Resolution shall always be given on a
poll and no demand for a poll on an Extraordinary Resolution
shall be necessary.
10.13Powers Cumulative - It is hereby declared and agreed that any one or
more of the powers and/or any combination of the powers in this
Indenture stated to be exercisable by the Debentureholders by
Extraordinary Resolution or otherwise may be exercised from time to
time and the exercise of any one or more of such powers or any
combination of powers from time to time shall not be deemed to exhaust
the right of the Debentureholders to exercise the same or any other
such power or powers or combination of powers thereafter from time to
time.
10.14Minutes - Minutes of all resolutions and proceedings at every meeting
of Debentureholders shall be made and duly entered in books to be
provided for that purpose by the Trustee at the expense of the
Corporation, and any such minutes, if signed by the chairman of the
meeting at which such resolutions were passed or proceedings taken, or
by the chairman of the next succeeding meeting of the
Debentureholders, shall be prima facie evidence of the matters therein
stated and, until the contrary is proved, every such meeting, in
respect of the proceedings of which minutes shall have been made,
shall be deemed to have been duly held and convened, and all
resolutions passed or proceedings taken thereat, to have been duly
passed and taken.
10.15Signed Instruments - Any action which may be taken and any power which
may be exercised by the Debentureholders at a meeting held as
hereinbefore in this Article provided may also be taken and exercised
by the Holders of more than 66 2/3% of the principal amount of the
outstanding Debentures by a signed instrument and the expression
"Extraordinary Resolution" when used in this Indenture shall include
an instrument so signed. Notice of any Extraordinary Resolution passed
in accordance with this section 10.15 shall be given by the
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Trustee to the Holders of Debentures affected thereby within 30 days
of the date on which such Extraordinary Resolution was passed.
10.16Binding Effect of Resolutions - Every resolution and every
Extraordinary Resolution passed in accordance with the provisions of
this Article 10 at a meeting of Debentureholders shall be binding upon
all the Debentureholders, whether present at or absent from such
meeting, and every instrument signed by Debentureholders in accordance
with section 10.15 shall be binding upon all the Debentureholders,
whether signatories thereto or not, and each and every Debentureholder
and the Trustee (subject to the provisions for its indemnity herein
contained) shall be bound to give effect to every such resolution,
Extraordinary Resolution and instrument.
10.17 Evidence of Rights of Debentureholders
(1) Any request, direction, notice, consent or other instrument which
this Indenture may require or permit to be signed or executed by
the Debentureholders may be in any number of concurrent
instruments of similar tenor and may be signed or executed by
such Debentureholders in person or by attorney duly appointed in
writing.
(2) The Trustee may, nevertheless, in its discretion require further
proof in cases where it considers further proof necessary or
desirable or may accept such other proof as it shall consider
proper.
ARTICLE 11
NOTICES
11.1 Notice to the Corporation - Any notice to the Corporation under the
provisions of this Indenture shall be valid and effective if (i)
delivered to, the Corporation at 410 Seventeenth Street, Suite 2450,
Denver, Colorado, U.S.A., 80202, Attention: President or (ii) sent by
facsimile to (303) 573-1012 and shall be deemed to have been given at
the time of delivery or sending by facsimile, if delivered or sent by
facsimile, provided that any delivery made by facsimile sent on a day
other than a Business Day, or after 2:00 p.m. (Denver, Colorado time)
on a Business Day, shall be deemed to be received on the next
following Business Day, as the case may be. The Corporation may from
time to time notify the Trustee of a change of address of facsimile
number which thereafter, until changed by further notice, shall be the
address or facsimile number of the Corporation for all purposes of
this Indenture.
11.2 Notice to Debentureholders - Except as otherwise expressly provided
herein, all notices to be given hereunder with respect to the
Debentures shall be valid and effective if such notice is delivered
personally or, subject to section 11.4, sent by ordinary mail, postage
prepaid, addressed to the Holders at their addresses appearing in any
of the registers hereinbefore mentioned. If in the case of joint
holders of any Debentures more than one address appears on the
register in respect of the joint holding, such notice shall be
addressed or delivered, as the case may be, only to the first address
so appearing. Any notice so delivered or sent by mail shall be deemed
to have been given on the day upon which it is delivered or mailed, as
the
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case may be. Any accidental error, omission or failure in giving or in
delivering or mailing any such notice or the non-receipt of any such
notice by any Debentureholder or Holders shall not invalidate or
otherwise prejudicially affect any action or proceeding founded
thereon.
11.3 Notice to the Trustee - Any notice to the Trustee under the provisions
of this Indenture shall be valid and effective if (i) delivered to the
Trustee at Montreal Trust Company of Canada, 510 Burrard Street,
Vancouver, British Columbia, V6C 3B9, or (ii) sent by facsimile to
(604) 685-4079 and shall be deemed to have been given at the time of
delivery or sending by facsimile, if delivered or sent by facsimile,
provided that any delivery made by facsimile sent on a day other than
a Business Day, or after 2:00 p.m. (Vancouver time) on a Business Day,
shall be deemed to be received on the next following Business Day, as
the case may be. The Trustee may from time to time notify the
Corporation of a change of address or facsimile number which
thereafter, until changed by further notice, shall be the address or
facsimile number of the Trustee for all purposes of this Indenture.
11.4 Mail Service Interruption - If the Trustee determines that mail
service is or is threatened to be interrupted at the time when the
Trustee or the Corporation is required or elects to give any notice to
the Debentureholders hereunder, the Trustee or the Corporation shall,
notwithstanding the provisions hereof, give such notice at the
Corporation's expense by means of publication in The Globe and Mail,
national edition, or any other English language daily newspaper or
newspapers of general circulation in Canada and in La Presse or in any
other French language daily newspaper of general circulation in the
Province of Quebec, once in each of two successive weeks, and any
notice so published shall be deemed to have been given on the first
date on which the publication takes place.
ARTICLE 12
CONCERNING THE TRUSTEE
12.1 Trust Indenture Legislation
(1) In this Article 12, the term "Indenture Legislation" means the
provisions, if any, of the Canada Business Corporations Act and
any other statute of Canada or a province thereof, and of the
regulations under any such statute, relating to trust indentures
and to the rights, duties and obligations of trustees under trust
indentures and of corporations issuing debt obligations under
trust indentures, to the extent that such provisions are at the
time in force and applicable to this Indenture or the
Corporation.
(2) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of the
Indenture Legislation, such mandatory requirement shall prevail.
(3) At all times in relation to this Indenture and any action to be
taken hereunder, the Corporation and the Trustee each shall
observe and comply with the Indenture Legislation and the
Corporation, the Trustee and each Debentureholder shall be
entitled to the benefits of the Indenture Legislation.
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12.2 No Conflict of Interest - The Trustee represents to the
Corporation that at the date of the execution and delivery of
this Indenture there exists no material conflict of interest in
the role of the Trustee as a fiduciary hereunder. If at any time
a material conflict of interest exists in the Trustee's role as a
fiduciary hereunder the Trustee shall, within 90 days after
ascertaining that such a material conflict of interest exists,
either eliminate the same or else resign as Trustee hereunder by
giving notice in writing to the Corporation at least 21 days
prior to such resignation and shall thereupon be discharged from
all further duties and liabilities hereunder.
12.3 Rights and Duties of Trustee
(1) In the exercise of the rights and duties prescribed or conferred
by the terms of this Indenture, the Trustee shall act honestly
and in good faith with a view to the best interests of the
Debentureholders and shall exercise that degree of care,
diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances.
(2) The obligation of the Trustee to commence or continue any act,
action or proceeding for the purpose of enforcing any rights of
the Trustee or the Debentureholders hereunder shall be
conditional upon the Debentureholders furnishing, when required
by notice in writing by the Trustee, sufficient funds to commence
or continue such act, action or proceeding and indemnity
reasonably satisfactory to the Trustee to protect and hold
harmless the Trustee against the costs, charges and expenses and
liabilities to be incurred thereby and any loss and damage it may
suffer by reason thereof. None of the provisions contained in
this Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur financial liability in the
performance of any of its duties or in the exercise of any of its
rights or powers unless indemnified and funded as aforesaid.
(3) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Debentureholders at whose instance it is acting to deposit with
the Trustee the Debentures held by them, for which Debentures the
Trustee shall issue receipts.
(4) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence
submitted to it is subject to the provisions of Indenture
Legislation, this section 12.3 and section 12.4.
(5) Without limiting any protection or indemnity of the Trustee under
any other provision hereof, or otherwise at law, the Corporation
hereby agrees to indemnify and hold harmless the Trustee from and
against any and all liabilities, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements,
including reasonable legal or advisor fees and disbursements, of
whatever kind and nature which may at any time be imposed on ,
incurred by or asserted against the Trustee in connection with
the performance of its duties and obligations hereunder, other
than such liabilities, losses, damages, penalties, claims,
actions, suits, costs, expenses and disbursements arising by
reason of the gross negligence or fraud of the Trustee. This
provision shall survive the resignation or removal of the
Trustee, or the termination of the Indenture. The Trustee shall
not be under any obligation to
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prosecute or to defend any action or suit in respect of the
relationship which, in the opinion of its counsel, may involve it
in expense or liability, unless the Company shall, so often as
required, furnish the Trustee with satisfactory indemnity and
funding against such expense or liability.
12.4 Evidence, Experts and Advisers
(1) In addition to the reports, certificates, opinions, statutory
declarations and other evidence required by this Indenture, the
Corporation shall furnish to the Trustee such additional evidence
of compliance with any provisions hereof, and in such form, as
may be prescribed by Indenture Legislation or as the Trustee may
reasonably require by written notice to the Corporation.
(2) In the exercise of its rights, duties and obligations, the
Trustee may, if it is acting in good faith, rely as to the truth
of the statements and the accuracy of the opinions expressed
therein, upon statutory declarations, opinions, reports,
certificates or other evidence referred to in subsection 12.4(1)
provided that the Trustee examines the same and determines that
such evidence complies with the applicable requirements of this
Indenture and of Indenture Legislation.
(3) The Trustee may employ or retain such counsel, auditors,
accountants, appraisers or other experts or advisers, whose
qualifications give authority to any opinion or report made by
them, as it may reasonably require for the purpose of discharging
its duties hereunder and shall not be responsible for any
misconduct on the part of any of them.
12.5 Trustee May Deal in Debentures - Subject to section 12.3, the Trustee may
buy, sell, lend upon and deal in the Debentures or other securities of the
Corporation, either with the Corporation or otherwise, and generally
contract and enter into financial transactions with the Corporation or
otherwise, without being liable to account for any profits made thereby.
12.6 Trustee Not Required to Give Security - The Trustee shall not be required
to give any bond or security in respect of the execution of the trusts and
powers of this Indenture or otherwise in respect of this Indenture.
12.7 Protection of Trustee - By way of supplement to the provisions of any law
for the time being relating to trustees, it is expressly declared and
agreed as follows:
(1) the Trustee shall not be liable for or by reason of any statements of
fact or recitals in this Indenture or in the Debentures (except the
representation contained in section 12.2 and in the certificate of the
Trustee on the Debentures) or required to verify the same, but all
such statements or recitals are and shall be deemed to be made by the
Corporation;
(2) nothing herein contained shall impose any obligation on the Trustee to
see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto;
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(3) the Trustee shall not be bound to give notice to any Person of the
execution hereof; and
(4) the Trustee shall not incur any liability or responsibility whatever
or be in any way responsible for the consequence of any breach on the
part of the Corporation of any of the covenants herein contained or of
any acts of the agents of the Corporation.
12.8 Investment of Trust Moneys
(1) Unless otherwise provided in this Indenture, any money held by the
Trustee, which may or ought to be invested or which may be on deposit
with the Trustee or which may be in the hands of the Trustee may be
invested and reinvested in the name or under the control of the
Trustee as directed in writing by the Corporation in securities in
which, under the laws of the Province of British Columbia, trustees
are authorized to invest trust money, provided such securities are
expressed to mature within one year after their purchase by the
Trustee. Pending such investment such moneys may be placed by the
Trustee on deposit in a chartered bank in Canada or with its own
deposit department. The Trustee shall allow interest at the current
rate for similar deposits on moneys remaining on deposit with it and,
provided that the Corporation is not in default hereunder, shall
credit the Corporation with interest received on moneys deposited with
other depositaries and on all moneys invested as provided in this
section 12.8.
(2) The Trustee shall be accountable only for reasonable diligence in the
investment of moneys under this section 12.8 and the Trustee shall not
be liable for any loss or losses realized on such investments,
negligence, wilful acts or defaults only excepted.
12.9 Action by Trustee to Protect Interests
(1) The Trustee shall be entitled and empowered, either in its own name or
as trustee of an express trust, or as power of attorney or
attorney-in-fact for the Holders, or in any one or more of such
capacities, to file such proof of debt, amendment of proof of debt,
claim, petition or other document as may be necessary or advisable in
order to have the claim of the Trustee and of the Holders allowed in
any insolvency, bankruptcy, liquidation or other judicial proceedings
relative to the Corporation or its creditors or relative to or
affecting its property. The Trustee is hereby irrevocably appointed
(and the successive respective Holders by taking and holding the same
shall be conclusively deemed to have so appointed the Trustee) the
true and lawful power of attorney or attorney-in-fact of the
respective Holders with authority to make and file in the respective
names of the Holders or on behalf of the Holders as a class, subject
to deduction from any such claims of the amounts of any claims filed
by any of the Holders themselves, any proof of debt, amendment of
proof of debt, claim, petition or other documents in any such
proceedings and to receive payment of any sums becoming distributable
on account thereof, and to execute any such other papers and documents
and to do and perform any and all such acts and things for and on
behalf of such Holders, as may be necessary or advisable in the
opinion of the Trustee, in order to have the respective claims of the
Trustee and of the Holders against the Corporation or its property
allowed in any such
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proceeding, and to receive payment of or on account of such claims;
provided, however, that nothing contained in this Indenture shall be
deemed to give to the Trustee, unless so authorized by Extraordinary
Resolution, any right to accept or consent to any plan of
reorganization or otherwise by action of any character in such
proceeding to waive or change in any way any right of any
Debentureholder.
(2) The Trustee shall have the power to institute and maintain all and any
such actions, suits or proceedings as it may consider necessary or
expedient to preserve, protect or enforce its interests and the
interests of the Holders of the Debentures.
(3) Any such suit or proceeding instituted by the Trustee may be brought
in the name of the Trustee as trustee, and any recovery of judgment
shall be for the rateable benefit of the Holders of the Debentures
subject to the provisions of this Indenture. In any proceeding brought
by the Trustee (and also any proceeding in which a declaratory
judgment of a court may be sought as to the interpretation or
construction of any provision of this Indenture, to which the Trustee
shall be a party) the Trustee shall be held to represent all the
Holders, and it shall not be necessary to make any Holders of the
Debentures parties to any such proceeding.
12.10 Replacement of Trustee
(1) The Trustee may resign from the trusts hereunder and thereupon be
discharged from all further duties and liabilities hereunder by giving
to the Corporation 60 days' notice in writing or such shorter notice
as the Corporation may accept as sufficient. The Debentureholders by
Extraordinary Resolution shall have power at any time to remove the
Trustee and to appoint a new trustee hereunder. In the event of the
Trustee resigning or being removed as aforesaid or being dissolved,
becoming bankrupt, going into liquidation or otherwise becoming
incapable of acting hereunder, the Corporation shall forthwith appoint
a new trustee hereunder unless a new trustee has already been
appointed by the Debentureholders; failing such appointment by the
Corporation, the retiring trustee hereunder (at the expense of the
Corporation) or any Debentureholder may apply to the Supreme Court of
British Columbia, on such notice as such Court may direct, for the
appointment of a new trustee hereunder; but any trustee so appointed
by the Corporation or by the Court shall be subject to removal as
aforesaid by the Debentureholders. Any new trustee hereunder appointed
under any provision of this section 12.10 shall be a company
authorized and qualified to carry on the business of a trust company
in the Province of British Columbia and every other jurisdiction where
such authorization or qualification is necessary to enable it to act
as a trustee hereunder, shall certify that it will not have any
material conflict of interest upon becoming trustee hereunder, and
shall accept the trust herein declared and provided for. On any new
appointment the new trustee shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named
herein as Trustee.
(2) Any corporation into which the Trustee may be merged or with which it
may be consolidated or amalgamated, or any corporation resulting from
any merger, consolidation or amalgamation to which the Trustee shall
be a party, shall be the successor Trustee under this Indenture
without the necessity of the execution of any instrument or any
further act, provided
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that such corporation is authorized to carry on the business of a
trust company in the Province of British Columbia and every other
jurisdiction where such authorization or qualification is necessary to
enable it to act as trustee hereunder.
12.11Acceptance - The Trustee accepts its obligations provided for in this
Indenture and agrees to perform the same upon the terms and conditions
herein set forth and as trustee for the various Persons who shall from
time to time be Debentureholders, subject to the terms and conditions
herein set forth.
ARTICLE 13
SUPPLEMENTAL INDENTURES
13.1 Supplemental Indentures - From time to time the Corporation (subject to the
approval of The Toronto Stock Exchange if the Common Shares at such time
are, or at any time in the six months prior thereto were, listed on such
Exchange), when authorized by a resolution of the Directors, may, subject
to the provisions of this Indenture, and the Trustee shall, when required
by this Indenture, execute, acknowledge and deliver by their proper
officers deeds or indentures supplemental hereto, which thereafter shall
form part hereof, for any one or more of the following purposes:
(1) adding to the provisions hereof such additional covenants of the
Corporation, enforcement provisions and other provisions for the
protection of the Holders of the Debentures and/or providing for
events of default in addition to those herein specified;
(2) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder, including the making of any modifications in the form of
the Debentures which do not affect the substance thereof and which, in
the opinion of the Trustee, it may be expedient to make, provided that
the Trustee shall be of the opinion, based on the opinion of Counsel,
that such provisions and modifications will not adversely affect, in
any substantial respect, the interests of the Debentureholders;
(3) evidencing the succession, or successive successions, of other
companies to the Corporation and the covenants of and obligations
assumed by any such successor in accordance with the provisions of
this Indenture;
(4) giving effect to any Extraordinary Resolution passed as provided in
Article 10;
(5) making any modification of any of the provisions of this Indenture or
the Debentures which is of a formal, minor or technical nature;
(6) making any additions to, deletions from or alterations of any of the
provisions of this Indenture (including any of the terms and
conditions of the Debentures)
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(i) which the Corporation may deem necessary or advisable and which,
in the opinion of the Trustee, based on the opinion of Counsel, do not
adversely affect, in any substantial respect, the interests of the
Debentureholders or (ii) which, in the opinion of the Trustee, based
on the opinion of Counsel, are necessary or advisable in order to
incorporate, reflect or comply with Indenture Legislation;
(7) adding to or altering the provisions hereof in respect of the transfer
of Debentures, including provision for the exchange of Debentures of
different denominations, and making any modification in the form of
the Debentures which does not affect the substance thereof and which,
in the opinion of the Trustee, based on the opinion of Counsel, is not
materially prejudicial to the interests of the Debentureholders;
(8) correcting or rectifying any ambiguities, defective provisions, errors
or omissions herein, provided that, in the opinion of the Trustee, the
rights of the Trustee and the Debentureholders are not materially
prejudiced thereby; and
(9) any other purpose not inconsistent with the terms of this Indenture
provided that, in the opinion of the Trustee, based on the opinion of
Counsel, the rights of the Trustee and of the Debentureholders are not
materially prejudiced thereby.
ARTICLE 14
EXECUTION
14.1 Counterparts and Formal Date - This Indenture may be executed in
several counterparts, each of which when so executed shall be deemed
to be an original, and such counterparts together shall constitute one
and the same instrument and notwithstanding their date of execution
shall be deemed to bear date as of the date first above written.
14.2 Language of Indenture - The parties hereto have requested that this
Indenture and all contracts, documents or notices relating thereto be
drafted in the English language; les parties a cet acte ont exige que
cet acte et tout contrat, document ou avis y afferent soit redige en
langue anglaise.
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IN WITNESS WHEREOF, the parties hereto have executed this Indenture as of
the date and as at the place first hereinabove mentioned.
DAKOTA MINING CORPORATION
Per: ________________________________
MONTREAL TRUST COMPANY OF CANADA
Per: ________________________________
Per: ________________________________
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<PAGE>
SCHEDULE
The following is the form of fully registered 7.5% Convertible Unsecured
Subordinated Debenture Due February 5, 2004.
DAKOTA MINING CORPORATION
(Continued the Business Corporations Act (Canada))
7.5% Convertible Unsecured Debenture
due February 5, 2004
CUSIP#:
Dakota Mining Corporation (the "Corporation") for value received hereby
acknowledges itself indebted and, subject to the provisions of the Indenture
hereinafter mentioned, promises to pay to: .
- -------------------------------------------------------------------------------
on February 4, 2004 or on such earlier date as the principal amount hereof may
become due in accordance with the provisions of the Indenture the principal sum
of: $ -- in lawful money of Canada on presentation and surrender of this
Debenture at one of the principal offices of Montreal Trust Company of Canada
(the "Trustee") in the cities of Vancouver, Toronto and Montreal, and to pay
interest on the principal amount hereof from the date hereof, or from the last
interest payment date to which interest shall have been paid or made available
for payment on the outstanding Debentures, whichever is later, at the rate of
7.5% per annum, in like money at any one of the said places, as selected by the
holder, in arrears in equal semi-annual instalments (less any tax required by
law to be deducted or withheld) on June 30 and December 31 in each year
(commencing June 30, 1997) and should the Corporation at any time make default
in the payment of any principal or interest, to pay interest on the amount in
default at the same rate in like money, at any one of the said places, as
selected by the holder, and half-yearly on the same dates.
Debentures bear interest from and including the date of issue or from
and including the last interest payment date to which interest shall have been
paid or made available for payment on the Debentures, whichever is later,
provided that for the period from the date of issue of this Debenture to the
first interest payment date, the interest rate will be such that, when the
interest for such period is added to the interest earned on certain escrowed
proceeds which has been paid to the holder hereof, it is equivalent to 7.5% per
annum calculated from the date of the Indenture (defined below).
As soon as the interest becomes due, the Corporation (except in the
case of payment at maturity or on redemption, at which payment of interest may
be made upon surrender of this Debenture) shall, at least three business days
prior to each date on which interest becomes due, forward or cause to be
forwarded by ordinary mail, postage prepaid, to the registered holder hereof,
subject to the provisions of the Indenture and in the manner provided therein, a
cheque for such interest (less any tax required by law to be deducted or
withheld). Subject to the provisions of the Indenture, the forwarding of such
cheque shall satisfy and discharge
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all liability for interest on this Debenture to the extent of the sum
represented by such cheque (plus the amount of any tax deducted or withheld).
This Debenture is one of the 7.5% Convertible Unsecured
Subordinated Debentures due February 5, 2004 (the "Debentures") of the
Corporation issued or issuable under the provisions of a trust indenture (the
"Indenture") made as of February 5, 1997 between the Corporation and the
Trustee. The Debentures are limited to an aggregate principal amount of
$25,000,000 in lawful money of Canada. Reference is hereby expressly made to the
Indenture for a description of the terms and conditions upon which the
Debentures are or are to be issued and held and the rights and remedies of the
holders of the Debentures and of the Corporation and of the Trustee, all to the
same effect as if the provisions of the Indenture were herein set forth, to all
of which provisions the holder of this Debenture by acceptance hereof assents.
The Debentures are initially issuable only as fully registered
Debentures in denominations of $1,000 and integral multiples thereof. Upon
compliance with the provisions of the Indenture, Debentures of any denomination
may be exchanged for an equal aggregate principal amount of Debentures in any
other authorized denomination or denominations.
This Debenture is convertible, at the option of the holder
hereof, upon surrender of this Debenture at one of the principal offices of the
Trustee in the cities of Vancouver, Toronto and Montreal, at any time up to and
including the close of business on the last business day immediately preceding
February 5, 2004 or if this Debenture is called for redemption on or prior to
such date, then up to but not after the close of business on the last business
day immediately preceding the date fixed for redemption of the Debenture, into
fully paid and non-assessable common shares ("Common Shares") in the share
capital of the Corporation, as presently constituted (without adjustment for
interest accrued hereon or for dividends on Common Shares issuable upon
conversion) at a conversion price of $2.00 per Common Share, all subject to the
terms and conditions and in the manner set forth in the Indenture. The Indenture
makes provisions for the adjustment of the conversion price in the events
therein specified.
This Debenture may be redeemed at the option of the
Corporation on the terms and conditions and at the redemption price set out in
the Indenture at any time on or after February 4, 2001 and up to and including
maturity, provided that the Corporation duly files with the Trustee on or before
the day that the applicable notice of redemption of this Debenture is given a
certificate of the Corporation certifying that the weighted average price per
share at which the Common Shares have traded on The Toronto Stock Exchange (or
elsewhere in accordance with the Indenture) during the 20 consecutive trading
days ending not more than five trading days before the date on which such notice
of redemption is given exceeds 125% of the conversion price mentioned above.
Unless an Event of Default (as defined in the Indenture) has
occurred and is continuing, the Corporation may, on notice as provided in the
Indenture, at its option, and subject to applicable law and regulatory
approvals, elect to satisfy the obligation to repay the principal amount of this
Debenture on redemption or maturity by the issue and delivery of that
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number of freely tradeable Common Shares determined by dividing the principal
amount hereof by 95% of the weighted average price per share at which the Common
Shares have traded on The Toronto Stock Exchange (or elsewhere in accordance
with the Indenture) during the 20 consecutive trading days ending not more than
five trading days before the date that this Debenture is fixed for redemption or
the date of maturity, as the case may be, provided that, in the event that such
weighted average price on maturity of this Debenture is less than $2.00, the
Corporation, at its option, may satisfy its obligation hereunder to pay the
principal amount payable to the holder hereof by the issue to such holder of
that number of Common Shares of the Corporation equal to the lesser of (a) the
number determined by dividing such principal amount by 95% of such weighted
average price of the Common Shares on maturity and (b) the number determined by
dividing the principal amount by the closing market price of the Common Shares
on The Toronto Stock Exchange on the maturity date hereof.
The indebtedness evidenced by this Debenture and by all other
Debentures now or hereafter certified and delivered under the Indenture is a
direct unsecured obligation of the Corporation and is subordinated and subject
in right of payment, to the extent and in the manner provided in the Indenture,
to the prior payment of all Senior Liabilities (as defined in the Indenture and
which includes trade debts) of the Corporation, whether outstanding at the date
of the Indenture or thereafter created, incurred, assumed or guaranteed.
The principal hereof may become or be declared due and payable
before the stated maturity in the events, in the manner, with the effect and at
the times provided in the Indenture.
The Indenture contains provisions making binding upon all
holders of Debentures outstanding thereunder resolutions passed at meetings of
such holders held in accordance with such provisions and instruments signed by
the holders of a specified majority of Debentures outstanding, which resolutions
or instruments may have the effect of amending the terms of this Debenture or
the Indenture. The Indenture also permits the Corporation and the Trustee to
make additions to, deletions from or alterations of the Indenture without the
consent of the holders of the Debentures for certain purposes, in certain
circumstances and upon certain conditions set out in the Indenture.
This Debenture may only be transferred, upon compliance with
the conditions prescribed in the Indenture, in one of the registers to be kept
in the principal office of the Trustee in each of the cities of Vancouver,
Toronto and Montreal and in such other place or places and/or by such other
registrars (if any) as the Corporation with the approval of the Trustee may
designate, by the registered holder hereof or his executors or administrators or
other legal representatives, or his or their attorney duly appointed by an
instrument in form and execution satisfactory to the Trustee or other registrar,
and upon compliance with such requirements as the Trustee and/or other registrar
may prescribe.
This Debenture shall not become obligatory for any purpose
until it shall have been certified by the Trustee under the Indenture.
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In witness whereof Dakota Mining Corporation has caused this
Debenture to be signed by the Corporate Secretary of the Corporation as of
February , 1997.
DAKOTA MINING CORPORATION
By:
Corporate Secretary
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<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 INTERPRETATION
1.1 Definitions...........................................................1
1.2 Meaning of "outstanding" for Certain Purposes .........................6
1.3 Interpretation Not Affected by Headings, etc...........................7
1.4 Statute References ....................................................7
1.5 Monetary References....................................................7
1.6 Day Not a Business Day............................................... 7
1.7 Invalidity of Provisions...............................................8
1.8 Governing Law..........................................................8
ARTICLE 2 THE DEBENTURES
2.1 Limitation on Issue and Designation....................................8
2.2 Terms of Debentures....................................................8
2.3 Form of Debentures.....................................................8
2.4 Issue of Debentures...................................................10
2.5 Execution of Debentures...............................................10
2.6 Certification.........................................................11
2.7 Concerning Interest...................................................11
2.8 Debentures to Rank Equally............................................12
2.9 Registration of Debentures............................................12
2.10 Payment of Principal and Interest in Respect of Debentures...........13
2.11 Payment Agreements for Debentures....................................13
2.12 Ownership of Debentures..............................................14
2.13 Exchange of Debentures...............................................14
2.14 Replacement of Debentures............................................15
2.15 Interim Debentures...................................................15
ARTICLE 3 REDEMPTION AND PURCHASE FOR CANCELLATION
OF DEBENTURES AND ISSUE OF COMMON SHARES
3.1 Redemption of Debentures..............................................16
3.2 Limitation on Redemption..............................................16
3.3 Partial Redemption of Debentures......................................16
3.4 Notice of Redemption..................................................17
3.5 Debentures Due on Redemption Dates....................................17
3.6 Deposit of Redemption Moneys..........................................18
3.7 Failure to Surrender Debentures Called for Redemption.................18
3.8 Surrender of Debentures for Cancellation..............................18
3.9 Payment in Common Shares on Redemption of Debentures or
Maturity Date.............................................................18
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3.10 Issue of Common Shares on Redemption of Debentures or
Maturity Date.............................................................19
3.11 General Requirements.................................................20
3.12 No Requirement to Issue Fractional Shares............................22
3.13 Purchase of Debentures...............................................22
3.14 Cancellation of Debentures...........................................23
3.15 U.S. Legend..........................................................23
ARTICLE 4 CONVERSION
4.1 Conversion Privilege..................................................24
4.2 Manner of Exercise of Right to Convert................................25
4.3 Adjustment of Conversion Price......................................26
4.4 Adjustment of Conversion Price for Take Over Bid......................30
4.5 Rules Regarding Calculation of Adjustment of Conversion Price.........31
4.6 No Requirement to Issue Fractional Shares.............................32
4.7 Corporation to Reserve Shares.........................................32
4.8 Corporation to Qualify Shares.........................................32
4.10 Cancellation of Converted Debentures.................................33
4.11 Certificate as to Adjustment.........................................33
4.12 Notice of Special Matters............................................33
4.13 Notice of Expiry of Conversion Right.................................33
4.14 Revival of Right to Convert..........................................33
4.15 Protection of Trustee................................................33
ARTICLE 5 SUBORDINATION OF DEBENTURES
5.1 Agreement to Subordinate..............................................34
5.2 Distribution on Insolvency or Winding-up..............................34
5.3 Subrogation of Debentures.............................................36
5.4 No Payment to Debentureholders if Event of Default under
the Senior Liabilities....................................................36
5.5 Authorization of Debentureholders to Trustee to Effect
Subordination.............................................................38
5.6 Knowledge of Trustee..................................................38
5.7 Trustee May Hold Senior Liabilities...................................38
5.8 Rights of Holders of Senior Liabilities Not Impaired..................38
5.9 Altering the Senior Liabilities.......................................38
ARTICLE 6 COVENANTS OF THE CORPORATION
6.1 General Covenants.....................................................39
6.2 Not to Extend Time for Payment of Interest or Principal...............39
6.3 To Provide Annual Certificate of Compliance...........................40
6.4 To Pay Trustee's Remuneration.........................................40
6.5 Trustee may Perform Covenants.........................................41
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ARTICLE 7 DEFAULT AND ENFORCEMENT
7.1 Events of Default....................................................41
7.2 Notice of Events of Default..........................................42
7.3 Acceleration on Default..............................................42
7.4 Waiver of Default....................................................42
7.5 Enforcement by the Trustee...........................................43
7.6 Debentureholders May Not Sue.........................................44
7.7 Application of Moneys................................................44
7.8 Distribution of Moneys...............................................45
7.9 Persons Dealing with Trustee.........................................46
7.10 Trustee Appointed Attorney..........................................46
7.11 Remedies Cumulative.................................................46
7.12 Immunity of Shareholders, Directors and Others......................46
7.13 Judgment Against the Corporation....................................46
ARTICLE 8 SATISFACTION AND DISCHARGE
8.1 Cancellation and Destruction.........................................46
8.2 Non-Presentation of Debentures.......................................47
8.3 Repayment of Unclaimed Moneys........................................47
8.4 Discharge............................................................47
ARTICLE 9 SUCCESSOR CORPORATION
9.1 Certain Requirements in Respect of Merger, etc.......................48
9.2 Vesting of Powers in Successor.......................................48
ARTICLE 10 MEETINGS OF DEBENTUREHOLDERS
10.2 Notice of Meetings..................................................49
10.3 Chairman............................................................49
10.4 Quorum..............................................................49
10.5 Power to Adjourn....................................................50
10.6 Show of Hands.......................................................50
10.7 Poll................................................................50
10.8 Voting..............................................................50
10.9 Regulations.........................................................51
10.10 Corporation and Trustee May Be Represented.........................51
10.11 Powers Exercisable by Extraordinary Resolution.....................51
10.12 Meaning of "Extraordinary Resolution".............................53
10.13 Powers Cumulative..................................................54
10.14 Minutes............................................................54
10.15 Signed Instruments.................................................54
10.16 Binding Effect of Resolutions......................................54
10.17 Evidence of Rights of Debentureholders.............................54
ARTICLE 11 NOTICES
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(iii)
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11.1 Notice to the Corporation...........................................55
11.2 Notice to Debentureholders..........................................55
11.3 Notice to the Trustee...............................................55
11.4 Mail Service Interruption...........................................55
ARTICLE 12 CONCERNING THE TRUSTEE
12.1 Trust Indenture Legislation.........................................56
12.2 No Conflict of Interest.............................................56
12.3 Rights and Duties of Trustee........................................56
12.4 Evidence, Experts and Advisers......................................57
12.5 Trustee May Deal in Debentures......................................58
12.6 Trustee Not Required to Give Security...............................58
12.7 Protection of Trustee...............................................58
12.8 Investment of Trust Moneys..........................................58
12.9 Action by Trustee to Protect Interests..............................59
12.10 Replacement of Trustee.............................................60
12.11 Acceptance.........................................................60
ARTICLE 13 SUPPLEMENTAL INDENTURES
13.1 Supplemental Indentures.............................................60
ARTICLE 14 EXECUTION
14.1 Counterparts and Formal Date........................................62
14.2 Language of Indenture...........................................62
<PAGE>
SCHEDULE
The following is the form of fully registered 7.5% Convertible Unsecured
Subordinated Debenture Due February 5, 2004.
DAKOTA MINING CORPORATION
(Continued the Business Corporations Act (Canada))
7.5% Convertible Unsecured Debenture
due February 5, 2004
CUSIP#; ________________
Dakota Mining Corporation (the "Corporation") for value received
hereby acknowledges itself indebted and, subject to the provisions of the
Indenture hereinafter mentioned, promises to pay
to:_________________________________________ on February 4, 2004 or on such
earlier date as the principal amount hereof may become due in accordance with
the provisions of the Indenture the principal sum of:
$__________________________________ in lawful money of Canada on presentation
and surrender of this Debenture at one of the principal offices of Montreal
Trust Company of Canada (the "Trustee") in the cities of Vancouver, Toronto and
Montreal, and to pay interest on the principal amount hereof from the date
hereof, or from the last interest payment date to which interest shall have
been paid or made available for payment on the outstanding Debentures,
whichever is later, at the rate of 7.5% per annum, in like money at any one of
the said places, as selected by the holder, in arrears in equal semi-annual
installments (less any tax required by law to be deducted or withheld) on June
30 and December 31 in each year (commencing June 30, 1997) and should the
Corporation at any time make default in the payment of any principal or
interest, to pay interest on the amount in default at the same rate in like
money, at any one of the said places, as selected by the holder, and half-
yearly on the same dates.
Debentures bear interest from and including the date of issue or from
and including the last interest payment date to which interest shall have been
paid or made available for payment on the Debentures, whichever is later,
provided that for the period from this date of issue of this Debenture to the
first interest payment date, the interest rate will be such that, when the
interest for such period is added to the interest earned on certain escrowed
proceeds which has been paid to the holder hereof, it is equivalent to 7.5% per
annum calculated from the date of the Indenture (defined below).
As soon as the interest becomes due, the Corporation (except in the
case of payment at maturity or on redemption, at which payment of interest may
he made upon surrender of this Debenture) shall, at least three business days
prior to each date on which interest becomes due, forward or cause to be
forwarded by ordinary mail, postage prepaid, to the registered holder hereof,
subject to the provisions of the Indenture and in the manner provided therein,
a cheque for such interest (less any tax required by law to be deducted or
withheld). Subject to the provisions
of the Indenture, the forwarding of such cheque shall satisfy and discharge all
liability for interest
<PAGE>
-2-
on this Debenture to the extent of the sum represented by such cheque (plus the
amount of any tax deducted or withheld).
This Debenture is one of the 7.5% Convertible Unsecured Subordinated
Debentures due February 5, 2004 (the "Debentures") of the Corporation issued or
issuable under the provisions of a trust indenture (the "Indenture") made as of
February 5, 1997 between the Corporation and the Trustee. The Debentures are
limited to an aggregate principal amount of $25,000,000 in lawful money of Can-
ada. Reference is hereby expressly made to the Indenture for a description of
the terms and conditions upon which the Debentures are or are to be issued and
held and the rights and remedies of the holders of the Debentures and of the
Corporation and of the Trustee, all to the same effect as if the provisions of
the Indenture were herein set forth, to all of which provisions the holder of
this Debenture by acceptance hereof assents.
The Debentures are initially issuable only as fully registered
Debentures in denominations of $1,000 and integral multiples thereof. Upon
compliance with the provisions of the Indenture, Debentures of any denomination
may be exchanged for an equal aggregate principal amount of Debentures in any
other authorized denomination or denominations.
This Debenture is convertible, at The option of the holder hereof,
upon surrender of this Debenture at one of the principal offices of the Trustee
in the cities of Vancouver, Toronto and Montreal, at any time up to and
including The close of business on the last business day immediately preceding
February 5, 2004 or if this Debenture is called for redemption on or prior to
such date, then up to but not after the close of business on the last business
day immediately preceding the date fixed for redemption of the Debenture, into
fully paid and non-assessable common shares ("Common Shares") in the share
capital of the Corporation, as presently constituted (without adjustment for
interest accrued hereon or for dividends on Common Shares issuable upon
conversion) at a conversion price of $2.00 per Common Share, all subject to the
terms and conditions and in the manner set forth in the Indenture. The
Indenture makes provisions for the adjustment of the conversion price in the
events therein specified.
This Debenture may be redeemed at the option of the Corporation on
the terms and conditions and at the redemption price set out in the Indenture
at any time on or after February 4, 2001 and up to and including maturity.
provided that the Corporation duly files with the Trustee on or before the day
that the applicable notice of redemption of this Debenture is given a
certificate of the Corporation certifying That the weighted average price per
share at which the Common Shares have traded on The Toronto Stock Exchange (or
elsewhere in accordance with the Indenture) during the 20 consecutive trading
days ending not more than five trading days before the date on which such
notice of redemption is given exceeds 125% of the conversion price mentioned
above.
Unless an Event of Default (as defined in the Indenture) has occurred
and is continuing, the Corporation may, on notice as provided in the Indenture,
at its option, and subject to applicable law and regulatory approvals, elect to
satisfy the obligation to repay the principal amount of this Debenture on
redemption 6r maturity by the issue and delivery of that number of freely
tradable Common Shares determined by dividing the principal amount hereof by
95% of the
<PAGE>
-3-
weighted average price per share at which the Common Shares have traded on The
Toronto Stock Exchange (or elsewhere in accordance with the Indenture) during
the 20 consecutive trading days ending not more than five trading days before
the date that this Debenture is fixed for redemption or the date of maturity,
as the case may be, provided that, in the event that such weighted average
price on maturity of this Debenture is less than $2.00, the Corporation. at its
option, may satisfy its obligation hereunder to pay the principal amount
payable to the holder hereof by the issue to such holder of that number of
Common Shares of the Corporation equal to the lesser of (a) the number
determined by dividing such principal amount by 95% of such weighted average
price of the Common Shares on maturity and (b) the number determined by
dividing the principal amount by the closing market price of the Common Shares
on The Toronto Stock Exchange on the maturity date hereof.
The indebtedness evidenced by this Debenture and by all other
Debentures now or hereafter certified and delivered under the Indenture is a
direct unsecured obligation of the Corporation and is subordinated and subject
in right of payment, to the extent and in the manner provided in the Indenture,
to the prior payment of all Senior Liabilities (as defined in the Indenture and
which includes trade debts) of the Corporation, whether outstanding at the date
of the Indenture or thereafter created, incurred, assumed or guaranteed
The principal hereof may become or be declared due and payable before
the stated maturity in the events, in the manner, with the effect and at the
times provided in the Indenture.
The Indenture contains provisions making binding upon all holders of
Debentures outstanding thereunder resolutions passed at meetings of such
holders held in accordance with such provisions and instruments signed by the
holders of a specified majority of Debentures outstanding, which resolutions or
instruments may have the effect of amending the terms of this Debenture or the
Indenture. The Indenture also permits the Corporation and the Trustee to make
additions to, deletions from or alterations of the Indenture without the
consent of the holders of the Debentures for certain purposes, in certain
circumstances and upon certain conditions set out in the Indenture.
This Debenture may only be transferred. upon compliance with the
conditions prescribed in the Indenture. in one of the registers to be kept in
the principal office of the Trustee in each of the cities of Vancouver. Toronto
and Montreal and in such other place or places and/or by such other registrars
(if any) as the Corporation with the approval of the Trustee may designate, by
the registered holder hereof or his executors or administrators or other legal
representatives, or his or their attorney duly appointed by an instrument in
form and execution satisfactory to the Trustee or other registrar, and upon
compliance with such requirements as the Trustee and/or other registrar may
prescribe.
This Debenture shall not become obligatory for any purpose until it
shall have been certified by the Trustee under the Indenture.
<PAGE>
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In witness whereof Dakota Mining Corporation has caused this
Debenture to be signed by the Corporate Secretary of the Corporation as of
February ______, 1997.
DAKOTA MINING CORPORATION
By:________________________________
Corporate Secretary
THIS SPECIAL WARRANT INDENTURE is made as of February 5, 1997.
BETWEEN:
DAKOTA MINING CORPORATION, a company governed
by the laws of Canada (the "Corporation"),
AND:
MONTREAL TRUST COMPANY OF CANADA, a trust
company incorporated under the laws of Canada (the "Trustee").
WHEREAS the Corporation is proposing to issue Special Warrants in the
manner herein set forth;
WHEREAS one Special Warrant shall entitle the holder thereof to
acquire one $1,000 principal amount 7.5% unsecured convertible
debenture of the Corporation at no additional cost upon the terms and
conditions herein set forth; and
WHEREAS all acts and deeds necessary have been done and performed to
make the Special Warrants when issued, as in this Indenture provided,
legal, valid and binding upon the Corporation with the benefits and
subject to the terms of this Indenture;
NOW THEREFORE THIS INDENTURE WITNESSES that in consideration of the
mutual covenants and agreements of the parties contained herein, the
parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions - In this Indenture, including the recitals and schedules
hereto and in all indentures supplemental hereto:
(a) "1934 Act" means the United States Securities and Exchange Act of
1934, as amended;
(b) "Agency Agreement" means the agreement dated the date hereof between
the Corporation and the Agents respecting the issue and sale of the
Special Warrants;
(c) "Agents" means Canaccord Capital Corporation, ScotiaMcLeod Inc. and
Newcrest Capital Inc.;
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<PAGE>
2
(d) "Agents' Commission" means the commission paid to the Agents on the
sale of the Special Warrants in accordance with the Agency Agreement;
(e) "Applicable Legislation" means the provisions of the Canada Business
Corporations Act, as amended, and any statute of Canada or a province
thereof, and the regulations under any such named or other statute,
relating to trust indentures or to the rights, duties and obligations
of trustees and of corporations under trust indentures, to the extent
that such provisions are at the time in force and applicable to this
Indenture;
(f) "Business Day" means a day which is not Saturday, Sunday or a
statutory holiday in the cities of Vancouver, British Columbia and
Toronto, Ontario;
(g) "Common Shares" means fully paid and non-assessable common shares of
the Corporation;
(h) "Compliance Notice" means a notice in writing from the Corporation and
Canaccord Capital Corporation, on behalf of the Agents, to the Trustee
to the effect that all of the Shareholder Approval Date, the
Qualification Date and the Merger Completion Date have occurred prior
to the Qualification Deadline.
(i) "Corporation's Auditors" means the firm of chartered accountants duly
appointed as auditors of the Corporation;
(j) "Counsel" means a barrister or solicitor or firm of barristers and
solicitors acceptable to the Trustee;
(k) Intentionally Deleted;
(l) "Debenture Trust Indenture" means the trust indenture between the
Corporation and the Montreal Trust Company of Canada, as trustee,
dated the date hereof;
(m) "Debenture Trustee" means the trustee under the Debenture Trust
Indenture;
(n) "Debentures" means the $25 million aggregate principal amount of 7.5%
unsecured convertible debentures of the Corporation issuable under and
governed by the Debenture Trust Indenture and each individual
"Debenture" means a Debenture in the principal amount of $1,000;
(o) "Default Notice" has the meaning set out in section 3.4(b) hereof;
(p) "Effective Date" means the date hereof;
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<PAGE>
3
(q) "Escrowed Proceeds" means the gross proceeds received from the sale of
the Special Warrants, less the Agents' Commission and, if applicable,
less the USMX Loan Amount if it has been released pursuant to section
6.3, deposited with the Trustee pursuant to Article 6 hereof;
(r) "Exercise Date" means, with respect to any Special Warrant, the date
on which the Warrant Certificate representing a Special Warrant is
surrendered for exercise or otherwise deemed to have been exercised in
accordance with the provisions of Article 3;
(s) "Expiry Time" means 5:00 p.m. (local time) on the earlier of: (A) the
5th Business Day following the day on which a Compliance Notice is
delivered by the Corporation to the Trustee in accordance with section
3.1(d), and (B) February 5, 1998;
(t) "Final Prospectus" means a final prospectus qualifying for sale in the
Qualifying Jurisdictions the Debentures issuable upon exercise of the
Special Warrants and the Common Shares issuable upon conversion of the
Debentures, and any amendment or supplement thereto;
(u) "Merger" means the merger between the Corporation and USMX, Inc. as
contemplated in the Merger Letter Agreement;
(v) "Merger Completion Date" means the date on which the Merger is
completed in accordance with the Merger Letter Agreement;
(w) "Merger Completion Notice" means a notice in writing from the
Corporation and Canaccord Capital Corporation, on behalf of the
Agents, to the Trustee to the effect that the Merger Completion Date
has occurred prior to the Qualification Deadline.
(x) "Merger Default Notice" means a notice in writing from the Corporation
to the Trustee to the effect that the Merger Completion Date has not
occurred prior to Qualification Deadline;
(y) "Merger Agreement" means the merger agreement between the Corporation
and USMX, Inc. dated the date hereof;
(z) "Notice of Shareholder Approval Default" means notice in writing from
the Corporation to the Trustee to the effect that the Shareholder
Approval Date has not occurred prior to the Shareholder Approval
Deadline;
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<PAGE>
4
(aa) "Notice of Non-Qualification" means notice in writing from the
Corporation to the Trustee to the effect that the Qualification Date
has not occurred prior to the Qualification Deadline;
(bb) "Permitted Investments" means obligations of or guaranteed by the
government of Canada or any province of Canada;
(cc) "person" means an individual, body corporate, partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization;
(dd) "Preliminary Prospectus" means a preliminary prospectus of the
Corporation relating to the qualification for sale in the Qualifying
Jurisdictions of the Debentures issuable upon exercise of the Special
Warrants and the Common Shares issuable upon conversion or, if
applicable, redemption of the Debentures, and any amendment or
supplement thereto;
(ee) "Qualification Date" means the date on which a receipt is issued for
the Final Prospectus by the last of the Securities Commissions to
issue a receipt for the Final Prospectus;
(ff) "Qualification Deadline" means 5:00 p.m. (Vancouver time) on the later
of: (A) May 31, 1997 and (B) the day that is 120 days after the
Effective Date or such later date as the Agents in their sole
discretion may determine in a written notice given to the Corporation
and the Trustee;
(gg) "Qualification Notice" means notice in writing from the Corporation
and Canaccord Capital Corporation, on behalf of the Agents, to the
Trustee to the effect that the Qualification Date has occurred prior
to the Qualification Deadline and attaching thereto the receipts for
the Final Prospectus from the Securities Commissions;
(hh) "Qualifying Jurisdictions" means British Columbia, Alberta, Ontario
and Quebec;
(ii) "Retraction Cut-off Date" has the meaning set out in section 3.4(b)
hereof;
(jj) "Regulation S" means Regulation S adopted by the SEC under the U.S.
Securities Act;
(kk) "SEC" means the United States Securities and Exchange Commission;
(ll) "Securities Commissions" means the securities commissions of each of
the Qualifying Jurisdictions;
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<PAGE>
5
(mm) "Securities Laws" means the applicable securities laws of the
Qualifying Jurisdictions and the respective regulations made and forms
prescribed thereunder together with all applicable published policy
statements and blanket orders and rulings of the Securities
Commissions;
(nn) "Series A Exercise Period" means the period from and including the
date of issuance of the Special Warrants and ending at the Expiry
Time;
(oo) "Series A Special Warrant Certificate" means a certificate for Series
A Special Warrants issued on or after the Effective Date to evidence
Series A Special Warrants;
(pp) "Series A Special Warrants" means the first series of Special Warrants
created and authorized for issuance under this Indenture which series
shall be comprised of 16,119 Special Warrants;
(qq) "Series B Exercise Period" means the period from and including the day
that is the Shareholder Approval Date and ending at the Expiry Time;
(rr) "Series B Special Warrant Certificate" means a certificate for Series
B Special Warrants issued on or after the Effective Date to evidence
Series B Special Warrants;
(ss) "Series B Special Warrants" means the second series of Special
Warrants created and authorized for issuance under this Indenture
which series shall be comprised of 8,881 Special Warrants;
(tt) "Shareholder" means a holder of record of one or more Common Shares;
(uu) "Shareholder Approval Date" means the day on which shareholders of the
Corporation approve the issue of the Common Shares issuable upon
conversion of the Debentures;
(vv) "Shareholder Approval Deadline" means April 30, 1997, unless extended
to May 31, 1997 in accordance with the Merger Agreement and upon
notice thereof by the Corporation to the Trustee;
(ww) "Shareholder Approval Notice" means notice in writing from the
Corporation and Canaccord Capital Corporation, on behalf of the
Agents, to the Trustee to the effect that the Shareholder Approval
Date has occurred;
(yy) "Special Warrant Agency" means the principal office of the Trustee in
the city of Vancouver, British Columbia;
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6
(zz) "Special Warrant Purchase Price" means $1,000 per Special Warrant;
(aaa)"Special Warrants" means either Series A Special Warrants or Series B
Special Warrants issued by the Corporation in registered form in
accordance with the terms and conditions of this Indenture;
(bbb)"this Special Warrant Indenture", "this Indenture", "herein", "hereby"
and similar expressions mean and refer to this Indenture and any
indenture, deed or instrument supplemental hereto; and the expressions
"Article" and "section" followed by a number mean and refer to the
specified article or section of this Indenture;
(ccc)"Trading Day " means, with respect to a stock exchange, a day on which
such exchange is open for the transaction of business;
(ddd)"Transfer Agent" means the transfer agent for the time being of the
Common Shares;
(eee)"United States" means the United States of America, its territories
and possessions, any state of the United States, and the District of
Columbia;
(fff)"USMX Loan Amount" means the US$5 million to be loaned by the
Corporation to USMX, Inc. in accordance with the Merger Agreement;
(ggg)"USMX Loan Notice" means a notice in writing signed by Canaccord
Capital Corporation, on behalf of the Agents, and the Corporation to
the effect that the Trustee is to release the USMX Loan Amount out of
the Escrowed Proceeds to, or to the direction of, the Corporation;
(hhh)"U.S. Person" means a U.S. person as that term is defined in
Regulation S;
(iii)"U.S. Securities Act" means the United States Securities Act of 1933,
as amended;
(jjj)"Warrant Certificates" means either Series A Special Warrant
Certificates or Series B Special Warrant Certificates;
(kkk)"Warrantholder" means a holder of record of one or more Special
Warrants;
(lll)"Warrantholders" or "holders" means the persons who, after the
Effective Date, are registered owners of Special Warrants;
(mmm)"Warrantholders' Request" means an instrument signed in one or more
counterparts by Warrantholders holding in the aggregate not less than
25%
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<PAGE>
7
of the aggregate number of Special Warrants then unexercised and
outstanding, requesting the Trustee to take some action or proceeding
specified therein;
(nnn)"written order of the Corporation", "written request of the
Corporation", "written consent of the Corporation" and "certificate of
the Corporation" mean, respectively, a written order, request, consent
and certificate signed in the name of the Corporation by its Chief
Executive Officer, or a director and, in addition, by its Chief
Financial Officer, or a director, and may consist of one or more
instruments so executed.
1.2 Gender and Number - Unless herein otherwise expressly provided or unless
the context otherwise requires, words importing the singular include the
plural and vice versa and words importing gender include all genders.
1.3 Interpretation not Affected by Headings, Etc. - The division of this
Indenture into Articles and sections, the provision of a table of contents
and the insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation of this Indenture.
1.4 Day not a Business Day - In the event that any day on or before which any
action is required to be taken hereunder is not a Business Day, then such
action shall be required to be taken at or before the requisite time on the
next succeeding day that is a Business Day.
1.5 Time of the Essence - Time shall be of the essence of this Indenture.
-------------------
1.6 Applicable Law - This Indenture and the Warrant Certificates shall be
construed in accordance with the laws of the Province of British Columbia
and shall be treated in all respects as British Columbia contracts.
1.7 Currency - All references to currency herein are to Canadian dollars unless
otherwise specified.
ARTICLE 2
ISSUE AND FORM OF SPECIAL WARRANTS
2.1 Issue of Special Warrants
(a) 25,000 Special Warrants entitling the holders thereof to acquire $25
million aggregate principal amount of Debentures are hereby created
and authorized to be issued.
(b) The Canadian and United States forms of Series A Special Warrant
Certificates and the Canadian and United States forms of Series B
Special Warrant
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<PAGE>
8
Certificates shall be substantially in the forms set out in the
attached Schedules A through D, respectively, shall be dated as of the
Effective Date (regardless of the actual date of issue), shall bear
such distinguishing letters and numbers as the Corporation may, with
the approval of the Trustee, prescribe, and shall be issuable in any
denomination excluding fractions.
2.2 Terms of Special Warrants
(a) Each Special Warrant authorized to be issued hereunder shall entitle
the holder thereof to acquire, in accordance with and subject to the
terms of Article 3 hereof and at no additional cost to the holder, one
Debenture in the principal amount of $1,000.
(b) No fractional Special Warrants shall be issued or otherwise provided
for hereunder.
2.3 Warrantholder not a Shareholder - Nothing in this Indenture or in the
holding of a Special Warrant evidenced by a Warrant Certificate or
otherwise, shall, in itself, confer or be construed as conferring upon a
Warrantholder any right or interest whatsoever as a Shareholder or as any
other shareholder of the Corporation, including, but not limited to, the
right to vote at, to receive notice of, or to attend, meetings of
shareholders or any other proceedings of the Corporation, or the right to
receive dividends and other distributions.
2.4 Special Warrants to Rank Pari Passu - All Special Warrants shall rank pari
passu, whatever may be the actual date of issue of the same.
2.5 Form of Warrant Certificates - The Warrants Certificates (including all
replacements issued in accordance with this Indenture) shall be
substantially in the forms set out in Schedules A through D hereto, shall
be dated as of the Effective Date, shall bear such distinguishing letters
and numbers as the Corporation may, with the approval of the Trustee,
prescribe and shall be issuable in any denominations excluding fractions.
2.6 U.S. Legend - The Special Warrants issued pursuant to an exemption from the
registration requirements of the U.S. Securities Act to U.S. Persons (and
all Special Warrants issued in exchange therefor or in substitution
thereof), shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES
MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER,
(B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF
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9
REGULATION S UNDER THE U.S. SECURITIES ACT, (C) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER, IF AVAILABLE, AND THE COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS OR (D) IN COMPLIANCE WITH CERTAIN OTHER
PROCEDURES SATISFACTORY TO THE COMPANY.
and that all certificates representing Debentures issuable upon
exercise of Special Warrants and Common Shares issuable upon
conversion or, if applicable, redemption of Debentures (and all
certificates issued in exchange therefor or in substitution thereof)
issuable upon exercise of the securities so legended will bear the
same legend and will bear the following additional legend:
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE. A NEW
CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD
DELIVERY", MAY BE OBTAINED FROM THE TRANSFER AGENT UPON DELIVERY OF
THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM
SATISFACTORY TO THE TRANSFER AGENT AND THE COMPANY, TO THE EFFECT THAT
THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT.
provided, however, that if the securities are being sold under
paragraph (B) above, the legend may be removed by providing a
declaration to the Trustee as transfer agent for the securities to the
following effect:
The undersigned (A) acknowledges that the sale of the securities to
which this declaration relates is being made in reliance on Rule 904 of
Regulation S under the United States Securities Act of 1933, as amended
(the "U.S. Securities Act") and (B) certifies that (1) it is not an
affiliate (as defined in Rule 405 under the U.S. Securities Act) of
Dakota Mining Corporation, (2) the offer of such securities was not
made to a person in the United States and either (A) at the time the
buy order was originated, the buyer was outside the United States, or
the seller and any person acting on its behalf reasonably believe that
the buyer was outside the United States, or (B) the transaction was
executed on or through the facilities of The Toronto Stock Exchange,
the Montreal Exchange, the Vancouver Stock Exchange or the Alberta
Stock Exchange and neither the seller nor any affiliate of the seller
nor any person acting on any of their behalf has engaged or will engage
in any directed selling efforts in the United States in connection with
the offer and sale of such securities, (4) the sale is bona fide and
not for the purpose of "washing off" the resale restrictions imposed
because the securities are "restricted securities" (as such term is
defined in Rule 144(a)(3) under the U.S. Securities Act), (5) the
seller does not intend to replace the securities and (6) the
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contemplated sale is not a transaction, or part of a series of
transactions which, although in technical compliance with Regulation S,
is part of a plan or scheme to evade the registration provisions of the
U.S. Securities Act. Terms used herein have the meanings given to them
by Regulation S.
2.7 Signing of Warrant Certificates - The Warrant Certificates shall be signed
under seal by any one director or officer of the Corporation. The signature
of such director or officer may be mechanically reproduced in facsimile and
Warrant Certificates bearing such facsimile signatures shall be binding
upon the Corporation as if they had been manually signed by such directors
or officers. Notwithstanding that any of the persons whose manual or
facsimile signature appears on any Warrant Certificate as one of such
directors or officers may no longer hold office at the date of such Warrant
Certificate or at the date of certification or delivery thereof, any
Warrant Certificate signed as aforesaid shall, subject to section 2.8, be
valid and binding upon the Corporation and the holder thereof shall be
entitled to the benefits of this Indenture.
2.8 Countersignature by the Trustee
(a) No Warrant Certificate shall be issued or, if issued, shall be valid
for any purpose or entitle the holder to the benefit hereof until it
has been countersigned by manual signature by or on behalf of the
Trustee substantially in the forms of the certificates set out in
Schedules A through D hereto, and such countersignature by the Trustee
upon any Warrant Certificate shall be conclusive evidence as against
the Corporation that the Warrant Certificate so certified has been
duly issued hereunder and that the holder is entitled to the benefits
hereof.
(b) The countersignature of the Trustee on Warrant Certificates issued
hereunder shall not be construed as a representation or warranty by
the Trustee as to the validity of this Indenture or the Warrant
Certificates (except the due countersigning thereof) and the Trustee
shall in no respect be liable or answerable for the use made of the
Warrant Certificate or any of them or of the consideration therefor
except as otherwise specified herein.
2.9 Issue in Substitution for Warrant Certificates Lost, Etc.
---------------------------------------------------------
(a) In case any of the Warrant Certificates shall become mutilated or be
lost, destroyed or stolen, the Corporation, subject to applicable law,
shall issue and thereupon the Trustee shall certify and deliver, a new
Warrant Certificate of like tenor as the one mutilated, lost,
destroyed or stolen in exchange for and in place of and upon
cancellation of such mutilated Warrant Certificate, or in lieu of and
in substitution for such lost, destroyed or stolen Warrant
Certificate, and the substituted Warrant Certificate shall be in a
form approved by the Trustee and shall be entitled to the benefits
hereof and shall rank equally in accordance with its terms and all
other Warrant Certificates issued or to be issued hereunder.
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11
(b) The applicant for the issue of a new Warrant Certificate pursuant to
this section 2.9 shall bear the cost of the issue thereof and in case
of loss, destruction or theft shall, as a condition precedent to the
issue thereof, furnish to the Corporation and to the Trustee such
evidence of ownership and of the loss, destruction or theft of the
Warrant Certificate so lost, destroyed or stolen as shall be
satisfactory to the Corporation and to the Trustee in their sole
discretion, and such applicant may also be required to furnish an
indemnity and surety bond in amount and form satisfactory to the
Corporation and the Trustee in their discretion and shall pay the
reasonable charges of the Corporation and the Trustee in connection
therewith.
2.10 Exchange of Warrant Certificates
(a) Warrant Certificates representing Special Warrants to acquire any
specified principal amount of Debentures, may, upon compliance with
the reasonable requirements of the Trustee, be exchanged for another
Warrant Certificate or Warrant Certificates entitling the holder
thereto to acquire in the aggregate the same principal amount of
Debentures as may be acquired under the Warrant Certificate or Warrant
Certificates so exchanged.
(b) Warrant Certificates may be exchanged only at the Special Warrant
Agency or at any other place that is designated by the Corporation
with the approval of the Trustee. Any Warrant Certificate tendered for
exchange shall be cancelled and surrendered to the Trustee at the
Special Warrant Agency.
2.11 Charges for Exchange of Previously Issued Warrant Certificates - Except as
otherwise herein provided, the Special Warrant Agency shall charge to the
holder requesting an exchange a reasonable fee for each new Warrant
Certificate issued in exchange for previously issued Warrant Certificates
and payment of such charge and reimbursement of the Trustee or the
Corporation for any and all stamp taxes or governmental or other charges
required to be paid shall be made by such holder as a condition precedent
to such exchange.
2.12 Ownership of Special Warrants - The Corporation and the Trustee may deem
and treat the registered owner of any Warrant Certificate as the absolute
owner of the Special Warrants represented thereby for all purposes, and the
Corporation and the Trustee shall not be affected by any notice or
knowledge to the contrary except where the Corporation or the Trustee is
required to take notice by statute or by order of a court of competent
jurisdiction. A Warrantholder shall be entitled to the rights evidenced by
such Warrant Certificate free from all equities or rights of set-off or
counterclaim between the Corporation and the original or any intermediate
holder thereof and all persons may act accordingly and the receipt of any
such Warrantholder of Debentures which may be acquired pursuant thereto
shall be a good discharge to the Corporation and the Trustee for the same
and neither the Corporation nor the Trustee shall be bound to inquire into
the title of any such holder except where the Corporation or the Trustee is
required to take notice by statute or by order of a court of competent
jurisdiction.
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12
2.13 Registration and Transfer
(a) The Corporation will at all times cause to be kept by and at the
Special Warrant Agency and at such other place or places, if any, as
may be designated by the Corporation with the approval of the Trustee,
registers in which names and addresses of Warrantholders and
particulars of the Special Warrants held by them will be entered, such
registration to be noted on the Special Warrants by the Trustee or
other registrar.
(b) No transfer of a Special Warrant will be valid unless made on one of
the registers to be kept by and at the office of the Special Warrant
Agency or at such other place or places, if any, as may be designated
by the Corporation with the approval of the Trustee, on surrender to
the Trustee of the Warrant Certificate duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory
to the Trustee executed by, the registered holder or his executors,
administrators, or other legal representative or his or their attorney
duly appointed by instrument in writing in form and execution
satisfactory to the Trustee or other registrar upon compliance with
such reasonable requirements as the Trustee may prescribe, nor unless
such transfer will have been noted on the Special Warrant by the
Trustee or other registrar.
(c) Notwithstanding any other provision hereof, the transfer by the Agents
to the Purchasers (as defined in the Underwriting Agreement) of
Special Warrants issued to the Agents under a global certificate to
facilitate the closing of the initial sale of the Special Warrants may
be effected by the surrender to the Trustee of the global certificate
together with a direction from the Agents requesting the issue of
Warrant Certificates in the names of the Purchasers.
(d) The registers referred to in section 2.13(a) hereof will, during
business hours, be open to the inspection of the Corporation and any
person designated by it in writing and any Warrantholder free of
charge. In addition, every registrar will from time to time when
requested to do so by the Corporation or by the Trustee furnish the
Corporation or the Trustee with a list of the names and addresses of
the Warrantholders whose Special Warrants are listed on the register
kept by such registrar and showing the number of Special Warrants
registered in the name of each such holder.
(e) Notwithstanding anything contained in this Indenture, in the Warrant
Certificates or in any subscription agreements under which Special
Warrants were issued and sold, the Trustee, relying solely on the
transfer form or such other reasonable requirements as the Corporation
and Trustee may prescribe pursuant to section 2.13(b) hereof or this
subsection:
(i) shall not register any transfer of a Special Warrant, unless:
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13
(A) the Trustee, prior to such transfer, has received a properly
completed and executed Selling Warrantholders's Certificate
in the form attached to the Warrant Certificates, from the
Warrantholder; and
(B) the Special Warrant is transferred (i) outside the United
States to a non-U.S. person pursuant to Rule 904 of
Regulation S or (ii) within the United States pursuant to
Rule 144 under the U.S. Securities Act provided the
transferee properly completes, executes and delivers to the
Trustee a Special Warrant Purchaser's Certificate in the
form attached to the Warrant Certificates, or (iii) pursuant
to another exemption from registration under the U.S.
Securities Act after receipt by the Corporation and the
Trustee of a written opinion of counsel or other evidence
satisfactory to them that such transfer of Special Warrants
is in compliance with the U.S. Securities Act and applicable
state securities laws; however, upon receipt of such duly
executed certificates, the Trustee will proceed with such
registration, subject to such terms and conditions,
including legending the Warrant Certificates, as may be
required by law; and
(ii) shall not register any transfer of Special Warrants if it has
reasonable grounds to believe that such transfer is otherwise not
in accordance with applicable law.
(f) Upon any transfer of Special Warrants in accordance with the
provisions of this Indenture, the Corporation covenants and agrees
with the Trustee, on behalf of the transferee holder and with the
transferee holder, that the transferee holder is a permitted assignee
of the transferring holder and is entitled to the benefits of the
covenant of the Corporation to be set forth under the heading
"Contractual Right of Action for Rescission" in the Final Prospectus
subject, in each case, to the restrictions and limitations described
thereunder.
ARTICLE 3
EXERCISE OR RETRACTION OF SPECIAL WARRANTS
3.1 Notices to Trustee
(a) Upon the occurrence of the Shareholder Approval Date prior to the
Shareholder Approval Deadline, the Corporation shall forthwith, and in
any event not later than the second Business Day thereafter, give a
Shareholder Approval Notice to the Trustee;
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14
(b) Upon the occurrence of the Qualification Date prior to the
Qualification Deadline, the Corporation shall forthwith, and in any
event not later than the second Business Day thereafter, give a
Qualification Notice to the Trustee;
(c) Upon occurrence of the Merger Completion Date prior to the
Qualification Deadline, the Corporation shall forthwith, and in any
event not later than the second Business Day thereafter, give a Merger
Completion Notice to the Trustee;
(d) In the event that all of the Shareholder Approval Date, the Merger
Completion Date and the Qualification Date all occur prior to the
Qualification Deadline, the Corporation shall forthwith, and in any
event not later that the second Business Day after the last of such
three Dates to occur, give a Compliance Notice to the Trustee;
(e) In the event that the Shareholder Approval Date has not occurred prior
to the Shareholder Approval Deadline, the Corporation shall forthwith,
and in any event not later than the second Business Day after the
Shareholder Approval Deadline, give a Notice of Shareholder Approval
Default to the Trustee;
(f) In the event that the Qualification Date has not occurred prior to the
Qualification Deadline, the Corporation shall forthwith, and in any
event not later than the second Business Day after the Qualification
Deadline, give a Notice of Non-Qualification to the Trustee;
(g) In the event that the Merger Completion Date has not occurred prior to
the Qualification Deadline, the Corporation shall forthwith, and in
any event not later than the second Business Day after the
Qualification Deadline, give a Merger Default Notice to the Trustee;
3.2 Exercise of Special Warrants
(a) Upon and subject to the provisions and conditions of this Article, the
holder of a Special Warrant may, at its option, at any time and from
time to time during the Series A Exercise Period or the Series B
Exercise Period, as applicable, exercise the right to acquire one
Debenture for each Special Warrant held without payment of any
consideration in addition to the consideration paid for the Special
Warrant by completing the exercise form attached to the Special
Warrant Certificate and delivering it and the Special Warrant
Certificate to the Trustee at the Special Warrant Agency or at any
other place or places that may be designated by the Corporation with
the approval of the Trustee.
(b) Any Special Warrant not exercised pursuant to section 3.2(a) prior to
the Expiry Time will be exercised by the Trustee on behalf of the
holder thereof and deemed
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15
to be surrendered (without any further action on the part of the
holder or the Corporation) immediately prior to the Expiry Time as
applicable.
(c) Any exercise by a Warrantholder pursuant to section 3.2(a), or any
exercise by the Trustee on behalf of a holder of Special Warrants
pursuant to section 3.2(b) hereof, shall be subject to the holder
providing such assurances and executing such documents as may, in the
reasonable opinion of the Corporation or the Trustee, be required to
ensure compliance with applicable Securities Laws.
(d) Upon the exercise by a Warrantholder or exercise by the Trustee on
behalf of a Warrantholder of any Special Warrants pursuant to this
section 3.2, the Debentures thereby issuable shall be deemed to have
been issued and the Warrant Certificates cancelled and the person or
persons to whom such securities are to be issued shall be deemed to
have become the holder of record of such Debentures on the Exercise
Date unless the registers of the Corporation shall be closed on such
date, in which case the Debentures shall be deemed to have been
issued, and such person or persons deemed to have become the holder or
holders of record of such Debentures on the date on which such
registers are reopened.
(e) As promptly as possible and in any event within five Business Days
after the Exercise Date of any Special Warrant as aforesaid, the
Corporation shall cause to be delivered to the person or persons in
whose name or names the Debentures have been issued at the address
specified in the exercise form attached to the Warrant Certificate or,
if so specified therein, cause to be delivered to such person or
persons at the Special Warrant Agency, certificates representing the
appropriate amount of Debentures so issued and shall, if applicable,
deliver to the Warrantholder a Warrant Certificate or Warrant
Certificates representing the balance of the Special Warrants
remaining after such exercise.
3.3 Penalty
(a) Upon receipt by the Trustee of a Notice of Non-Qualification, the
Trustee shall forthwith give notice to the Warrantholders, the Agents
and the Debenture Trustee specifying that the Qualification Date has
not occurred prior to the Qualification Deadline and that the
Debentures for which the Special Warrants are exercisable will be
convertible, for no additional consideration, into 1.10 Common Shares
for every one Common Share that would otherwise have been issuable
upon conversion of the Debentures had the Qualification Date occurred
prior to the Qualification Deadline.
3.4 Retraction of Special Warrants
(a) Upon receipt by the Trustee of a Notice of Shareholder Approval
Default, the Trustee shall forthwith give notice to the Warrantholders
and to the Agents
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16
specifying that the Shareholder Approval Date has not occurred prior
to the Shareholder Approval Deadline and stating that all Series B
Special Warrants will be automatically retracted by the Corporation in
accordance with section 6.6 hereof without any further action on the
part of the Warrantholders.
(b) Upon receipt of by the Trustee of a Merger Default Notice, the Trustee
shall forthwith give notice ("Default Notice") to the Warrantholders
and to the Agents specifying that the Merger Completion Date has not
occurred prior to the Qualification Deadline and stating that
Warrantholders have five Business Days from the deemed receipt (in
accordance with section 11.2) of the Default Notice (the last of such
Business Days being the "Retraction Cut-off Date") to surrender any or
all of their Special Warrants then outstanding to the Trustee for
retraction and setting out the requirements for so doing in accordance
with section 6.4.
(c) Any retraction of Special Warrants from a Warrantholder pursuant to
this section 3.4 will be subject to the holder providing such
assurances and executing such documents as may, in the reasonable
opinion of the Corporation or the Trustee, be required to ensure
compliance with applicable Securities Laws.
3.5 No Fractional Debentures - The Corporation will not under any circumstances
be obligated to issue any fraction of a Debenture on the exercise or deemed
exercise of Special Warrants. To the extent that a holder of Special
Warrants would otherwise have been entitled to receive, on the exercise or
deemed exercise of such Special Warrants, a fraction of a Debenture, such
entitlement shall be disregarded unless such holder exercises such right in
respect of such fraction in combination with another Special Warrant or
Special Warrants which, in the aggregate, entitle the holder to be issued a
whole number of Debentures. In no event shall the Corporation be obligated
to make any payment or adjustment in respect of any fraction of a Debenture
disregarded as aforesaid.
3.6 Exercise by U.S. Persons - The Special Warrants may not be exercised in the
United States or by a U.S. Person prior to the Expiry Time unless:
(a) the holder certifies in writing to the Corporation and the Trustee
that the holder is an original subscriber of the Special Warrants and
that all of the representations and warranties made by the holder in
such holder's subscription agreement for the purchase of the Special
Warrants remain true and correct; or
(b) the holder is the registered holder of such Special Warrants which
were received pursuant to a transfer in accordance with the provisions
of section 2.13(e)(i)(B) hereof; provided that the foregoing shall not
apply to any exercise by the Trustee of Special Warrants pursuant to
this Article 3.
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3.7 Securities Restrictions - Notwithstanding anything herein contained,
Debentures will only be issued upon exercise of any Special Warrants in
compliance with the securities laws of any applicable jurisdiction, and
without limiting the generality of the foregoing, in the event that the
Special Warrants are exercised pursuant to this Article 3 prior to the
Qualification, the certificates representing the Debentures thereby issued,
or any Common Shares into which the Debentures are converted, will bear
such legend as may, in the opinion of counsel to the Corporation, be
necessary in order to avoid a violation of any securities laws of any
province in Canada or the United States or to comply with the requirements
of any stock exchange on which the Common Shares are listed, provided that
if, at any time, in the opinion of counsel to the Corporation, such legends
are no longer necessary in order to avoid a violation of any such laws, or
the holder of any such legended certificate, at the holder's expense,
provides the Corporation with evidence satisfactory in form and substance
to the Corporation (which may include an opinion of counsel satisfactory to
the Corporation) to the effect that such holder is entitled to sell or
otherwise transfer such Debentures in a transaction in which such legends
are not required, such legended certificate may thereafter be surrendered
to the Corporation in exchange for a certificate which does not bear such
legend.
Article 4 intentionally deleted.
ARTICLE 5
COVENANTS OF THE CORPORATION
5.1 General Covenants - The Corporation covenants with the Trustee for the
benefit of the Trustee and of the Warrantholders that so long as any
Special Warrants remain outstanding:
(a) it will at all times maintain its corporate existence and will keep or
cause to be kept proper books of account in accordance with generally
accepted accounting principles;
(b) it will send to each Warrantholder a copy of all financial statements
and other material furnished to the holders of Common Shares after the
date of this Indenture;
(c) it will reserve and keep available a sufficient number of Common
Shares for the purpose of enabling it to satisfy its obligations to
issue Common Shares upon the exercise of the Debentures;
(d) it will cause the Debentures and the certificates representing the
same from time to time acquired pursuant to the exercise of the
Special Warrants to be duly issued and delivered in accordance with
the Warrant Certificates and the terms hereof;
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18
(e) all Common Shares which shall be issued upon exercise of Debentures
shall be fully paid and non-assessable;
(f) it will use its reasonable best efforts to ensure that all Common
Shares of the Corporation outstanding or issuable from time to time
continue to be traded on The Toronto Stock Exchange and the American
Stock Exchange;
(g) it will make all requisite filings under applicable securities
legislation including those necessary to remain a reporting issuer not
in default in the Qualifying Jurisdictions;
(h) it will deliver, or cause to be delivered, a notice to each holder of
Special Warrants of the issuance of the receipt for the Final
Prospectus, which notice may be the Qualification Notice, together
with a copy of the Final Prospectus, within two Business Days of the
issuance of such receipt;
(i) generally, it will well and truly perform and carry out all of the
acts or things to be done by it as provided in this Indenture; and
(j) it will comply with all covenants and satisfy all terms and conditions
on its part to be performed or satisfied under the Agency Agreement.
5.2 Trustee's Remuneration and Expenses
(a) The Corporation covenants that it will pay to the Trustee from time to
time reasonable remuneration for its services hereunder and will pay
or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in the
administration or execution of the trusts hereby created (including
the reasonable compensation and the disbursements of its counsel and
all other advisers and assistants not regularly in its employ) both
before any default hereunder and thereafter until all duties of the
Trustee hereunder shall be finally and fully performed, except any
such expense, disbursement or advance as may arise from the negligence
or wilful misconduct of the Trustee or of persons for whom the Trustee
is responsible.
(b) The Trustee shall not have a lien against any of the Escrowed Proceeds
deposited with it and held in escrow pursuant to section 6.1 or
against any income earned thereon, in respect of its remuneration or
expenses, disbursements and advances.
5.3 Performance of Covenants by Trustee - If the Corporation shall fail to
perform any of its covenants contained in this Warrant Indenture, the
Trustee may notify the Warrantholders of such failure on the part of the
Corporation or may itself perform any of the said covenants capable of
being performed by it, but, subject to section 10.2, shall be under no
obligation to perform said covenants or to notify the Warrantholders of
such performance by it.
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All sums expended or advanced by the Trustee in so doing shall be repayable
as provided in section 5.2. No such performance, expenditure or advance by
the Trustee shall relieve the Corporation of any default hereunder or of
its continuing obligations under the covenants herein contained.
5.4 Securities Qualification Requirements
(a) The Corporation will, as soon as practicable, prepare and file, under
the applicable Securities Laws, and use its reasonable best efforts to
obtain receipts from the Securities Commissions for the Preliminary
Prospectus and prepare and file other related documents relating to
the distribution of the Debentures issuable upon exercise of the
Special Warrants.
(b) The Corporation will use its best efforts to satisfy as expeditiously
as possible any comments with respect to the Preliminary Prospectus
made by any of the Securities Commissions.
(c) The Corporation will, as soon as practicable after any comments
referred to in clause (b) above are satisfied, prepare and file, under
the applicable Securities Laws, the Final Prospectus and other related
documents and will thereafter use its best efforts to obtain receipts
for the Final Prospectus from the Securities Commissions and take all
other steps and proceedings that may be necessary in order to qualify,
under the applicable Securities Laws, the distribution of the
Debentures issuable upon exercise of the Special Warrants to the
Special Warrantholders upon the exercise or deemed exercise thereof.
(d) If, in the opinion of counsel, any instrument (not including the Final
Prospectus), except as required in this section 5.4, is required to be
filed with, or any permission is required to be obtained from any
governmental authority in Canada or the United States or any other
step is required under any federal or provincial law of Canada or any
federal or state law of the United States before any Debentures which
a Warrantholder is entitled to acquire pursuant to the exercise of any
Special Warrants or any Common Share which a holder of Debentures is
entitled to acquire pursuant to the exercise of the Debentures may
properly and legally be issued upon due exercise thereof and
thereafter traded, without further formality or restriction, the
Corporation covenants that it will use its reasonable best efforts to
take such required action.
(e) The Corporation will give notice of the issue of Debentures pursuant
to the exercise of Special Warrants or the issue of Common Shares
pursuant to the exercise of the Debentures, in such detail as may be
required, to the Securities Commissions or similar regulatory
authority in each jurisdiction in Canada and the United States in
which there is legislation or regulation permitting or requiring the
giving of any such notice in order that such issue of Debentures or
Common
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Shares and the subsequent disposition of the Debentures or Common
Shares so issued will not be subject to the prospectus qualification
requirements of such legislation or regulation.
ARTICLE 6
ESCROWED PROCEEDS AND RETRACTION
6.1 Deposit of Escrowed Proceeds in Escrow - The Corporation agrees to deposit
or cause to be deposited on behalf of the Warrantholders, the Escrowed
Proceeds in escrow with the Trustee who shall hold the Escrowed Proceeds in
trust for the benefit of the Warrantholders upon and subject to the
following irrevocable authorizations and instructions to deal with the
Escrowed Proceeds in accordance with the provisions of this Article.
6.2 Investment of Funds - The Escrowed Proceeds deposited with the Trustee
hereunder, pending any release or application thereof as required in
accordance with the provisions of this Article, shall be invested by the
Trustee in its name in Permitted Investments in accordance with any written
directions of the Corporation from time to time given to the Trustee or, in
the absence of any such directions, shall be invested by the Trustee in its
name in accordance with section 10.4.
6.3 Release of Escrowed Proceeds
(a) If the Trustee receives a USMX Loan Notice, the Trustee shall pay to,
or to the direction of, the Corporation forthwith and in any event not
later than one Business Day after receipt of such notice an amount
equal to the USMX Loan Amount out of the Escrowed Proceeds; and
(b) Upon the exercise or deemed exercise of any Special Warrants in
accordance with Article 3 hereof, the Trustee shall pay to the
Corporation forthwith and in any event not later than three Business
Days after such exercise or deemed exercise an amount, less any
amounts paid or to be paid to the Trustee pursuant to section 5.2,
equal to a proportionate share of the Escrowed Proceeds attributable
to the exercised or deemed exercised Special Warrants and in such case
all income earned thereon while the monies were held by the Trustee
shall be paid on a pro rata basis to the holders of the Special
Warrants contemporaneously with the delivery of the Debentures in
accordance with section 3.2(e) by delivery to such holder of a trust
cheque for the applicable amount (less any tax required to be withheld
therefrom). Any payment made in accordance with the provisions of this
section shall, to the extent of the sum represented thereby (plus the
amount of any tax so withheld), satisfy and discharge all liability of
the Corporation with respect to such payment, unless such cheque is
not paid at par on presentation. In event of non-receipt of any such
cheque by the person to whom it is so sent as aforesaid, or the loss
or destruction thereof, the Trustee will issue to such
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person a replacement cheque for a like amount upon being furnished
with such evidence of non-receipt, loss destruction and with such
indemnity as the Trustee may reasonably require.
6.4 Surrender of Special Warrants for Retraction - If the Trustee has delivered
a Merger Default Notice to Warrantholders in accordance with section
3.4(b), or has not received a Notice of Merger as co-signed by the Agents
on or by the Qualification Deadline, the Trustee shall not later than the
fifth Business Day following the Retraction Cut-off Date, pay out of the
Escrowed Proceeds to Warrantholders who have elected pursuant to, and
complied with the provisions of, section 3.4 hereof to retract any or all
of their Special Warrants, the aggregate Special Warrant Purchase Price for
such Special Warrants surrendered for retraction together with a pro rata
share of the income earned on such Escrowed Proceeds while the monies were
held by the Trustee (less any tax required to be withheld therefrom). If
the Escrowed Proceeds are not sufficient to redeem all tendered Special
Warrants because the Agents' Commission and/or the USMX Loan Amount has
been deducted from the Escrowed Proceeds, then a pro rata number of Special
Warrants tendered for retraction will be retracted from each Special
Warrantholder using the remaining Escrowed Proceeds.
6.5 Method of Repayment on Voluntary Retraction by Holder - Not later than the
fifth Business Day after Retraction Cut-off Date, the Trustee will mail to
a Warrantholder who has elected in accordance with section 3.4 to retract
any or all of his Special Warrants or to such person as such holder may
otherwise specify by written notice given to the Trustee prior to such
mailing, at the address of such holder or, if so specified, of such person,
or, if specified by written notice given to the Trustee prior to such
mailing, will deliver to such holder or person, a trust cheque for the
applicable amount as determined in accordance with section 6.4, plus an
amount (less any tax required to be withheld therefrom) equal to the pro
rata portion of the income earned on the Escrowed Proceeds with respect to
such Special Warrants surrendered for retraction and accepted for
repurchase by the Corporation from the Effective Date to the date of the
Notice of Merger Default and shall simultaneously return by mail
certificates representing those Special Warrants not repurchased by the
Corporation. Any payment made in accordance with the provisions of this
section 6.5 shall, to the extent of the sum represented thereby (plus the
amount of any tax so withheld), satisfy and discharge all liability of the
Corporation with respect to such payment, unless such cheque is not paid at
par on presentation. In the event of non-receipt of any such cheque by the
person to whom it is so sent as aforesaid, or the loss or destruction
thereof, the Trustee will issue to such person a replacement cheque for a
like amount upon being furnished with such evidence of non-receipt, loss or
destruction and with such indemnity as the Trustee may reasonably require.
6.6 Mandatory Retraction of Series B Special Warrants - If the Trustee has
received from the Corporation a Notice of Shareholder Approval Default in
accordance with Section 3.4(a), or has not received a Notice of Shareholder
Approval as co-signed by the Agents by or on the Shareholder Approval
Deadline:
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(a) all outstanding Series B Special Warrants shall be retracted by the
Trustee on behalf of the holders as of the Shareholder Approval
Deadline without any further action on the part of the holders and
immediately thereafter cancelled without any further action on the
part of the Corporation or the Trustee; and
(b) the Trustee shall not later than the fifth Business Day following the
day it receives the Notice of Shareholder Approval Default repay, out
of the Escrowed Proceeds, to each holder of Series B Special Warrants
the aggregate Special Warrant Purchase Price for such Series B Special
Warrants retracted together with a pro rata share of the income earned
on such Escrowed Proceeds while the monies were held by the Trustee
(less any tax required to be withheld therefrom).
6.7 Method of Repayment on Retraction by Corporation - Not later than the fifth
Business Day after the day the Trustee receives the Notice of Shareholder
Approval Default, the Trustee will mail to each holder of the then
cancelled Series B Special Warrants or to such person as such holder may
otherwise specify by written notice given to the Trustee prior to such
mailing, at the address of such holder or, if so specified, of such person,
or, if specified by written notice given to the Trustee prior to such
mailing, will deliver to such holder or person, a trust cheque for the
applicable amount as determined in accordance with section 6.6, plus an
amount (less any tax required to be withheld therefrom) equal to the pro
rata portion of the income earned on the Escrowed Proceeds with respect to
such Series B Special Warrants retracted from the Effective Date to the
date of such retraction. Any payment made in accordance with the provisions
of this section 6.7 shall, to the extent of the sum represented thereby
(plus the amount of any tax so withheld), satisfy and discharge all
liability of the Corporation with respect to such payment, unless such
cheque is not paid at par on presentation. In the event of non-receipt of
any such cheque by the person to whom it is so sent as aforesaid, or the
loss or destruction thereof, the Trustee will issue to such person a
replacement cheque for a like amount upon being furnished with such
evidence of non-receipt, loss or destruction and with such indemnity as the
Trustee may reasonably require.
6.8 Corporation to Provide Funds - The Trustee will apply the Escrowed Proceeds
and the interest earned thereon held by the Trustee pursuant to this
Article to any payment required to be made pursuant to section 6.4 or
section 6.6. To the extent that such monies are not sufficient to enable
the Trustee to make any such required payment pursuant to section 6.4 or
section 6.6 in full, the Corporation will, within one Business Day after
receipt of written notice from the Trustee specifying such deficiency,
provide the Trustee with sufficient funds to enable the Trustee to make
such payment in full. The Trustee shall have no responsibility for any
deficiency for amounts to be paid from the Escrowed Proceeds.
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ARTICLE 7
ENFORCEMENT
7.1 Suits by Warrantholders - All or any of the rights conferred upon any
Warrantholder by any of the terms of the Warrant Certificates or of this
Indenture, or of both, may be enforced by the Warrantholder by appropriate
proceedings but without prejudice to the right which is hereby conferred
upon the Trustee to proceed in its own name to enforce each and all of the
provisions herein contained for the benefit of the Warrantholders.
7.2 Immunity of Shareholders, Etc. - The Trustee and, by the acceptance of the
Warrant Certificates and as part of the consideration for the issue of the
Special Warrants, the Warrantholders hereby waive and release any right,
cause of action or remedy now or hereafter existing in any jurisdiction
against any incorporator or any past, present or future shareholder,
director, officer, employee or agent of the Corporation or any successor
corporation for the issue of the Debentures pursuant to any Special
Warrants or on any covenant, agreement, representation or warranty by the
Corporation herein or contained in the Warrant Certificates.
7.3 Limitation of Liability - The obligations hereunder are not personally
binding upon, nor shall resort hereunder be had to, the private property of
any of the past, present or future directors or shareholders of the
Corporation or any successor corporation or any of the past, present or
future officers, employees or agents of the Corporation or any successor
corporation, but only the property of the Corporation or any successor
corporation shall be bound in respect hereof.
7.4 Waiver of Default - Upon the happening of any default hereunder:
-----------------
(a) the holders of not less than 51% of the Special Warrants then
outstanding shall have power (in addition to the powers exercisable by
extraordinary resolution as provided in section 8.10) by requisition
in writing to instruct the Trustee to waive any default hereunder and
the Trustee shall thereupon waive the default upon such terms and
conditions as shall be prescribed in such requisition; or
(b) the Trustee shall have power to waive any default hereunder upon such
terms and conditions as the Trustee may deem advisable, if, in the
Trustee's opinion, the same shall have been cured or adequate
provision made therefor; provided that no delay or omission of the
Trustee or of the Warrantholders to exercise any right or power
accruing upon any default shall impair any such right or power or
shall be construed to be a waiver of any such default or acquiescence
therein and provided further that no act or omission either of the
Trustee or of the Warrantholders shall extend to or be taken in any
manner whatsoever to affect any prior or subsequent default hereunder
or the rights resulting therefrom.
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ARTICLE 8
MEETINGS OF WARRANTHOLDERS
8.1 Right to Convene Meetings - The Trustee may at any time and from time to
time, and, on receipt of a written request of the Corporation or of a
Warrantholders' Request and upon being indemnified and funded to its
reasonable satisfaction by the Corporation or by the Warrantholders signing
such Warrantholders' Request against the costs which may be incurred in
connection with the calling and holding of such meeting, shall convene a
meeting of the Warrantholders. In the event of the Trustee failing to
convene a meeting within seven days after receipt of such written request
of the Corporation or such Warrantholders' Request and indemnity given as
aforesaid, the Corporation or such Warrantholders, as the case may be, may
convene such meeting. Every such meeting shall be held in the city of
Vancouver, British Columbia or at such other place as may be approved or
determined by the Trustee and the Corporation.
8.2 Notice - At least 25 days' prior notice of any meeting of Warrantholders
shall be given to the Warrantholders in the manner provided for in section
11.2 and a copy of such notice shall be sent by mail to the Trustee (unless
the meeting has been called by the Trustee) and to the Corporation (unless
the meeting has been called by the Corporation). Such notice shall state
the time when and the place where the meeting is to be held, shall state
briefly the general nature of the business to be transacted thereat and
shall contain such information as is reasonably necessary to enable the
Warrantholders to make a reasoned decision on the matter, but it shall not
be necessary for any such notice to set out the terms of any resolution to
be proposed or any of the provisions of this Article 8.
8.3 Chairman - An individual (who need not be a Warrantholder) designated in
writing by the Trustee shall be chairman of the meeting and if no
individual is so designated, or if the individual so designated is not
present within 15 minutes from the time fixed for the holding of the
meeting, the Warrantholders present in person or by proxy shall choose some
individual present to be chairman.
8.4 Quorum - Subject to the provisions of section 8.11, at any meeting of the
Warrantholders a quorum shall consist of Warrantholders present in person
or by proxy and holding at least 25% of the aggregate number of Special
Warrants then outstanding. If a quorum of the Warrantholders shall not be
present within 30 minutes from the time fixed for holding any meeting, the
meeting, if summoned by the Warrantholders or on a Warrantholders' Request,
shall be dissolved; but in any other case the meeting shall be adjourned to
the same day in the next week (unless such day is not a Business Day, in
which case it shall be adjourned to the next following Business Day) at the
same time and place and no notice of the adjournment need be given. Any
business may be brought before or dealt with at an adjourned meeting which
might have been dealt with at the original meeting in accordance with the
notice calling the same. No business shall be transacted at any meeting
unless a quorum be present at the commencement of business. At the
adjourned meeting the Warrantholders present in person or by proxy shall
form a quorum and may transact the business for which the meeting was
originally convened,
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25
notwithstanding that they may not hold at least 25% of the aggregate number
of Special Warrants then outstanding.
8.5 Power to Adjourn - The chairman of any meeting at which a quorum of the
Warrantholders is present may, with the consent of the meeting, adjourn any
such meeting, and no notice of such adjournment need be given except such
notice, if any, as the meeting may prescribe.
8.6 Show of Hands - Every question submitted to a meeting shall be decided in
the first place by a majority of the votes given on a show of hands except
that votes on an extraordinary resolution shall be given in the manner
hereinafter provided. At any such meeting, unless a poll is duly demanded
as herein provided, a declaration by the chairman that a resolution has
been carried or carried unanimously or by a particular majority or lost or
not carried by a particular majority shall be conclusive evidence of the
fact.
8.7 Poll and Voting - On every extraordinary resolution, and on any other
question submitted to a meeting and after a vote by show of hands when
demanded by the chairman or by one or more of the Warrantholders acting in
person or by proxy holding at least 5% of the aggregate number of Special
Warrants then outstanding, a poll shall be taken in such manner as the
chairman shall direct. Questions other than those required to be determined
by extraordinary resolution shall be decided by a majority of the votes
cast on the poll.
On a show of hands, every person who is present and entitled to vote,
whether as a Warrantholder or as proxy for one or more absent
Warrantholders, or both, shall have one vote. On a poll, each Warrantholder
present in person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole Common Share
which he is entitled to acquire pursuant to the Special Warrant or Special
Warrants then held or represented by him. A proxy need not be a
Warrantholder. The chairman of any meeting shall be entitled, both on a
show of hands and on a poll, to vote in respect of the Special Warrants, if
any, held or represented by him.
8.8 Regulations - The Trustee, or the Corporation with the approval of the
Trustee, may from time to time make and from time to time vary such
regulations as it shall think fit for:
(a) the setting of the record date for a meeting for the purpose of
determining Warrantholders entitled to receive notice of and to vote
at a meeting;
(b) the issue of voting certificates by any bank, trust company or other
depository satisfactory to the Trustee stating that the Warrant
Certificates specified therein have been deposited with it by a named
person and will remain on deposit until after the meeting, which
voting certificates shall entitle the persons named therein to be
present and vote at any such meeting and at any adjournment thereof or
to appoint a proxy or proxies to represent them and vote for them at
any such meeting and at any adjournment thereof in the same manner and
with the same
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26
effect as though the persons so named in such voting certificates were
the actual bearers of the Warrant Certificates specified therein;
(c) the deposit of voting certificates and instruments appointing proxies
at such place and time as the Trustee, the Corporation or the
Warrantholders convening the meeting, as the case may be, may in the
notice convening the meeting direct;
(d) the deposit of voting certificates and instruments appointing proxies
at some approved place or places other than the place at which the
meeting is to be held and enabling particulars of such instruments
appointing proxies to be mailed, telecopied, telegraphed or sent by
other means of electronic transmission before the meeting to the
Corporation or to the Trustee at the place where the same is to be
held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting;
(e) the form of the instrument of proxy; and
(f) generally for the calling of meetings of Warrantholders and the
conduct of business thereat.
Any regulations so made shall be binding and effective and the votes
given in accordance therewith shall be valid and shall be counted.
Save as such regulations may provide, the only persons who shall be
recognized at any meeting as a Warrantholder, or be entitled to vote
or be present at the meeting in respect thereof (subject to section
8.9), shall be Warrantholders or their counsel, or proxies of
Warrantholders.
8.9 Corporation and Trustee may be Represented - The Corporation and the
Trustee, by their respective directors, officers and employees and the
counsel for the Corporation and for the Trustee may attend any meeting
of the Warrantholders, but shall have no vote as such unless in their
capacity as a Warrantholder.
8.10 Powers Exercisable by Extraordinary Resolution - In addition to all
other powers conferred upon them by any other provisions of this
Indenture or by law, the Warrantholders at a meeting shall, subject to
the provisions of section 8.11, have the power, exercisable from time
to time by extraordinary resolution:
(a) to agree to any modification, abrogation, alteration, compromise
or arrangement of the rights of Warrantholders or the Trustee in
its capacity as trustee hereunder or on behalf of the
Warrantholders against the Corporation whether such rights arise
under this Indenture or the Warrant Certificates or otherwise;
(b) to amend, alter or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
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(c) to direct or to authorize the Trustee to enforce any of the
covenants on the part of the Corporation contained in this
Indenture or the Warrant Certificates or to enforce any of the
rights of the Warrantholders in any manner specified in such
extraordinary resolution or to refrain from enforcing any such
covenant or right;
(d) to waive, and to direct the Trustee to waive, any default on the
part of the Corporation in complying with any provisions of this
Indenture or the Warrant Certificates either unconditionally or
upon any conditions specified in such extraordinary resolution;
(e) to restrain any Warrantholder from taking or instituting any
suit, action or proceeding against the Corporation for the
enforcement of any of the covenants on the part of the
Corporation in this Indenture or the Warrant Certificates or to
enforce any of the rights of the Warrantholders;
(f) to direct any Warrantholder who, as such, has brought any suit,
action or proceeding to stay or to discontinue or otherwise to
deal with the same upon payment of the costs, charges and
expenses reasonably and properly incurred by such Warrantholder
in connection therewith;
(g) to assent to any change in or omission from the provisions
contained in the Warrant Certificates and this Indenture or any
ancillary or supplemental instrument which may be agreed to by
the Corporation, and to authorize the Trustee to concur in and
execute any ancillary or supplemental indenture embodying the
change or omission;
(h) with the consent of the Corporation, to remove the Trustee or its
successor in office and to appoint a new trustee or trustees to
take the place of the Trustee so removed; and
(i) to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured
or otherwise, and with holders of any shares or other securities
of the Corporation.
8.11 Meaning of Extraordinary Resolution
(a) The expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter provided in this section 8.11 and in
section 8.14, a resolution proposed at a meeting of Warrantholders
duly convened for that purpose and held in accordance with the
provisions of this Article 8 at which there are present in person or
by proxy Warrantholders holding at least 51% of the aggregate number
of Special Warrants then outstanding and passed by the affirmative
votes of Warrantholders holding not less than 66 2/3% of the
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aggregate number of Special Warrants represented at the meeting and
voted on the poll upon such resolution.
(b) If, at any meeting called for the purpose of passing an extraordinary
resolution, the quorum required by section 8.11(a) above is not
present within 30 minutes after the time appointed for the meeting,
then the meeting, if convened by Warrantholders or on a
Warrantholders' Request, shall be dissolved; but in any other case it
shall stand adjourned to such day, being not less than 15 or more than
60 days later, and to such place and time as may be appointed by the
chairman. Not less than ten days' prior notice shall be given of the
time and place of such adjourned meeting in the manner provided for in
section 11.2. Such notice shall state that at the adjourned meeting
the Warrantholders present in person or by proxy did not form a quorum
but it shall not be necessary to set forth the purposes for which the
meeting was originally called or any other particulars. At the
adjourned meeting the Warrantholders present in person or by proxy
shall form a quorum and may transact the business for which the
meeting was originally convened and a resolution proposed at such
adjourned meeting and passed by the requisite vote as provided in
section 8.11(a) shall be an extraordinary resolution within the
meaning of this Indenture notwithstanding that Warrantholders holding
at least 51% of the aggregate number of Special Warrants then
outstanding are not present in person or by proxy at such adjourned
meeting.
(c) Votes on an extraordinary resolution shall always be given on a poll
and no demand for a poll on an extraordinary resolution shall be
necessary
8.12 Powers Cumulative - Any one or more of the powers or any combination of the
powers in this Indenture stated to be exercisable by the Warrantholders by
extraordinary resolution or otherwise may be exercised from time to time
and the exercise of any one or more of such powers or any combination of
powers from time to time shall not be deemed to exhaust the right of the
Warrantholders to exercise such power or powers or combination of powers
then or thereafter from time to time.
8.13 Minutes - Minutes of all resolutions and proceedings at every meeting of
Warrantholders shall be made and duly entered in books to be provided from
time to time for that purpose by the Trustee at the expense of the
Corporation, and any such minutes as aforesaid, if signed by the chairman
or the secretary of the meeting at which such resolutions were passed or
proceedings had shall be prima facie evidence of the matters therein stated
and, until the contrary is proved, every such meeting in respect of the
proceedings of which minutes shall have been made shall be deemed to have
been duly convened and held, and all resolutions passed thereat or
proceedings taken shall be deemed to have been duly passed and taken.
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8.14 Instruments in Writing - All actions which may be taken and all powers that
may be exercised by the Warrantholders at a meeting held as provided in
this Article 8 may also be taken and exercised by Warrantholders holding at
least 66 2/3% of the aggregate number of Special Warrants then outstanding
by an instrument in writing signed in one or more counterparts by such
Warrantholders in person or by attorney duly appointed in writing, provided
that such instrument was submitted to, and the expression "extraordinary
resolution" when used in this Indenture shall include an instrument so
signed.
8.15 Binding Effect of Resolutions - Every resolution and every extraordinary
resolution passed in accordance with the provisions of this Article 8 at a
meeting of Warrantholders shall be binding upon all the Warrantholders,
whether present at or absent from such meeting, and every instrument in
writing signed by Warrantholders in accordance with section 8.14 shall be
binding upon all the Warrantholders, whether signatories thereto or not,
and each and every Warrantholder and the Trustee (subject to the provisions
for indemnity herein contained) shall be bound to give effect accordingly
to every such resolution and instrument in writing.
8.16 Holdings by Corporation Disregarded - In determining whether Warrantholders
holding the required number of Special Warrants are present at a meeting of
Warrantholders for the purpose of determining a quorum or have concurred in
any consent, waiver, extraordinary resolution, Warrantholders' Request or
other action under this Indenture, Special Warrants owned legally or
beneficially by the Corporation or any subsidiary of the Corporation, as
determined in accordance with the provisions of section 11.7, shall be
deemed not to be outstanding.
ARTICLE 9
SUPPLEMENTAL INDENTURES
9.1 Provision for Supplemental Indentures for Certain Purposes - From time to
time the Corporation (when authorized by action by the directors) and the
Trustee may, subject to the provisions hereof, and they shall, when so
directed in accordance with the provisions hereof, execute and deliver by
their proper officers, indentures or instruments supplemental hereto, which
thereafter shall form part hereof, for any one or more or all of the
following purposes:
(a) [Intentionally Deleted]
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of the Trustee based on
the advice of counsel, are necessary or advisable in the
premises, provided that the same are not in the opinion of the
Trustee prejudicial to the interests of the Warrantholders;
(c) giving effect to any extraordinary resolution passed as provided
in Article 8;
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(d) making such provisions not inconsistent with this Indenture as
may be necessary or desirable with respect to matters or
questions arising hereunder or for the purpose of obtaining a
listing or quotation of the Special Warrants on any stock
exchange, provided that such provisions are not, in the opinion
of the Trustee based on the advice of counsel, prejudicial to the
interests of the Warrantholders;
(e) adding to or altering the provisions hereof in respect of the
transfer of Special Warrants, making provision for the exchange
of Warrant Certificates, and making any modification in the form
of the Warrant Certificates which does not affect the substance
thereof;
(f) modifying any of the provisions of this Indenture, including
relieving the Corporation from any of the obligations, conditions
or restrictions herein contained, provided that such modification
or relief shall be or become operative or effective only if, in
the opinion of the Trustee based on the advice of counsel, such
modification or relief in no way prejudices any of the rights of
the Warrantholders or of the Trustee, and provided further that
the Trustee may in its sole discretion decline to enter into any
such supplemental indenture which in its opinion may not afford
adequate protection to the Trustee when the same shall become
operative; and
(g) for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors,
mistakes or omissions herein or any deed or indenture
supplemental or ancillary hereto, provided that in the opinion of
the Trustee based on the advice of counsel the rights of the
Trustee and of the Warrantholders are in no way prejudiced
thereby.
9.2 Successor Corporations - In the case of the consolidation,
amalgamation, merger or transfer of the undertaking or assets of the
Corporation as an entirety or substantially as an entirety to another
corporation ("successor corporation"), the successor corporation
resulting from such consolidation, amalgamation, merger or transfer
(if not the Corporation) shall expressly assume, by supplemental
indenture satisfactory in form to the Trustee and executed and
delivered by the successor corporation to the Trustee, the due and
punctual performance and observance of each and every covenant and
condition of this Indenture to be performed and observed by the
Corporation.
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ARTICLE 10
CONCERNING THE TRUSTEE
10.1 Trust Indenture Legislation
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(b) The Corporation and the Trustee agree that each will, at all
times in relation to this Indenture and any action to be taken
hereunder, observe and comply with and be entitled to the
benefits of Applicable Legislation.
10.2 Rights and Duties of Trustee
(a) In the exercise of the rights and duties prescribed or conferred
by the terms of this Indenture, the Trustee shall exercise that
degree of care, diligence and skill that a reasonably prudent
trustee would exercise in comparable circumstances. No provision
of this Indenture shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct.
(b) The obligation of the Trustee to commence or continue any act,
action or proceeding for the purpose of enforcing any rights of
the Trustee or the Warrantholders hereunder shall be conditional
upon the Warrantholders furnishing, when required by notice by
the Trustee, sufficient funds to commence or to continue such
act, action or proceeding and an indemnity reasonably
satisfactory to the Trustee to protect and to hold harmless the
Trustee against the costs, charges and expenses and liabilities
to be incurred thereby and any loss and damage it may suffer by
reason thereof. None of the provisions contained in this
Indenture shall require the Trustee to expend or to risk its own
funds or otherwise to incur financial liability in the
performance of any of its duties or in the exercise of any of its
rights or powers unless indemnified and funded as aforesaid.
(c) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Warrantholders, at whose instance it is acting to deposit with
the Trustee the Special Warrants held by them, for which Special
Warrants the Trustee shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence
submitted to it is subject to the provisions of Applicable
Legislation, of this section 10.2, section 10.3 and section 10.8.
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10.3 Evidence, Experts and Advisers
(a) In addition to the reports, certificates, opinions and other
evidence required by this Indenture, the Corporation shall
furnish to the Trustee such additional evidence of compliance
with any provision hereof, and in such form, as may be prescribed
by Applicable Legislation or as the Trustee may reasonably
require by written notice to the Corporation.
(b) In the exercise of its rights and duties hereunder, the Trustee
may, if it is acting in good faith, rely as to the truth of the
statements and the accuracy of the opinions expressed in
statutory declarations, opinions, reports, written requests,
consents, or orders of the Corporation, certificates of the
Corporation or other evidence furnished to the Trustee pursuant
to any provision hereof or of Applicable Legislation or pursuant
to a request of the Trustee, provided that such evidence complies
with Applicable Legislation and that the Trustee complies with
Applicable Legislation and that the Trustee examines the same and
determines that such evidence complies with the applicable
requirements of this Indenture.
(c) Whenever Applicable Legislation requires that evidence referred
to in section 10.3(a) be in the form of a statutory declaration,
the Trustee may accept the statutory declaration in lieu of a
certificate of the Corporation required by any provision hereof.
Any such statutory declaration may be made by any one or more of
the Chief Executive Officer, the Chief Financial Officer, any
vice-president, the secretary or any assistant secretary of the
Corporation.
(d) The Trustee may employ or retain such counsel, accountants,
appraisers or other experts or advisers as it may reasonably
require for the purpose of discharging its duties hereunder and
may pay reasonable remuneration for all services so performed by
any of them, without taxation of costs of any counsel, and shall
not be responsible for any misconduct or negligence on the part
of any such experts or advisers who have been appointed with due
care by the Trustee.
10.4 Documents, Monies, etc. held by Trustee - Any securities, documents of
title or other instruments that may at any time be held by the Trustee
subject to the trusts hereof may be placed in the deposit vaults of the
Trustee or of any Canadian Schedule "1" chartered bank or deposited for
safekeeping with any such bank. Any monies so held pending the application
or withdrawal thereof under any provisions of this Indenture shall be
deposited in the Trustee's trust account or in the name of the Trustee in
any Canadian Schedule "1" chartered bank as non-interest bearing deposits
or, as directed by the Corporation, invested in Permitted Investments.
Subject to section 5.2, all interest or other income received by the
Trustee in respect of such investments shall belong to the Warrantholders.
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10.5 Actions by Trustee to Protect Interest - The Trustee shall have power to
institute and to maintain such actions and proceedings as it may consider
necessary or expedient to preserve, protect or enforce its interests and
the interests of the Warrantholders.
10.6 Trustee not Required to Give Security - The Trustee shall not be required
to give any bond or security in respect of the execution of the trusts and
powers of this Indenture or otherwise in respect of the premises.
10.7 Protection of Trustee - By way of supplement to the provisions of any law
for the time being relating to Trustees it is expressly declared and agreed
as follows:
(a) the Trustee shall not be liable for or by reason of any statements of
fact or recitals in this Indenture or in the Warrant Certificates
(except the representation contained in section 10.9 or in the
signature of the Trustee on the Warrant Certificates) or be required
to verify the same, but all such statements or recitals are and shall
be deemed to be made by the Corporation;
(b) nothing herein contained shall impose any obligation on the Trustee to
see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto;
(c) the Trustee shall not be bound to give notice to any person or persons
of the execution hereof;
(d) the Trustee shall not incur any liability or responsibility whatever
or be in any way responsible for the consequence of any breach on the
part of the Corporation of any of the covenants herein contained or of
any acts of any directors, officers, employees, agents or servants of
the Corporation; and
(e) the Trustee shall not be bound to give any notice or to do or take any
act, action or proceeding by virtue of the powers conferred on it
hereby unless and until it shall have been required so to do under the
terms hereof nor shall the Trustee be required to take notice of any
default of the Corporation hereunder unless and until notified in
writing of the default (which notice must specify the nature of the
default) and, in the absence of that notice, the Trustee may for all
purposes hereunder conclusively assume that no default by the
Corporation hereunder has occurred. The giving of any notice shall in
no way limit the discretion of the Trustee hereunder as to whether any
action is required to be taken in respect of any default hereunder.
10.8 Indemnification - Without limiting any protection or indemnity of the
Trustee under any other provision hereof, or otherwise at law, the
Corporation hereby agrees to indemnify and hold harmless the Trustee from
and against any and all liabilities, losses, damages, penalties, claims,
actions, suits, costs, expenses and disbursements, including
144554\0512890.WP
<PAGE>
34
reasonable legal or advisor fees and disbursements, of whatever kind and
nature which may at any time be imposed on, incurred by or asserted against
the Trustee in connection with the performance of its duties and
obligations hereunder, other than such liabilities, losses, damages,
penalties, claims, actions, suits, costs, expenses and disbursements
arising by reason of the negligence or wilful misconduct of the Trustee.
This provision shall survive the resignation or removal of the Trustee, or
the termination of this Indenture.
10.9 Replacement of Trustee; Successor by Merger
-------------------------------------------
(a) The Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder, subject to this section 10.9, by
giving to the Corporation not less than 90 days' prior notice in
writing or such shorter prior notice as the Corporation may accept as
sufficient. The Warrantholders by extraordinary resolution shall have
power at any time to remove the existing Trustee and to appoint a new
trustee. In the event of the Trustee resigning or being removed as
aforesaid or being dissolved, becoming bankrupt, going into
liquidation or otherwise becoming incapable of acting hereunder, the
Corporation shall forthwith appoint a new trustee unless a new trustee
has already been appointed by the Warrantholders; failing such
appointment by the Corporation, the retiring Trustee or any
Warrantholder may apply to a justice of the Supreme Court of the
Province of British Columbia, on such notice as such justice may
direct, for the appointment of a new trustee; but any new trustee so
appointed by the Corporation or by the Court shall be subject to
removal as aforesaid by the Warrantholders. Any new trustee appointed
under any provision of this section 10.9 shall be a corporation
authorized to carry on the business of a trust company in the Province
of British Columbia and, if required by the Applicable Legislation for
any other provinces, in such other provinces. On any such appointment
the new trustee shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named herein as
Trustee hereunder.
(b) Upon the appointment of a successor trustee, the Corporation shall
promptly notify the Warrantholders thereof in the manner provided for
in Article 11 hereof.
(c) Any corporation into or with which the Trustee may be merged or
consolidated or amalgamated, or any corporation resulting therefrom to
which the Trustee shall be a party, or any corporation succeeding to
the trust business of the Trustee shall be the successor to the
Trustee hereunder without any further act on its part or any of the
parties hereto, provided that such corporation would be eligible for
appointment as a successor trustee under section 10.8(a).
(d) Any Warrant Certificates countersigned but not delivered by a
predecessor trustee may be delivered by the successor trustee in the
name of the predecessor or successor trustee.
144554\0512890.WP
<PAGE>
35
10.10 Conflict of Interest
(a) The Trustee represents to the Corporation that at the time of
execution and delivery hereof no material conflict of interest exists
between its role as a trustee hereunder and its role in any other
capacity and agrees that in the event of a material conflict of
interest arising hereafter it will, within 30 days after ascertaining
that it has such material conflict of interest, either eliminate the
same or assign its trust hereunder to a successor trustee approved by
the Corporation and meeting the requirements set forth in section
10.9(a). Notwithstanding the foregoing provisions of this section
10.10(a), if any such material conflict of interest exists or
hereafter shall exist, the validity and enforceability of this
Indenture and the Warrant Certificates shall not be affected in any
manner whatsoever by reason thereof.
(b) Subject to section 10.10(a), the Trustee, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Corporation
and generally may contract and enter into financial transactions with
the Corporation or any subsidiary of the Corporation without being
liable to account for any profit made thereby.
10.11Acceptance of Trust - The Trustee hereby accepts the trusts in this
Indenture declared and provided for and agrees to perform the same upon the
terms and conditions herein set forth and agrees to hold all rights,
interests and benefits contained herein for and on behalf of those persons
who become holders of Special Warrants from time to time issued pursuant to
this Indenture.
10.12Trustee not to be Appointed Receiver - The Trustee and any person related
to the Trustee shall not be appointed a receiver, a receiver and manager or
liquidator of all or any part of the assets or undertaking of the
Corporation.
ARTICLE 11
GENERAL
11.1 Notice to the Corporation and the Trustee
-----------------------------------------
(a) Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the Trustee shall be deemed to be
validly given if delivered or if sent by registered letter, postage
prepaid or if sent by facsimile transmission:
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<PAGE>
36
if to the Corporation:
Dakota Mining Corporation
410 Seventeenth Street
Suite 245
Denver, Colorado
U.S.A.
80202
Attention: Mr. Robert Gilmore
Facsimile No.: (303) 573-1012
if to the Trustee:
Montreal Trust Company of Canada
Montreal Trust Centre
510 Burrard Street
Vancouver, British Columbia
V6C 3B9
Attention: Corporate Services Division
Facsimile No.: (604) 685-4079
and any such notice delivered in accordance with the foregoing
shall be deemed to have been received on the date of delivery
or facsimile transmission or, if mailed, on the fifth Business
Day following the date of the postmark on such notice.
(b) The Corporation or the Trustee, as the case may be, may from time
to time notify the other in the manner provided in section
11.1(a) of a change of address which, from the effective date of
such notice and until changed by like notice, shall be the
address of the Corporation or the Trustee, as the case may be,
for all purposes of this Indenture. A copy of any notice of
change of address given pursuant to section 11.1(b) shall be sent
to the Special Warrant Agency, where it shall be available for
inspection by Warrantholders during normal business hours.
(c) If, by reason of a strike, lockout or other work stoppage, actual
or threatened, involving postal employees, any notice to be given
to the Trustee or to the Corporation hereunder could reasonably
be considered unlikely to reach its destination, such notice
shall be valid and effective only if it is delivered to the of
the party to which it is addressed or given by facsimile
transmission.
144554\0512890.WP
<PAGE>
37
11.2 Notice to Warrantholders
(a) Any notice to the Warrantholders under the provisions of this
Indenture shall be valid and effective if sent by facsimile or
letter or circular by personal delivery or through the ordinary
post addressed to such holders at their post office addresses
appearing on the register hereinbefore mentioned and shall be
deemed to have been effectively given, if sent by facsimile, one
Business Day after being sent, if personally delivered, on the
day of delivery, or, if mailed, five Business Days following
actual posting of the notice.
(b) If, by reason of a strike, lockout or other work stoppage, actual
or threatened, involving postal employees, any notice to be given
to the Warrantholders hereunder could reasonably be considered
unlikely to reach its destination, such notice shall be valid and
effective only if it is delivered personally to such
Warrantholders or if delivered to the address for such
Warrantholders contained in the register of Special Warrants
maintained by the Trustee, by facsimile or other means of
prepaid, transmitted and recorded communication.
(c) A copy of each and every notice provided to the Warrantholders
shall be concurrently provided to Canaccord Capital Corporation
at P.O. Box 6, Suite 1210, 320 Bay Street Toronto, Ontario, M5H
4A6, Attention: Mark J. Polubiec, Facsimile (416) 869-3876, with
a copy to Cassels Brock & Blackwell, Scotia Plaza, Suite 2100, 40
King Street West, Toronto, Ontario, M5H 3C2, Attention: Peter
Marrone, Facsimile (416) 360-8877.
11.3 Counterparts - This Indenture may be executed in several counterparts, each
of which when so executed shall be deemed to be an original and such
counterparts together shall constitute one and the same instrument and
notwithstanding their date of execution they shall be deemed to be dated as
of the date hereof.
11.4 Satisfaction and Discharge of Indenture
On the earlier of:
(a) the date by which there has been delivered to the Trustee for
exercise, surrender for cancellation or destruction all Special
Warrant Certificates theretofore certified hereunder; or
(b) the Expiry Time:
and if all certificates representing the Debentures to be issued in
compliance with the provisions hereof have been issued and delivered
hereunder or to the Trustee in accordance with such provisions, all
monies to be paid hereunder have been paid and all other obligations
of the Corporation to the Warrantholders in connection with the
exercise, deemed exercise or surrender
144554\0512890.WP
<PAGE>
38
and repurchase of the Special Warrants by the Corporation have been
satisfied, this Indenture will cease to be of further effect and, on
demand of and at the cost and expense of the Corporation and on
delivery to the Trustee of a certificate of the Corporation stating
that all conditions precedent to the satisfaction and discharge of
this Indenture have been complied with and on payment to the Trustee
of the fees, expenses and any other amount whatsoever and other
remuneration payable to the Trustee hereunder, the Trustee will
execute proper instruments acknowledging satisfaction of and
discharging this Indenture.
11.5 Provisions of Indentures and Special Warrants for the Sole Benefit of
Parties and Warrantholders - Nothing in this Indenture or in the Warrant
Certificates, expressed or implied, shall give or be construed to give to
any person other than the parties hereto and the Warrantholders, as the
case may be, any legal or equitable right, remedy or claim under this
Indenture, or under any covenant or provision herein or therein contained,
all such covenants and provisions being for the sole benefit of the parties
hereto and the Warrantholders.
11.6 Special Warrants Owned by the Corporation or its Subsidiaries - Certificate
to be Provided - For the purpose of determining any Special Warrants owned
legally or beneficially by the Corporation or any subsidiary of the
Corporation for the purposes of section 8.16, the Corporation shall provide
to the Trustee, from time to time, a certificate of the Corporation setting
forth as at the date of such certificate:
(a) the names (other than the name of the Corporation) of the
registered holders of Special Warrants which, to the knowledge of
the Corporation, are owned by or held for the account of the
Corporation or any subsidiary of the Corporation; and
(b) the number of Special Warrants owned legally or beneficially by
the Corporation or any subsidiary of the Corporation;
and the Trustee, in making the computations in section 8.16,
shall be entitled to rely on such certificate without more.
144554\0512890.WP
<PAGE>
39
11.7 Further Assurances - The parties will execute and deliver all such further
documents, do or cause to be done all such further acts and things, and
give all such further assurances as may be necessary to give full effect to
the provisions and intent of this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Indenture under their
respective corporate seals and the hands of their proper officers in that behalf
as of the date first above written.
DAKOTA MINING CORPORATION
Per: ___________________________
MONTREAL TRUST COMPANY OF CANADA
Per: ___________________________
Per: ___________________________
144554\0512890.WP
<PAGE>
SCHEDULE A
(form of Canadian Series A Special Warrant Certificate)
THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO
VALUE UPON EXERCISE PURSUANT TO THE SPECIAL WARRANT INDENTURE MADE AS OF
FEBRUARY 5, 1997.
SERIES A SPECIAL WARRANTS
February 5, 1997
(Canadian Form)
DAKOTA MINING CORPORATION
410 Seventeenth Street, Suite 2450
Denver, Colorado, U.S.A.
80202
(Governed by the laws of Canada)
Series A Special Warrant ___________________ SERIES A
SPECIAL
CERTIFICATE NO. WARRANTS one such warrant entitling the holder to acquire
$ principal amount unsecured convertible
-------------
debentures.
THIS IS TO CERTIFY THAT
(the "holder") is entitled to acquire, for no additional consideration and in
the manner herein provided, subject to the restrictions herein contained, the
principal amount of 7.5% unsecured convertible debentures ("Debentures") of
DAKOTA MINING CORPORATION ("the Corporation") as set forth above (or such other
securities or property in lieu thereof as may be contemplated by the Indenture,
as hereinafter defined).
The Debentures shall be issued pursuant to a indenture dated as of February 5,
1997 (the "Debenture Trust Indenture") between the Corporation and the Montreal
Trust Company of Canada, as trustee. The Debentures will mature on February 5,
2004. Interest will be payable on the Debentures semi-annually on June 30 and
December 31. One $1,000 principal amount Debenture shall entitle the holder to
acquire 500 Common Shares (subject to adjustment) conversion at a price of $2.00
at any time prior to maturity.
The Series A Special Warrants represented by this Certificate are issued under
and pursuant to a special warrant indenture (the "Indenture") dated as of
February 5, 1997 between the Corporation and Montreal Trust Company of Canada
(the "Trustee"), as trustee to which Indenture and any instruments supplemental
thereto reference is hereby made for a full description of the rights of the
holders of the Series A Special Warrants and the terms and conditions upon which
the Series A Special Warrants are, or are to be, issued, held, exchanged and
surrendered, all to the same effect as if the provisions of the Indenture and
all instruments supplemental thereto were herein set forth, and to all of which
provisions the holder of these Series A Special Warrants by acceptance hereof
assents. Capitalized terms used in this Certificate and not otherwise defined
shall have the meanings ascribed to them in the Indenture.
The Series A Exercise Period commences on the date of the Indenture and ends at
the Expiry Time. The Expiry Time is 5:00 p.m. (Vancouver time) on the earlier of
(A) the fifth Business Day following the day on which a Compliance Notice
(defined below) is delivered by the Corporation to the Trustee under the
Indenture and (B) February 5, 1998.
The Compliance Notice is a notice to be given to the Trustee when all of the
following conditions have been met: (A) a receipt is issued for a final
prospectus of the Corporation (the "Prospectus") qualifying for sale the
Debentures issuable on exercise of the Special Warrants and the Common Shares
issuable on exercise of the
<PAGE>
A2
Debentures by the last of the securities regulatory authorities in British
Columbia, Alberta, Ontario and Quebec (the "Qualifying Jurisdictions") to issue
such a receipt; (B) shareholders of the Corporation have approved the issue of
the Series B Special Warrants; and (C) the proposed merger of the Corporation
and USMX, Inc. (the "Merger") in accordance with an agreement dated February 5,
1997 (the "Merger Agreement") between such parties has been cowmpleted. The
Trustee will give notice to each holder of Series A Special Warrants specifying
if and when the Compliance Notice has been given.
The holder of the Series A Special Warrants may elect to exercise all or any of
such Warrants during the Series A Exercise Period by duly completing and
executing the exercise form attached to and forming part of this Warrant
Certificate, and surrendering this Certificate to the Trustee at the principal
office of the Trustee in Vancouver, British Columbia or Toronto, Ontario, and
upon so doing the holder hereof shall be entitled to receive, subject to the
terms of the Indenture, certificates representing the Debentures issuable upon
such exercise, forthwith, and in any event not later than five Business Days,
after the date of surrender to the Trustee of this Certificate. Any such
exercise, at a time when the Corporation has not received a receipt for the
Prospectus from the applicable regulatory authorities in each of the Qualifying
Jurisdictions is subject to compliance with, and may be restricted by, the
securities laws of the Qualifying Jurisdictions and is further subject to the
holder providing such assurances and executing such documents as may, in the
reasonable opinion of the Corporation or the Trustee, be required to ensure
compliance with applicable securities legislation. If, at the time of the
exercise of the Series A Special Warrants, there remains restrictions on resale
under applicable securities legislation on the Debentures to be acquired, the
Corporation may, if required on the advice of counsel to the Corporation,
endorse the certificates representing the Debentures to be acquired with respect
to such resale restrictions, including as described below.
Any Series A Special Warrants remaining outstanding at the Expiry Time will be
deemed to be exercised automatically without any further action of the part of
the holder hereof.
The Series A Special Warrants represented hereby are subject to certain rights
of retraction. The Debentures issuable upon conversion of the Series A Special
Warrants are subject to certain rights of adjustment. Reference should be made
to the Indenture for the details of such rights.
The Series A Special Warrants represented hereby have not been and will not be
qualified for sale under the securities laws of any province or territory of
Canada. Accordingly, the Series A Special Warrants represented by this
Certificate may not be distributed in any province or territory or to, or for
the benefit of, any resident thereof in contravention with the laws of any such
jurisdiction. Compliance with the securities laws of any jurisdiction is the
responsibility of the Warrantholder or its transferee.
The holder of this Certificate may at any time up to the Expiry Time upon
written instruction delivered to the Trustee and payment of the charges provided
for in the Indenture and otherwise in accordance with the provisions of the
Indenture, exchange this Certificate for other Certificates evidencing the
number of Series A Special Warrants entitling the holder to acquire in the
aggregate the same principal amount of Debentures as may be acquired under this
Series A Special Warrant Certificate.
The holding of the Series A Special Warrants evidenced by this Certificate does
not constitute the Warrantholder a shareholder of the Corporation or entitle
such holder to any right or interest in respect thereof except as herein and in
the Indenture expressly provided.
The Series A Special Warrants evidenced by this Certificate may be transferred
only upon compliance with the conditions prescribed in the Indenture, on the
register kept by the Trustee, by the registered Warrantholder (or its legal
representatives or its attorney duly appointed) and its transferee duly
executing the transfer form attached hereto and complying with applicable laws
and such other reasonable requirements as the Corporation and Trustee may
prescribe.
144554\0512890.WP
<PAGE>
A3
The Series A Special Warrants represented hereby, the Debentures issuable upon
exercise of such Series A Special Warrants and the Common Shares issuable upon
exercise of the Debentures (collectively, the "Securities") have not been
registered under the United States Securities Act of 1933, as amended (the "U.S.
Securities Act") or the securities laws of any state of the United States. As a
result, the Securities may not be sold, transferred, exercised or delivered
within the United States or to or for the account or benefit of a person in the
United States or a U.S. person, unless such Securities are registered under the
U.S. Securities Act and the securities laws of any state in which the transferee
holder is resident or unless an exemption from such registration requirements is
available and its availability is satisfactorily evidenced to the Corporation
and the Trustee.
This Series A Special Warrant Certificate and the Indenture shall be governed
by, performed, construed, and enforced in accordance with the laws of British
Columbia and the federal laws of Canada applicable therein.
This Certificate shall not be valid for any purpose whatsoever unless and until
it has been countersigned by or on behalf of the Trustee.
IN WITNESS WHEREOF the undersigned has caused this Certificate to be duly
executed as of February , 1997.
DAKOTA MINING CORPORATION
By:____________________________
TRUSTEE'S CERTIFICATE
These Special Warrants are a portion of the Series A Special Warrants dated
February , 1997 referred to in the Indenture within mentioned.
MONTREAL TRUST COMPANY OF CANADA
By:____________________________
Authorized Officer
144554\0512890.WP
<PAGE>
A4
TRANSFER FORM FOR SERIES A SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- -------------------------------,
(Name) (Address)
the Series A Special Warrants registered in the name of the undersigned
represented by the within certificate.
DATED the _____ day of ________________, 199___.
- ------------------------------ ---------------------------------
Signature Guaranteed (Signature of Warrantholder)
144554\0512890.WP
<PAGE>
A5
EXERCISE FORM
TO: DAKOTA MINING CORPORATION
AND TO: MONTREAL TRUST COMPANY OF CANADA
The undersigned holder of Series A Special Warrants hereby
exercises in respect of such Warrants the right provided for in the Indenture to
receive Debentures of Dakota Mining Corporation (or other securities or property
in lieu thereof) on the basis specified in the Indenture.
The undersigned hereby irrevocably directs that the said Debentures be issued
and delivered as follows:
==============================================================================
Name(s) in Full Address(es) Principal Amount of Debentures
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
=============================================================================
Please print in full the name in which the certificates are to be issued. If any
of the securities are to be issued to a person or persons other than the
Warrantholder, the Transfer Form for Series A Special Warrants should be
endorsed with the signature of the registered holder which must be guaranteed by
a Canadian chartered bank, trust company or by a member of the Vancouver or
Toronto stock exchanges or other entity acceptable to the Trustee, and the
Warrantholder must pay to the Trustee all eligible transfer or taxes or other
government charges.
The undersigned hereby represents and warrants to the
Corporation as follows (check one):
|_| the undersigned is not a U.S. person and the Special Warrants are not
being exercised within the United States or on behalf or for the
account or benefit of a U.S. person; or
|_| the undersigned is a U.S. person or the Special Warrants are being
exercised within the United States or on behalf or for the account or
benefit of a U.S. person and the undersigned herewith, all
documentation and assurances as may reasonably be required by the
Corporation and the Trustee to ensure compliance with applicable
United States laws.
"United States" and "U.S. person" are as defined by Regulation S under the
United States Securities Act of 1933, as amended.
DATED this ____ day of ___________________, 199 .
- -------------------------- ------------------------------------
Witness Signature of Subscriber
------------------------------------
Name of Subscriber
------------------------------------
------------------------------------
Address of Subscriber
|_| Please check box if these certificates are to be delivered to the
office where this Certificate is surrendered, failing which the
certificates will be mailed to the address shown on the register of
Series A Special Warrants of the Corporation.
144554\0512890.WP
<PAGE>
SCHEDULE B
(form of United States Series A Special Warrant Certificate)
THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO
VALUE UPON EXERCISE PURSUANT TO THE SPECIAL WARRANT INDENTURE MADE AS OF
FEBRUARY 5, 1997.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE
ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY
(A) TO THE ISSUER, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE U.S. SECURITIES ACT, (C) WITH THE PRIOR WRITTEN CONSENT
OF THE ISSUER, PURSUANT TO ANOTHER APPLICABLE EXEMPTION FROM REGISTRATION UNDER
THE U.S. SECURITIES ACT; PROVIDED AN OPINION OF COUNSEL OF RECOGNIZED STANDING
REASONABLY SATISFACTORY TO THE ISSUER IS DELIVERED.
THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY
U.S. PERSON UNLESS REGISTERED UNDER THE U.S. SECURITIES ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
SERIES A SPECIAL WARRANTS
February 5, 1997
(United States Form)
DAKOTA MINING CORPORATION
410 Seventeenth Street, Suite 2450
Denver, Colorado, U.S.A.
80202
(Governed by the laws of Canada)
Series A Special Warrant _______________ SERIES A SPECIAL WARRANTS
one
CERTIFICATE NO. ___________ such warrant entitling the holder to acquire Cdn. $
principal amount 7.5% unsecured convertible debenture.
THIS IS TO CERTIFY THAT
(the "holder") is entitled to acquire, for no additional consideration and in
the manner herein provided, subject to the restrictions herein contained, the
principal amount of 7.5% unsecured convertible debentures ("Debentures") of
DAKOTA MINING CORPORATION ("the Corporation") as set forth above (or such other
securities or property in lieu thereof as may be contemplated by the Indenture,
as hereinafter defined).
The Debentures shall be issued pursuant to an indenture dated as of February 5,
1997 (the "Debenture Trust Indenture") between the Corporation and Montreal
Trust Company of Canada, as trustee. The Debentures will mature on February 5,
2004. Interest will be payable on the Debentures semi-annually on June 30 and
December 31. One Cdn. $1,000 principal amount Debenture shall entitle the holder
to acquire 500 Common Shares (subject to adjustment) at a conversion price of
Cdn. $2.00 at any time prior to maturity of such Debentures.
The Series A Special Warrants represented by this Certificate are issued under
and pursuant to a special warrant indenture (herein called the "Indenture")
dated as of February 5, 1997 between the Corporation and Montreal Trust Company
of Canada (the "Trustee"), as trustee to which Indenture and any instruments
supplemental thereto reference is hereby made for a full description of the
rights of the holders of the Series A Special Warrants and the terms and
conditions upon which the Series A Special Warrants are, or are to be, issued,
held, exchanged and surrendered, all to the same effect as if the provisions of
the Indenture and all instruments supplemental thereto were herein set forth,
and to all of which provisions the holder of these Series A Special Warrants by
acceptance hereof assents. Capitalized terms used in this Certificate and not
otherwise defined shall have the meanings ascribed to them in the Indenture.
144554\0512890.WP
<PAGE>
B1
The Series A Exercise Period defined below commences on the date of the
Indenture and ends at the Expiry Time. The Expiry Time is 5:00 p.m. (Vancouver
time) on the earlier of (A) the fifth Business Day following the day on which a
Compliance Notice (defined below) is delivered by the Corporation to the Trustee
under the Indenture and (B) February 5, 1998.
The Compliance Notice is a notice to be given to the Trustee when all of the
following conditions have been met: (A) a receipt is issued for a final
prospectus of the Corporation (the "Prospectus") qualifying for sale the
Debentures issuable on exercise of the Special Warrants and the Common Shares
issuable on exercise of the Debentures by the last of the securities regulatory
authorities in British Columbia, Alberta, Ontario and Quebec (the "Qualifying
Jurisdictions") to issue such a receipt; (B) shareholders of the Corporation
have approved the issue of the Series B Special Warrants and (C) the proposed
merger of the Corporation and USMX, Inc. (the "Merger") in accordance with an
agreement dated February 5, 1997 between such parties has been completed. The
Trustee will give notice to each holder of Series A Special Warrants specifying
if and when the Compliance Notice has been given.
The holder of the Series A Special Warrants represented by this Certificate may
elect to exercise all or any of such Warrants represented by this Warrant
Certificate during the Series A Exercise Period by duly completing and executing
the exercise form attached to and forming part of this Warrant Certificate, and
surrendering this Certificate to the Trustee at the principal office of the
Trustee in the City of Vancouver, British Columbia or Toronto, Ontario, and upon
so doing the holder hereof shall be entitled to receive, subject to the terms of
the Indenture, certificates representing the Debentures issuable upon such
exercise, forthwith, and in any event not later than 5 Business Days, after the
date of surrender to the Trustee of this Certificate. Any such exercise, at a
time when the Corporation has not received a receipt for the Prospectus from the
applicable regulatory authorities in each of the Qualifying Jurisdictions is
subject to compliance with, and may be restricted by, the securities laws of the
Qualifying Jurisdictions and is further subject to the holder providing such
assurances and executing such documents as may, in the reasonable opinion of the
Corporation or the Trustee, be required to ensure compliance with applicable
securities legislation. If, at the time of the exercise of the Series A Special
Warrants, there remains restrictions on resale under applicable securities
legislation on the Debentures to be acquired, the Corporation may, if required
on the advice of counsel to the Corporation, endorse the certificates
representing the Debentures to be acquired with respect to such resale
restrictions, including as described below.
Any Series A Special Warrants remaining outstanding at the Expiry Time will be
deemed to be exercised automatically without any further action of the part of
the holder hereof.
The Series A Special Warrants represented hereby are subject to certain rights
of retraction. The Debentures issuable upon conversion of the Series A Special
Warrants are subject to certain rights of adjustment. Reference should be had to
the Indenture for the details of such rights.
The Series A Special Warrants represented hereby have not been and will not be
qualified for sale under the securities laws of any province or territory of
Canada. Accordingly, the Series A Special Warrants may not be distributed in any
province or territory or to, or for the benefit of, any resident thereof in
contravention with the laws of any such jurisdiction. Compliance with the
securities laws of any jurisdiction is the responsibility of the Warrantholder
or its transferee.
The holder of this Certificate may at any time up to the Series A Expiry Time
upon written instruction delivered to the Trustee and payment of the charges
provided for in the Indenture and otherwise in accordance with the provisions of
the Indenture, exchange this Certificate for other Certificates evidencing the
number of Series A Special Warrants entitling the holder to acquire in the
aggregate the same principal amount of Debentures as may be acquired under this
Series A Special Warrant Certificate.
The holding of the Series A Special Warrants evidenced by this Certificate does
not constitute the Warrantholder a shareholder of the Corporation or entitle
such holder to any right or interest in respect thereof except as herein and in
the Indenture expressly provided.
The Series A Special Warrants evidenced by this Certificate may be transferred
only upon compliance with the conditions prescribed in the Indenture, on the
register kept by the Trustee, by the registered Warrantholder (or
144554\0512890.WP
<PAGE>
B2
its legal representatives or its attorney duly appointed) and its transferee
duly executing the transfer form attached hereto and complying with applicable
laws and such other reasonable requirements as the Corporation and Trustee may
prescribe.
In connection with a transfer of Series A Special Warrants, the Corporation and
the Trustee, prior to such transfer, must have received a properly completed and
executed Seller's Certificate attached hereto from the holder of this
Certificate and a Purchaser's Certificate attached hereto, from the transferee.
The Series A Special Warrants represented hereby, the Debentures issuable upon
exercise of such Series A Special Warrants and the Common Shares issuable upon
exercise of the Debentures (collectively, the "Securities") have not been
registered under the United States Securities Act of 1933, as amended (the "U.S.
Securities Act") or the securities laws of any state of the United States. As a
result, the Securities may not be sold, transferred, exercised or delivered
within the United States or to or for the account or benefit of a person in the
United States or a U.S. person, unless such securities are registered under the
U.S. Securities Act and the securities laws of any state in which the transferee
holder is resident or unless an exemption from such registration requirements is
available and its availability is satisfactorily evidenced to the Corporation
and the Trustee.
The Debentures issuable upon the exercise of Series A Special Warrants issued to
a U.S. person under the U.S. Securities Act or pursuant to an exemption from the
registration requirements of the U.S. Securities Act or otherwise issuable to
U.S. persons, persons in the United States or persons who are acting on behalf
or for the account or benefit of a U.S. person or a person in the United States,
and the Common Shares deliverable upon the exercise of the Debentures (and all
Debentures and Common Shares issued in exchange therefor or in substitution
thereof), shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES
MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER,
(B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION
S UNDER THE U.S. SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER, IF AVAILABLE, AND THE COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR (D) IN COMPLIANCE WITH CERTAIN OTHER PROCEDURES
SATISFACTORY TO THE COMPANY. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO
STOCK EXCHANGE. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH
WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM THE TRANSFER
AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO THE TRANSFER AGENT AND THE
COMPANY, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED
HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER
THE U.S. SECURITIES ACT.
provided, however, that if the Debentures or the Common Shares are being sold
under paragraph (B) above, the legend may be removed by providing a declaration
to the Trustee as transfer agent for the securities to the following effect:
The undersigned (A) acknowledges that the sale of the securities to
which this declaration relates is being made in reliance on Rule 904 of
Regulation S under the United States Securities Act of 1933, as amended
(the "U.S. Securities Act") and (B) certifies that (1) it is not an
affiliate (as defined in Rule 405 under the U.S. Securities Act) of
Dakota Mining Corporation, (2) the offer of such securities was not
made to a person in the United States and either (A) at the time the
buy order was originated the buyer was outside the United States, or
(B) the transaction was executed on or through the facilities of The
Toronto Stock Exchange, the Montreal Exchange, the Vancouver Stock
Exchange or the Alberta Stock Exchange and neither the seller nor any
affiliate of the seller nor any person acting on any of their
144554\0512890.WP
<PAGE>
B3
behalf has engaged or will engage in any directed selling efforts in
the United States in connection with the offer and sale of such
securities, (4) the sale is bona fide and not for the purpose of
"washing off" the resale restrictions imposed because the securities
are "restricted securities" (as such term is defined in Rule 144(a)(3)
under the U.S. Securities Act), (5) the seller does not intend to
replace the securities and (6) the contemplated sale is not a
transaction, or part of a series of transactions which, although in
technical compliance with Regulation S, is part of a plan or scheme to
evade the registration provisions of the U.S. Securities Act. Terms
used herein have the meanings given to them by Regulation S.
This Series A Special Warrant Certificate and the Indenture shall be governed
by, performed, construed, and enforced in accordance with the laws of British
Columbia and the federal laws of Canada applicable therein.
This Certificate shall not be valid for any purpose whatsoever unless and until
it has been countersigned by or on behalf of the Trustee.
IN WITNESS WHEREOF the undersigned has caused this Certificate to be duly
executed as of February , 1997.
DAKOTA MINING CORPORATION
By:____________________________
TRUSTEE'S CERTIFICATE
These Special Warrants are a portion of the Series A Special Warrants dated
February , 1997 referred to in the Indenture within mentioned.
MONTREAL TRUST COMPANY OF CANADA
By:____________________________
Authorized Officer
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<PAGE>
B4
TRANSFER FORM FOR SERIES A SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- -------------------------------, ------------------------------------
(Name) (Address)
the Series A Special Warrants registered in the name of the undersigned
represented by the within certificate.
DATED the _____ day of ________________, 199___.
- ------------------------------ ------------------------------------
Signature Guaranteed (Signature of Warrantholder)
Note to Warrantholders: In order to transfer the Series A Special Warrants
represented by this certificate, this transfer form must be delivered to
Montreal Trust Company of Canada, together with a duly completed Seller's
Certificate and a Purchaser's Certificate in the forms attached to this
certificate.
144554\0512890.WP
<PAGE>
B5
SELLER'S CERTIFICATE
The undersigned is delivering this certificate in connection with the
sale or transfer by the undersigned of special warrants (the "Special Warrants")
issued by Dakota Mining Corporation (the "Corporation") pursuant to the special
warrant indenture dated as of February 5, 1997 (the "Indenture") between the
Corporation and Montreal Trust Company of Canada (the "Trustee"), as trustee.
This certificate is delivered to the Corporation pursuant to Section 2.13 of the
Indenture to provide evidence of compliance by the undersigned with the United
States Securities Act of 1933, as amended (the "U.S. Securities Act"). The
undersigned hereby makes the following representation to the Corporation and the
Trustee (check one of the following boxes):
|_| The sale of the Special Warrants is being made pursuant to Rule 904 of
Regulation S under the U.S. Securities Act, and:
(a) the sale of the Special Warrants is being made in an "offshore
transaction" (as defined by Rule 902 of Regulation S under the
U.S. Securities Act);
(b) neither the undersigned, an affiliate thereof or any person
acting on their behalf has engaged or will engage in "directed
selling efforts" (as defined by Rule 902 of Regulation S under
the U.S. Securities Act); and
(c) the undersigned is not now an officer, director or otherwise an
"affiliate" of the Corporation (as defined Rule 144 under the
U.S. Securities Act).
|_| The sale of the Special Warrants is being made pursuant to the
exemption from registration requirements under the U.S. Securities Act
provided by Rule 144(k) under the U.S. Securities Act, and:
(a) a period of at least three years has elapsed since the latter of
the date of acquisition of the Special Warrants from the
Corporation or from an affiliate of the Corporation (calculated
in accordance with Rule 144(d) under the U.S. Securities Act);
and
(b) the undersigned is not an affiliate of the Corporation and has
not been an affiliate of the Corporation during the preceding
three months.
|_| The sale of the Special Warrants is being made pursuant to another
exemption from registration requirements under the U.S. Securities Act
and in accordance with any applicable State securities laws, and is
furnishing herewith to the Corporation and the Trustee an opinion to
the effect that counsel of recognized standing and experience in
matters involving the U.S. Securities Act and reasonably satisfactory
to the Corporation and the Trustee.
The undersigned further represents that the sale of the Special
Warrants is not part of a plan or scheme to evade the registration
requirements of the U.S. Securities Act.
Signed:
Name (please print)(to be the same as it appears on the
face of the Special Warrant Certificate)
Address
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<PAGE>
B6
PURCHASER'S CERTIFICATE
1. The Purchaser either (i) is not a "U.S. person" (as defined in Regulation S
under the United States Securities Act of 1933, as amended (the "U.S.
Securities Act"), which definition includes, but is not limited to, an
individual resident in the United States and an estate or trust of which
any executor or administrator or trustee, respectively, is a U.S. person
and any partnership or corporation organized or incorporated under the laws
of the United States; (ii) otherwise purchasing the Special Warrants
pursuant to an applicable exemption from registration under the U.S.
Securities Act;
2. The Purchaser is resident at the address set forth on the signature page of
this certificate;
3. The Purchaser acknowledges that the Special Warrants, the Debentures
issuable upon exercise thereof and the Common Shares issuable upon exercise
of the Debentures (collectively, the "Securities") have not been registered
under the U.S. Securities Act and may not be offered or sold in the United
States unless registered under the U.S. Securities Act and the securities
laws of all applicable states of the United States or an exemption from
such registration requirements is available, and that the Corporation has
no obligation or present intention of filing a registration statement under
the U.S. Securities Act in respect of the Securities.
4. Unless the Purchaser is otherwise purchasing the Securities pursuant to an
applicable exemption from registration under the U.S. Securities Act, the
Securities are not being acquired directly or indirectly for the account or
benefit of a U.S. person and the Purchaser does not have any agreement or
understanding (either written or oral) with any U.S. person respecting:
(i) the transfer or assignment of any rights or interest in any of the
Securities;
(ii) the division of profits, losses, fees, commissions, or any financial
stake in connection with this purchase; or
(iii) the voting of the Debentures;
5. The Purchaser agrees that if it decides to offer, sell or otherwise
transfer any of the Securities, it will not offer, sell or otherwise
transfer any of such Securities, directly or indirectly to a U.S. person,
unless:
(i) the sale is to the Corporation;
(ii) the sale is made outside the United States in a transaction meeting
the requirements of Rule 904 of Regulation S under the U.S. Securities
Act;
(iii)the sale is made pursuant to the exemption from the registration
requirements of the U.S. Securities Act provided by Rule 144
thereunder and in accordance with any applicable State securities or
"Blue Sky" laws;
(iv) the sale is made in another type of transaction that does not require
registration under the U.S. Securities Act or any applicable State
securities or "Blue Sky" laws, and it has prior to such sale furnished
to the Corporation and to Montreal Trust Company of Canada an opinion
to that effect of counsel or recognized experience in matters
involving the U.S. Securities Act and reasonably satisfactory to the
Corporation and Montreal Trust Company of Canada;
6. Unless the Purchaser is purchasing the Securities pursuant to an applicable
exemption from registration under the U.S. Securities Act, no offers to
sell the Special Warrants were made by any person to the Purchaser while
the Purchaser was in the United States.
7. Unless the Purchaser is purchasing the Securities pursuant to an applicable
exemption from registration under the U.S. Securities Act, the Purchaser
was outside the United States at the time of the Purchaser's purchase of
the Special Warrants;
8. The Purchaser acknowledges that the certificates representing the Special
Warrants will bear a legend to the effect that the Debentures and Common
Shares issuable thereunder have not been and will not be registered under
the U.S. Securities Act or the securities laws of any state of the United
States;
9. The Purchaser acknowledges that any person who exercises a Special Warrant
will be required to provide to the Corporation written certification that
it is not a U.S. person and the Special Warrant is not being exercised
within the United States or on behalf of a U.S. person; and
10. The Purchaser acknowledges that the Special Warrants may be transferred
only if (i) prior to such transfer the holder of the Special Warrants
properly complete, executes and delivers to the Corporation the certificate
attached to the form of Special Warrant and (ii) the transferee properly
completes, executes and delivers to the Corporation a certificate
substantially in the form hereof.
Signed:
Signature of Purchaser/Transferor
Name (please print)
144554\0512890.WP
<PAGE>
B7
Address
144554\0512890.WP
<PAGE>
B8
EXERCISE FORM
TO: DAKOTA MINING CORPORATION
AND TO: MONTREAL TRUST COMPANY OF CANADA
The undersigned holder of Series A Special Warrants hereby
exercises in respect of Series A Special Warrants the right provided for in the
Indenture to receive Debentures of Dakota Mining Corporation (or other
securities or property in lieu thereof) on the basis specified in the Indenture.
The undersigned hereby irrevocably directs that the said
Debentures be issued and delivered as follows:
==============================================================================
Name(s) in Full Address(es) Principal Amount of Debentures
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
=============================================================================
(Please print in full the name in which the certificates are to be issued. If
any of the securities are to be issued to a person or persons other than the
Warrantholder, the Transfer Form for Series A Special Warrants should be
endorsed with the signature of the registered holder which must be guaranteed by
a Canadian chartered bank, trust company or by a member of the Vancouver or
Toronto stock exchanges or other entity acceptable to the Trustee and the
Warrantholder must pay to the Trustee all eligible transfer or taxes or other
government charges.)
The undersigned hereby represents and warrants to the Corporation as
follows (check one):
|_| the undersigned is not a U.S. person and the Special Warrants are not
being exercised within the United States or on behalf or for the
account or benefit of a U.S. person; or
|_| the undersigned is a U.S. person or the Special Warrants are being
exercised within the United States or on behalf or for the account or
benefit of a U.S. person and the undersigned has previously delivered
to the Corporation, or is delivering concurrently herewith, a
certificate in the form of the Purchaser's Certificate attached to the
Special Warrant Certificate.
"United States" and "U.S. person" are as defined by Regulation S under the
United States Securities Act of 1993, as amended.
DATED this ____ day of ___________________, 199 .
- -------------------------- ------------------------------------
Witness Signature of Subscriber
------------------------------------
Name of Subscriber
------------------------------------
------------------------------------
Address of Subscriber
|_| Please check box if these certificates are to be delivered to the
office where this Warrant Certificate is surrendered, failing which
the certificates will be mailed to the address shown on the register
of Special Warrants of the Corporation.
144554\0512890.WP
<PAGE>
SCHEDULE C
(form of Canadian Series B Special Warrant Certificate)
THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO
VALUE UPON EXERCISE PURSUANT TO THE SPECIAL WARRANT INDENTURE MADE AS OF
FEBRUARY 5, 1997.
SERIES B SPECIAL WARRANTS February 5, 1997
(Canadian Form)
DAKOTA MINING CORPORATION
410 Seventeenth Street, Suite 2450
Denver, Colorado, U.S.A.
80202
(Governed by the laws of Canada)
Series B Special Warrant _______________ SERIES B SPECIAL WARRANTS one such
warrant
CERTIFICATE NO. ___________ entitling the holder to acquire $ principal amount
-------------------------
unsecured convertible debentures.
THIS IS TO CERTIFY THAT ___________________________________________________ (the
"holder") is entitled to acquire, for no additional consideration and in the
manner herein provided, subject to the restrictions herein contained, the
principal amount of 7.5% unsecured convertible debentures ("Debentures") of
DAKOTA MINING CORPORATION ("the Corporation") as set forth above (or such other
securities or property in lieu thereof as may be contemplated by the Indenture,
as hereinafter defined).
The Debentures shall be issued pursuant to a indenture dated as of February 5,
1997 (the "Debenture Trust Indenture") between the Corporation and the Montreal
Trust Company of Canada, as trustee. The Debentures will mature on February 5,
2004. Interest will be payable on the Debentures semi-annually on June 30 and
December 31. One $1,000 principal amount Debenture shall entitle the holder to
acquire 500 Common Shares (subject to adjustment) conversion at a price of $2.00
at any time prior to maturity.
The Series B Special Warrants represented by this Certificate are issued under
and pursuant to a special warrant indenture (the "Indenture") dated as of
February 5, 1997 between the Corporation and Montreal Trust Company of Canada
(the "Trustee"), as trustee to which Indenture and any instruments supplemental
thereto reference is hereby made for a full description of the rights of the
holders of the Series B Special Warrants and the terms and conditions upon which
the Series B Special Warrants are, or are to be, issued, held, exchanged and
surrendered, all to the same effect as if the provisions of the Indenture and
all instruments supplemental thereto were herein set forth, and to all of which
provisions the holder of these Series B Special Warrants by acceptance hereof
assents. Capitalized terms used in this Certificate and not otherwise defined
shall have the meanings ascribed to them in the Indenture.
The Series B Exercise Period commences on the date of Shareholder Approval (as
defined below) and ends at the Expiry Time. The Expiry Time is 5:00 p.m.
(Vancouver time) on the earlier of (A) the fifth Business Day following the day
on which a Compliance Notice (defined below) is delivered by the Corporation to
the Trustee under the Indenture and (B) February 5, 1998.
The Compliance Notice is a notice to be given to the Trustee when all of the
following conditions have been met: (A) a receipt is issued for a final
prospectus of the Corporation (the "Prospectus") qualifying for sale the
Debentures issuable on exercise of the Special Warrants and the Common Shares
issuable on exercise of the Debentures by the last of the securities regulatory
authorities in British Columbia, Alberta, Ontario and Quebec (the "Qualifying
Jurisdictions") to issue such a receipt; (B) shareholders of the Corporation
have approved the issue of the Series B Special Warrants ("Shareholder
Approval"); and (C) the proposed merger of the Corporation and USMX, Inc. (the
"Merger") in accordance with an agreement dated February 5, 1997 (the "Merger
Agreement") between such parties has been completed. The Trustee will give
notice to each holder of Series B Special Warrants specifying if and when the
Compliance Notice has been delivered.
If Shareholder Approval does not occur prior to April 30, 1997 or such later
date as may be determined pursuant to the Merger Agreement, then all Series B
Special Warrants will be automatically retracted by the Corporation without
further actin on the part of the Warrant-holder. In such case, the holder hereof
will receive the original purchase price paid for the Series B Special Warrants
represented hereby plus a pro rata share of the interest earned on such purchase
price since the date hereof.
144554\0512890.WP
<PAGE>
C2
The holder of the Series B Special Warrants may elect to exercise all or any of
such Warrants during the Series B Exercise Period by duly completing and
executing the exercise form attached to and forming part of this Warrant
Certificate, and surrendering this Certificate to the Trustee at the principal
office of the Trustee in Vancouver, British Columbia or Toronto, Ontario, and
upon so doing the holder hereof shall be entitled to receive, subject to the
terms of the Indenture, certificates representing the Debentures issuable upon
such exercise, forthwith, and in any event not later than five Business Days,
after the date of surrender to the Trustee of this Certificate. Any such
exercise, at a time when the Corporation has not received a receipt for the
Prospectus from the applicable regulatory authorities in each of the Qualifying
Jurisdictions is subject to compliance with, and may be restricted by, the
securities laws of the Qualifying Jurisdictions and is further subject to the
holder providing such assurances and executing such documents as may, in the
reasonable opinion of the Corporation or the Trustee, be required to ensure
compliance with applicable securities legislation. If, at the time of the
exercise of the Series B Special Warrants, there remains restrictions on resale
under applicable securities legislation on the Debentures to be acquired, the
Corporation may, if required on the advice of counsel to the Corporation,
endorse the certificates representing the Debentures to be acquired with respect
to such resale restrictions, including as described below.
Any Series B Special Warrants remaining outstanding at the Expiry Time will be
deemed to be exercised automatically without any further action of the part of
the holder hereof.
The Series B Special Warrants represented hereby are subject to certain other
rights of retraction. The Debentures issuable upon conversion of the Series A
Special Warrants are subject to certain rights of adjustment. Reference should
be made to the Indenture for the details of such rights.
The Series B Special Warrants represented hereby have not been and will not be
qualified for sale under the securities laws of any province or territory of
Canada. Accordingly, the Series B Special Warrants represented by this
Certificate may not be distributed in any province or territory or to, or for
the benefit of, any resident thereof in contravention with the laws of any such
jurisdiction. Compliance with the securities laws of any jurisdiction is the
responsibility of the Warrantholder or its transferee.
The holder of this Certificate may at any time up to the Expiry Time upon
written instruction delivered to the Trustee and payment of the charges provided
for in the Indenture and otherwise in accordance with the provisions of the
Indenture, exchange this Certificate for other Certificates evidencing the
number of Series B Special Warrants entitling the holder to acquire in the
aggregate the same principal amount of Debentures as may be acquired under this
Series B Special Warrant Certificate.
The holding of the Series B Special Warrants evidenced by this Certificate does
not constitute the Warrantholder a shareholder of the Corporation or entitle
such holder to any right or interest in respect thereof except as herein and in
the Indenture expressly provided.
The Series B Special Warrants evidenced by this Certificate may be transferred
only upon compliance with the conditions prescribed in the Indenture, on the
register kept by the Trustee, by the registered Warrantholder (or its legal
representatives or its attorney duly appointed) and its transferee duly
executing the transfer form attached hereto and complying with applicable laws
and such other reasonable requirements as the Corporation and Trustee may
prescribe.
The Series B Special Warrants represented hereby, the Debentures issuable upon
exercise of such Series B Special Warrants and the Common Shares issuable upon
exercise of the Debentures (collectively, the "Securities") have not been
registered under the United States Securities Act of 1933, as amended (the "U.S.
Securities Act") or the securities laws of any state of the United States. As a
result, the Securities may not be sold, transferred, exercised or delivered
within the United States or to or for the account or benefit of a person in the
United States or a U.S. person, unless such Securities are registered under the
U.S. Securities Act and the securities laws of any state in which the transferee
holder is resident or unless an exemption from such registration requirements is
available and its availability is satisfactorily evidenced to the Corporation
and the Trustee.
This Series B Special Warrant Certificate and the Indenture shall be governed
by, performed, construed, and enforced in accordance with the laws of British
Columbia and the federal laws of Canada applicable therein.
This Certificate shall not be valid for any purpose whatsoever unless and until
it has been countersigned by or on behalf of the Trustee.
144554\0512890.WP
<PAGE>
C3
IN WITNESS WHEREOF the undersigned has caused this Certificate to be duly
executed as of February , 1997.
DAKOTA MINING CORPORATION
By:____________________________
TRUSTEE'S CERTIFICATE
These Special Warrants are a portion of the Series B Special Warrants
dated February , 1997 referred to in the
Indenture within mentioned.
MONTREAL TRUST COMPANY OF CANADA
By:____________________________
Authorized Officer
144554\0512890.WP
<PAGE>
C4
TRANSFER FORM FOR SERIES B SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
,
(Name) (Address)
the Series B Special Warrants registered in the name of the undersigned
represented by the within certificate.
DATED the _____ day of ________________, 199___.
- ------------------------------ ------------------------------------
Signature Guaranteed (Signature of Warrantholder)
144554\0512890.WP
<PAGE>
C5
EXERCISE FORM
TO: DAKOTA MINING CORPORATION
AND TO: MONTREAL TRUST COMPANY OF CANADA
The undersigned holder of Series B Special Warrants hereby
exercises in respect of such Warrants the right provided for in the Indenture to
receive Debentures of Dakota Mining Corporation (or other securities or property
in lieu thereof) on the basis specified in the Indenture.
The undersigned hereby irrevocably directs that the said
Debentures be issued and delivered as follows:
=============================================================================
Name(s) in Full Address(es) Principal Amount of Debentures
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
==========================================================================
Please print in full the name in which the certificates are to be issued. If any
of the securities are to be issued to a person or persons other than the
Warrantholder, the Transfer Form for Series B Special Warrants should be
endorsed with the signature of the registered holder which must be guaranteed by
a Canadian chartered bank, trust company or by a member of the Vancouver or
Toronto stock exchanges or other entity acceptable to the Trustee, and the
Warrantholder must pay to the Trustee all eligible transfer or taxes or other
government charges.
The undersigned hereby represents and warrants to the Corporation as follows
(check one):
|_| the undersigned is not a U.S. person and the Special Warrants are not
being exercised within the United States or on behalf or for the
account or benefit of a U.S. person; or
|_| the undersigned is a U.S. person or the Special Warrants are being
exercised within the United States or on behalf or for the account or
benefit of a U.S. person and the undersigned herewith, all
documentation and assurances as may reasonably be required by the
Corporation and the Trustee to ensure compliance with applicable
United States laws.
"United States" and "U.S. person" are as defined by Regulation S under the
United States Securities Act of 1933, as amended.
DATED this ____ day of ___________________, 199 .
- -------------------------- ------------------------------------
Witness Signature of Subscriber
------------------------------------
Name of Subscriber
------------------------------------
------------------------------------
Address of Subscriber
|_| Please check box if these certificates are to be delivered to the
office where this Certificate is surrendered, failing which the
certificates will be mailed to the address shown on the register of
Series B Special Warrants of the Corporation.
144554\0512890.WP
<PAGE>
SCHEDULE D
(form of United States Series B Special Warrant Certificate)
THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO
VALUE UPON EXERCISE PURSUANT TO THE SPECIAL WARRANT INDENTURE MADE AS OF
FEBRUARY 5, 1997.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE
ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY
(A) TO THE ISSUER, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE U.S. SECURITIES ACT, (C) WITH THE PRIOR WRITTEN CONSENT
OF THE ISSUER, PURSUANT TO ANOTHER APPLICABLE EXEMPTION FROM REGISTRATION UNDER
THE U.S. SECURITIES ACT; PROVIDED AN OPINION OF COUNSEL OF RECOGNIZED STANDING
REASONABLY SATISFACTORY TO THE ISSUER IS DELIVERED.
THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY
U.S. PERSON UNLESS REGISTERED UNDER THE U.S. SECURITIES ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
SERIES B SPECIAL WARRANTS
February 5, 1997
(United States Form)
DAKOTA MINING CORPORATION
410 Seventeenth Street, Suite 2450
Denver, Colorado, U.S.A.
80202
(Governed by the laws of Canada)
Series B Special Warrant _______________ SERIES B SPECIAL WARRANTS one such
warrant
CERTIFICATE NO. entitling the holder to acquire Cdn. $ principal
---------------------------
amount 7.5% unsecured convertible debenture.
THIS IS TO CERTIFY THAT ___________________________________________________ (the
"holder") is entitled to acquire, for no additional consideration and in the
manner herein provided, subject to the restrictions herein contained, the
principal amount of 7.5% unsecured convertible debentures ("Debentures") of
DAKOTA MINING CORPORATION ("the Corporation") as set forth above (or such other
securities or property in lieu thereof as may be contemplated by the Indenture,
as hereinafter defined).
The Debentures shall be issued pursuant to an indenture dated as of February 5,
1997 (the "Debenture Trust Indenture") between the Corporation and Montreal
Trust Company of Canada, as trustee. The Debentures will mature on February 5,
2004. Interest will be payable on the Debentures semi-annually on June 30 and
December 31. One Cdn. $1,000 principal amount Debenture shall entitle the holder
to acquire 500 Common Shares (subject to adjustment) at a conversion price of
Cdn. $2.00 at any time prior to maturity of such Debentures.
The Series B Special Warrants represented by this Certificate are issued under
and pursuant to a special warrant indenture (herein called the "Indenture")
dated as of February 5, 1997 between the Corporation and Montreal Trust Company
of Canada (the "Trustee"), as trustee to which Indenture and any instruments
supplemental thereto reference is hereby made for a full description of the
rights of the holders of the Series B Special Warrants and the terms and
conditions upon which the Series B Special Warrants are, or are to be, issued,
held, exchanged and surrendered, all to the same effect as if the provisions of
the Indenture and all instruments supplemental thereto were herein set forth,
and to all of which provisions the holder of these Series B Special Warrants by
acceptance hereof assents. Capitalized terms used in this Certificate and not
otherwise defined shall have the meanings ascribed to them in the Indenture.
The Series B Exercise Period defined below commences on the date of Shareholder
Approval (as defined below) and ends at the Expiry Time. The Expiry Time is 5:00
p.m. (Vancouver time) on the earlier of (A) the fifth Business Day following the
day on which a Compliance Notice (defined below) is delivered by the Corporation
to the Trustee under the Indenture and (B) February 5, 1998.
The Compliance Notice is a notice to be given to the Trustee when all of the
following conditions have been met: (A) a receipt is issued for a final
prospectus of the Corporation (the "Prospectus") qualifying for sale the
Debentures issuable on exercise of the Special Warrants and the Common Shares
issuable on exercise of the Debentures by the last of the
144554\0512890.WP
<PAGE>
D2
securities regulatory authorities in British Columbia, Alberta, Ontario and
Quebec (the "Qualifying Jurisdictions") to issue such a receipt; (B)
shareholders of the Corporation have approved the issue of the Series B Special
Warrants ("Shareholder Approval") and (C) the proposed merger of the Corporation
and USMX, Inc. (the "Merger") in accordance with an agreement dated February 5,
1997 between such parties has been completed. The Trustee will give notice to
each holder of Series B Special Warrants specifying if and when the Compliance
Notice has been given.
If Shareholder Approval does not occur prior to April 30, 1997 or such later
date as may be determined pursuant to the Merger Agreement, then all Series B
Special Warrants will be automatically retracted by the Corporation without
further action on the part of the Warrant-holder. In such case, the holder
hereof will receive the original purchase price paid for the Series B Special
Warrants represented hereby plus a pro rata share of the interest earned on such
purchase price since the date hereof.
The holder of the Series B Special Warrants represented by this Certificate may
elect to exercise all or any of such Warrants represented by this Warrant
Certificate during the Series B Exercise Period by duly completing and executing
the exercise form attached to and forming part of this Warrant Certificate, and
surrendering this Certificate to the Trustee at the principal office of the
Trustee in the City of Vancouver, British Columbia or Toronto, Ontario, and upon
so doing the holder hereof shall be entitled to receive, subject to the terms of
the Indenture, certificates representing the Debentures issuable upon such
exercise, forthwith, and in any event not later than 5 Business Days, after the
date of surrender to the Trustee of this Certificate. Any such exercise, at a
time when the Corporation has not received a receipt for the Prospectus from the
applicable regulatory authorities in each of the Qualifying Jurisdictions is
subject to compliance with, and may be restricted by, the securities laws of the
Qualifying Jurisdictions and is further subject to the holder providing such
assurances and executing such documents as may, in the reasonable opinion of the
Corporation or the Trustee, be required to ensure compliance with applicable
securities legislation. If, at the time of the exercise of the Series B Special
Warrants, there remains restrictions on resale under applicable securities
legislation on the Debentures to be acquired, the Corporation may, if required
on the advice of counsel to the Corporation, endorse the certificates
representing the Debentures to be acquired with respect to such resale
restrictions, including as described below.
Any Series B Special Warrants remaining outstanding at the Expiry Time will be
deemed to be exercised automatically without any further action of the part of
the holder hereof.
The Series B Special Warrants represented hereby are subject to certain rights
of retraction. The Debentures issuable upon conversion of the Series B Special
Warrants are subject to certain rights of adjustment. Reference should be had to
the Indenture for the details of such rights.
The Series B Special Warrants represented hereby have not been and will not be
qualified for sale under the securities laws of any province or territory of
Canada. Accordingly, the Series B Special Warrants may not be distributed in any
province or territory or to, or for the benefit of, any resident thereof in
contravention with the laws of any such jurisdiction. Compliance with the
securities laws of any jurisdiction is the responsibility of the Warrantholder
or its transferee.
The holder of this Certificate may at any time up to the Series B Expiry Time
upon written instruction delivered to the Trustee and payment of the charges
provided for in the Indenture and otherwise in accordance with the provisions of
the Indenture, exchange this Certificate for other Certificates evidencing the
number of Series A Special Warrants entitling the holder to acquire in the
aggregate the same principal amount of Debentures as may be acquired under this
Series B Special Warrant Certificate.
The holding of the Series B Special Warrants evidenced by this Certificate does
not constitute the Warrantholder a shareholder of the Corporation or entitle
such holder to any right or interest in respect thereof except as herein and in
the Indenture expressly provided.
The Series B Special Warrants evidenced by this Certificate may be transferred
only upon compliance with the conditions prescribed in the Indenture, on the
register kept by the Trustee, by the registered Warrantholder (or its legal
representatives or its attorney duly appointed) and its transferee duly
executing the transfer form attached hereto and complying with applicable laws
and such other reasonable requirements as the Corporation and Trustee may
prescribe.
In connection with a transfer of Series B Special Warrants, the Corporation and
the Trustee, prior to such transfer, must have received a properly completed and
executed Seller's Certificate attached hereto from the holder of this
Certificate and a Purchaser's Certificate attached hereto, from the transferee.
The Series B Special Warrants represented hereby, the Debentures issuable upon
exercise of such Series B Special Warrants and the Common Shares issuable upon
exercise of the Debentures (collectively, the "Securities") have not been
registered under the United States Securities Act of 1933, as amended (the "U.S.
Securities Act") or the securities laws of any state
144554\0512890.WP
<PAGE>
D3
of the United States. As a result, the Securities may not be sold, transferred,
exercised or delivered within the United States or to or for the account or
benefit of a person in the United States or a U.S. person, unless such
securities are registered under the U.S. Securities Act and the securities laws
of any state in which the transferee holder is resident or unless an exemption
from such registration requirements is available and its availability is
satisfactorily evidenced to the Corporation and the Trustee.
The Debentures issuable upon the exercise of Series B Special Warrants issued to
a U.S. person under the U.S. Securities Act or pursuant to an exemption from the
registration requirements of the U.S. Securities Act or otherwise issuable to
U.S. persons, persons in the United States or persons who are acting on behalf
or for the account or benefit of a U.S. person or a person in the United States,
and the Common Shares deliverable upon the exercise of the Debentures (and all
Debentures and Common Shares issued in exchange therefor or in substitution
thereof), shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES
MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER,
(B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION
S UNDER THE U.S. SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER, IF AVAILABLE, AND THE COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR (D) IN COMPLIANCE WITH CERTAIN OTHER PROCEDURES
SATISFACTORY TO THE COMPANY. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO
STOCK EXCHANGE. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH
WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM THE TRANSFER
AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO THE TRANSFER AGENT AND THE
COMPANY, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED
HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER
THE U.S. SECURITIES ACT.
provided, however, that if the Debentures or the Common Shares are being sold
under paragraph (B) above, the legend may be removed by providing a declaration
to the Trustee as transfer agent for the securities to the following effect:
The undersigned (A) acknowledges that the sale of the securities to
which this declaration relates is being made in reliance on Rule 904 of
Regulation S under the United States Securities Act of 1933, as amended
(the "U.S. Securities Act") and (B) certifies that (1) it is not an
affiliate (as defined in Rule 405 under the U.S. Securities Act) of
Dakota Mining Corporation, (2) the offer of such securities was not
made to a person in the United States and either (A) at the time the
buy order was originated the buyer was outside the United States, or
(B) the transaction was executed on or through the facilities of The
Toronto Stock Exchange, the Montreal Exchange, the Vancouver Stock
Exchange or the Alberta Stock Exchange and neither the seller nor any
affiliate of the seller nor any person acting on any of their behalf
has engaged or will engage in any directed selling efforts in the
United States in connection with the offer and sale of such securities,
(4) the sale is bona fide and not for the purpose of "washing off" the
resale restrictions imposed because the securities are "restricted
securities" (as such term is defined in Rule 144(a)(3) under the U.S.
Securities Act), (5) the seller does not intend to replace the
securities and (6) the contemplated sale is not a transaction, or part
of a series of transactions which, although in technical compliance
with Regulation S, is part of a plan or scheme to evade the
registration provisions of the U.S. Securities Act. Terms used herein
have the meanings given to them by Regulation S.
This Series B Special Warrant Certificate and the Indenture shall be governed
by, performed, construed, and enforced in accordance with the laws of British
Columbia and the federal laws of Canada applicable therein.
This Certificate shall not be valid for any purpose whatsoever unless and until
it has been countersigned by or on behalf of the Trustee.
IN WITNESS WHEREOF the undersigned has caused this Certificate to be duly
executed as of February , 1997.
DAKOTA MINING CORPORATION
By:____________________________
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<PAGE>
D4
TRUSTEE'S CERTIFICATE
These Special Warrants are a portion of the Series B Special Warrants
dated February , 1997 referred to in the
Indenture within mentioned.
MONTREAL TRUST COMPANY OF CANADA
By:____________________________
Authorized Officer
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<PAGE>
D5
TRANSFER FORM FOR SERIES B SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- -------------------------------, ------------------------------------
(Name) (Address)
the Series A Special Warrants registered in the name of the undersigned
represented by the within certificate.
DATED the _____ day of ________________, 199___.
- ------------------------------ ------------------------------------
Signature Guaranteed (Signature of Warrantholder)
Note to Warrantholders: In order to transfer the Series B Special Warrants
represented by this certificate, this transfer form must be delivered to
Montreal Trust Company of Canada, together with a duly completed Seller's
Certificate and a Purchaser's Certificate in the forms attached to this
certificate.
144554\0512890.WP
<PAGE>
D6
SELLER'S CERTIFICATE
The undersigned is delivering this certificate in connection with the
sale or transfer by the undersigned of special warrants (the "Special Warrants")
issued by Dakota Mining Corporation (the "Corporation") pursuant to the special
warrant indenture dated as of February 5, 1997 (the "Indenture") between the
Corporation and Montreal Trust Company of Canada (the "Trustee"), as trustee.
This certificate is delivered to the Corporation pursuant to Section 2.13 of the
Indenture to provide evidence of compliance by the undersigned with the United
States Securities Act of 1933, as amended (the "U.S. Securities Act"). The
undersigned hereby makes the following representation to the Corporation and the
Trustee (check one of the following boxes):
|_| The sale of the Special Warrants is being made pursuant to Rule 904 of
Regulation S under the U.S. Securities Act, and:
(a) the sale of the Special Warrants is being made in an "offshore
transaction" (as defined by Rule 902 of Regulation S under the
U.S. Securities Act);
(b) neither the undersigned, an affiliate thereof or any person
acting on their behalf has engaged or will engage in "directed
selling efforts" (as defined by Rule 902 of Regulation S under
the U.S. Securities Act); and
(c) the undersigned is not now an officer, director or otherwise an
"affiliate" of the Corporation (as defined Rule 144 under the
U.S. Securities Act).
|_| The sale of the Special Warrants is being made pursuant to the
exemption from registration requirements under the U.S. Securities Act
provided by Rule 144(k) under the U.S. Securities Act, and:
(a) a period of at least three years has elapsed since the latter of
the date of acquisition of the Special Warrants from the
Corporation or from an affiliate of the Corporation (calculated
in accordance with Rule 144(d) under the U.S. Securities Act);
and
(b) the undersigned is not an affiliate of the Corporation and has
not been an affiliate of the Corporation during the preceding
three months.
|_| The sale of the Special Warrants is being made pursuant to another
exemption from registration requirements under the U.S. Securities Act
and in accordance with any applicable State securities laws, and is
furnishing herewith to the Corporation and the Trustee an opinion to
the effect that counsel of recognized standing and experience in
matters involving the U.S. Securities Act and reasonably satisfactory
to the Corporation and the Trustee.
The undersigned further represents that the sale of the Special Warrants is
not part of a plan or scheme to evade the registration requirements of the
U.S. Securities Act.
Signed:
Name (please print)(to be the same as it appears on the face of the Special
Warrant Certificate)
Address
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<PAGE>
D7
PURCHASER'S CERTIFICATE
1. The Purchaser either (i) is not a "U.S. person" (as defined in Regulation S
under the United States Securities Act of 1933, as amended (the "U.S.
Securities Act"), which definition includes, but is not limited to, an
individual resident in the United States and an estate or trust of which
any executor or administrator or trustee, respectively, is a U.S. person
and any partnership or corporation organized or incorporated under the laws
of the United States; (ii) otherwise purchasing the Special Warrants
pursuant to an applicable exemption from registration under the U.S.
Securities Act;
2. The Purchaser is resident at the address set forth on the signature page of
this certificate;
3. The Purchaser acknowledges that the Special Warrants, the Debentures
issuable upon exercise thereof and the Common Shares issuable upon exercise
of the Debentures (collectively, the "Securities") have not been registered
under the U.S. Securities Act and may not be offered or sold in the United
States unless registered under the U.S. Securities Act and the securities
laws of all applicable states of the United States or an exemption from
such registration requirements is available, and that the Corporation has
no obligation or present intention of filing a registration statement under
the U.S. Securities Act in respect of the Securities.
4. Unless the Purchaser is otherwise purchasing the Securities pursuant to an
applicable exemption from registration under the U.S. Securities Act, the
Securities are not being acquired directly or indirectly for the account or
benefit of a U.S. person and the Purchaser does not have any agreement or
understanding (either written or oral) with any U.S. person respecting:
(i) the transfer or assignment of any rights or interest in any of the
Securities;
(ii) the division of profits, losses, fees, commissions, or any financial
stake in connection with this purchase; or
(iii) the voting of the Debentures;
5. The Purchaser agrees that if it decides to offer, sell or otherwise
transfer any of the Securities, it will not offer, sell or otherwise
transfer any of such Securities, directly or indirectly to a U.S. person,
unless:
(i) the sale is to the Corporation;
(ii) the sale is made outside the United States in a transaction meeting
the requirements of Rule 904 of Regulation S under the U.S. Securities
Act;
(iii)the sale is made pursuant to the exemption from the registration
requirements of the U.S. Securities Act provided by Rule 144
thereunder and in accordance with any applicable State securities or
"Blue Sky" laws;
(iv) the sale is made in another type of transaction that does not require
registration under the U.S. Securities Act or any applicable State
securities or "Blue Sky" laws, and it has prior to such sale furnished
to the Corporation and to Montreal Trust Company of Canada an opinion
to that effect of counsel or recognized experience in matters
involving the U.S. Securities Act and reasonably satisfactory to the
Corporation and Montreal Trust Company of Canada;
6. Unless the Purchaser is purchasing the Securities pursuant to an applicable
exemption from registration under the U.S. Securities Act, no offers to
sell the Special Warrants were made by any person to the Purchaser while
the Purchaser was in the United States.
7. Unless the Purchaser is purchasing the Securities pursuant to an applicable
exemption from registration under the U.S. Securities Act, the Purchaser
was outside the United States at the time of the Purchaser's purchase of
the Special Warrants;
8. The Purchaser acknowledges that the certificates representing the Special
Warrants will bear a legend to the effect that the Debentures and Common
Shares issuable thereunder have not been and will not be registered under
the U.S. Securities Act or the securities laws of any state of the United
States;
9. The Purchaser acknowledges that any person who exercises a Special Warrant
will be required to provide to the Corporation written certification that
it is not a U.S. person and the Special Warrant is not being exercised
within the United States or on behalf of a U.S. person; and
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<PAGE>
D8
10. The Purchaser acknowledges that the Special Warrants may be transferred
only if (i) prior to such transfer the holder of the Special Warrants
properly complete, executes and delivers to the Corporation the certificate
attached to the form of Special Warrant and (ii) the transferee properly
completes, executes and delivers to the Corporation a certificate
substantially in the form hereof.
Signed:
Signature of Purchaser/Transferor
Name (please print)
Address
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<PAGE>
D9
EXERCISE FORM
TO: DAKOTA MINING CORPORATION
AND TO: MONTREAL TRUST COMPANY OF CANADA
The undersigned holder of Series B Special Warrants hereby exercises
in respect of Series B Special Warrants the right provided for in the
Indenture to receive Debentures of Dakota Mining Corporation (or other
securities or property in lieu thereof) on the basis specified in the
Indenture.
The undersigned hereby irrevocably directs that the said Debentures be
issued and delivered as follows:
==============================================================================
Name(s) in Full Address(es) Principal Amount of Debentures
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
==============================================================================
(Please print in full the name in which the certificates are to be issued. If
any of the securities are to be issued to a person or persons other than the
Warrantholder, the Transfer Form for Series B Special Warrants should be
endorsed with the signature of the registered holder which must be guaranteed by
a Canadian chartered bank, trust company or by a member of the Vancouver or
Toronto stock exchanges or other entity acceptable to the Trustee and the
Warrantholder must pay to the Trustee all eligible transfer or taxes or other
government charges.)
The undersigned hereby represents and warrants to the Corporation as
follows (check one):
|_| the undersigned is not a U.S. person and the Special Warrants are not
being exercised within the United States or on behalf or for the
account or benefit of a U.S. person; or
|_| the undersigned is a U.S. person or the Special Warrants are being
exercised within the United States or on behalf or for the account or
benefit of a U.S. person and the undersigned has previously delivered
to the Corporation, or is delivering concurrently herewith, a
certificate in the form of the Purchaser's Certificate attached to the
Special Warrant Certificate.
"United States" and "U.S. person" are as defined by Regulation S under the
United States Securities Act of 1993, as amended.
DATED this ____ day of ___________________, 199 .
- -------------------------- ------------------------------------
Witness Signature of Subscriber
------------------------------------
Name of Subscriber
------------------------------------
------------------------------------
Address of Subscriber
|_| Please check box if these certificates are to be delivered to the
office where this Warrant Certificate is surrendered, failing which
the certificates will be mailed to the address shown on the register
of Special Warrants of the Corporation.
144554\0512890.WP
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION
1.1 Definitions.........................................................1
1.2 Gender and Number...................................................7
1.3 Interpretation not Affected by Headings, Etc........................7
1.4 Day not a Business Day..............................................7
1.5 Time of the Essence.................................................7
1.6 Applicable Law......................................................7
1.7 Currency............................................................7
ARTICLE 2 ISSUE AND FORM OF SPECIAL WARRANTS
2.1 Issue of Special Warrants...........................................7
2.2 Terms of Special Warrants...........................................8
2.3 Warrantholder not a Shareholder.....................................8
2.4 Special Warrants to Rank Pari Passu.................................8
2.7 Signing of Warrant Certificates.....................................10
2.8 Countersignature by the Trustee.....................................10
2.9 Issue in Substitution for Warrant Certificates Lost, Etc............10
2.10 Exchange of Warrant Certificates...................................11
2.11 Charges for Exchange of Previously Issued Warrant Certificates.....11
2.12 Ownership of Special Warrants......................................11
2.13 Registration and Transfer..........................................12
ARTICLE 3 EXERCISE OR RETRACTION OF SPECIAL WARRANTS
3.1 Notices to Trustee..................................................13
3.2 Exercise of Special Warrants........................................14
3.4 Retraction of Special Warrants......................................15
Article 4 intentionally deleted.
ARTICLE 5 COVENANTS OF THE CORPORATION
5.1 General Covenants....................................................17
5.2 Trustee's Remuneration and Expenses..................................18
5.3 Performance of Covenants by Trustee..................................18
5.4 Securities Qualification Requirements................................19
ARTICLE 6 ESCROWED PROCEEDS AND RETRACTION
6.1 Deposit of Escrowed Proceeds in Escrow...............................20
6.2 Investment of Funds..................................................20
6.3 Release of Escrowed Proceeds.........................................20
6.4 Surrender of Special Warrants for Retraction.........................21
6.5 Method of Repayment on Voluntary Retraction by Holder................21
6.6 Mandatory Retraction of Series B Special Warrants....................21
6.7 Method of Repayment on Retraction by Corporation.....................22
(i)
<PAGE>
6.8 Corporation to Provide Funds.........................................22
7.1 Suits by Warrantholders..............................................23
7.2 Immunity of Shareholders, Etc........................................23
7.3 Limitation of Liability..............................................23
7.4 Waiver of Default....................................................23
ARTICLE 8 MEETINGS OF WARRANTHOLDERS
8.1 Right to Convene Meetings............................................24
8.2 Notice...............................................................24
8.3 Chairman.............................................................24
8.4 Quorum...............................................................24
8.5 Power to Adjourn.....................................................25
8.6 Show of Hands........................................................25
8.7 Poll and Voting......................................................25
8.8 Regulations..........................................................25
8.9 Corporation and Trustee may be Represented...........................26
8.10 Powers Exercisable by Extraordinary Resolution......................26
8.11 Meaning of Extraordinary Resolution.................................27
8.12 Powers Cumulative...................................................28
8.13 Minutes.............................................................28
8.14 Instruments in Writing..............................................29
8.15 Binding Effect of Resolutions.......................................29
8.16 Holdings by Corporation Disregarded.................................29
ARTICLE 9 SUPPLEMENTAL INDENTURES
9.1 Provision for Supplemental Indentures for Certain Purposes...........29
9.2 Successor Corporations...............................................30
ARTICLE 10 CONCERNING THE TRUSTEE
10.1 Trust Indenture Legislation.........................................31
10.2 Rights and Duties of Trustee........................................31
10.3 Evidence, Experts and Advisers......................................32
10.4 Documents, Monies, etc. held by Trustee.............................32
10.5 Actions by Trustee to Protect Interest..............................33
10.6 Trustee not Required to Give Security...............................33
10.7 Protection of Trustee...............................................33
10.8 Indemnification.....................................................33
10.9 Replacement of Trustee; Successor by Merger.........................34
10.10 Conflict of Interest...............................................35
10.11 Acceptance of Trust................................................35
10.12 Trustee not to be Appointed Receiver...............................35
ARTICLE 11 GENERAL
11.1 Notice to the Corporation and the Trustee...........................35
11.2 Notice to Warrantholders............................................37
11.3 Counterparts........................................................37
11.4 Satisfaction and Discharge of Indenture.............................37
(ii)
<PAGE>
iii
11.5 Provisions of Indentures and Special Warrants for the Sole Benefit of
Parties and Warrantholders..............................................38
11.6 Special Warrants Owned by the Corporation or its Subsidiaries -
Certificate to be Provided..............................................38
11.7 Further Assurances.................................................39
(iii)
<PAGE>
Dated as of February 5, 1997
DAKOTA MINING CORPORATION
and
MONTREAL TRUST COMPANY OF CANADA
Trustee
SPECIAL WARRANT INDENTURE
Providing for the Issue of
Special Warrants
McCarthy Tetrault, Vancouver
28/1/97-7 February 5, 1997
Dakota Mining Corporation
410 Seventeenth Street
Suite 2450
Denver, Colorado 80202
Attention: Mr. Allan R. Bell
President and Chief Executive Officer
Dear Sirs:
Canaccord Capital Corporation, ScotiaMcLeod Inc. and Newcrest
Capital Inc. (collectively, the "Agents") understand that Dakota Mining
Corporation (the "Corporation") proposes to create, issue and offer for sale
25,000 special warrants of the Corporation (the "Special Warrants") at a price
of $1,000 per Special Warrant (the "Offering"). Each Special Warrant shall
entitle the holder thereof to acquire $1,000 principal amount unsecured
convertible debentures (each, a "Debenture" and collectively, the "Debentures")
of the Corporation upon the exercise of the Special Warrants in accordance with
the terms of the Special Warrant Indenture and the Debenture Indenture
hereinafter referred to, without payment of any further consideration to the
Corporation.
The Agents hereby offer to act, and upon its acceptance hereof
the Corporation hereby appoints the Agents, as the Corporation's exclusive
agents to offer the Special Warrants for sale, upon and subject to the terms and
conditions set forth herein. The Agents, if they so desire, may invite other
investment bankers to form a syndicate or offering and to participate in
soliciting of offers to purchase the Special Warrants.
In consideration of the services to be rendered to the
Corporation by the Agents pursuant to this agreement, the Corporation shall pay
to the Agents at the Time of Closing (as defined below), the Agents' Commission
(as hereinafter defined).
Terms and Conditions
The terms and conditions relating to the purchase and sale of
the Special Warrants are as follows:
1. Special Warrants - The material attributes and characteristics of the Special
Warrants shall be substantially as described herein and in the term sheet
attached hereto as Schedule "A".
The Special Warrants shall be issued pursuant to the
provisions of a warrant indenture (the "Special Warrant Indenture") to be
entered into between the Corporation and Montreal Trust Company of Canada as
trustee and warrant agent (the "Warrant Agent"). The Debentures underlying the
Special Warrants shall be issued pursuant to the provisions of a trust
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indenture (the "Debenture Indenture") also to be entered into between the
Corporation and the Warrant Agent. The terms and conditions of the Special
Warrant Indenture and the Debenture Indenture shall be satisfactory to the
Corporation and the Agents and consistent with the term of this Agreement.
The Debentures will mature on February 5, 2004 (the "Maturity
Date") and will accrue interest at a rate of 7.5% per annum, payable
semi-annually on June 30 and December 31, with the first payment for accrued
interest on and from the issue date of the Special Warrants being February 5,
1997. The Debentures are convertible into common shares of the Corporation (the
"Common Shares" or "Shares") at the option of the holders at any time at $2.00
per share. On maturity or redemption, the Corporation may elect, upon notice, to
repay the principal of the Debentures in common shares of the corporation. The
terms and conditions applicable to the Debentures are as more fully described in
the term sheet attached as Schedule "A" hereto. The Debentures issuable upon
exercise of the Special Warrants and the Shares issuable in exchange for the
Debentures may be referred to herein as the "Subject Securities". The Debentures
are issued in connection with the anticipated merger (the "Merger") of the
Corporation with USMX Inc. ("USMX"), pursuant to a letter agreement dated
January 3, 1997 (the "Letter Agreement") and a definitive merger agreement (the
"Merger Agreement") substantially in the form attached hereto as Schedule "E",
according to which the Corporation is to complete a statutory amalgamation,
merger or other business combination with USMX to form one surviving
corporation.
All of the aggregate net proceeds of the Offering (after
deducting the Agents' Commission) shall be escrowed (the "Original Escrowed
Proceeds") on Closing (as hereinafter defined). The Special Warrant Indenture
shall also provide that US$5,000,000 (the "Release Amount") of the Original
Escrowed Proceeds shall be released to the Corporation provided that the
conditions to making the USMX Loan (as hereinafter defined) under the Merger
Agreement (as hereinafter defined) have been satisfied including, without
limitation, that the Release Amount is being loaned to USMX, Inc. (the "USMX
Loan") on terms and conditions satisfactory to the Agents, acting reasonably.
The balance of the Original Escrowed Proceeds (the "Escrowed Proceeds") will
remain in escrow until the Shareholder Approval (as hereinafter defined) has
been obtained and the Merger has been completed. With respect to 16,126 Special
Warrants (the "Series "A" Special Warrants"), no Shareholder Approval shall be
required, and the Escrowed Proceeds shall remain in escrow pending the Merger.
With respect to the balance of the Special Warrants (the "Series "B" Special
Warrants"), in the event that the Shareholder Approval has not been obtained by
a date (the "Shareholder Approval Date") that occurs not later than April 30,
1997 unless extended to May 31, 1997 in accordance with the Merger Agreement,
(the "Shareholder Qualification Deadline", all Series B Special Warrants shall
be redeemed by the Corporation (the "Redemption Obligation"). The Escrowed
Proceeds of the Offering shall be released to the Corporation if and upon the
Merger occurring not later than the Qualification Deadline, provided that, in
the case of the Series "B" Special Warrants where Shareholder Approval is
required, such Approval is also obtained prior to the Shareholder Qualification
Deadline. If the Merger does not occur prior to the Qualification Deadline, the
holders of the Special Warrants shall have the option (the "Redemption Option")
for a period of five Business Days after the Qualification Deadline to cause the
Corporation to redeem their pro rata portion of the Special Warrants from the
Escrowed Proceeds together with interest earned thereon by giving notice to the
Corporation or otherwise tendering their Special Warrants to the
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Corporation. If the Escrowed Proceeds are insufficient for the redemption of all
of the Special Warrants to which such notice relates, or so tendered, then the
Special Warrants to be redeemed shall be redeemed pro rata.
The Series A Special Warrants will be exercisable at any time
after the date hereof until the Expiry Time (as hereinafter defined). The Series
B Special Warrants will be exercisable at any time after the Shareholder
Approval Date until the Expiry Time. The Expiry Time shall be on or before 5:00
p.m. (Vancouver time) on the earlier of: (a) February 5, 1998; and (b) the date
which is five Business Days after the day on which the last of the three
following dates occurs (i) the Shareholder Approval Date; (ii) the date of the
receipt issued by the last of the securities regulatory authorities in each of
the provinces of British Columbia, Ontario, Alberta and such other provinces of
Canada where holders of Special Warrants are resident (the "Qualifying
Provinces"), to issue a receipt for a (final) prospectus of the Corporation or
amendment thereof (the "Prospectus") qualifying the distribution of the
Debentures to be issued on the exercise of the Special Warrants (the "Prospectus
Qualification"); and (iii) the day on which the Merger is completed. Any Special
Warrants not exercised on or before the Expiry Time will be exercised by the
Warrant Agent as authorized agent and on behalf of the holders thereof
immediately prior thereto without further action by the holder thereof. For the
purpose of this Agreement, "Business Day" shall mean any day except Saturday,
Sunday or a statutory holiday in Vancouver, British Columbia and Toronto,
Ontario.
The Corporation agrees to file with all relevant securities
regulatory authorities in each Qualifying Province a preliminary prospectus (the
'Preliminary Prospectus") with respect to the distribution of the Debentures,
and to use its best efforts to file the Preliminary Prospectus in the Qualifying
Provinces not later than 30 days following the Closing Date, and, upon
resolution of all regulatory comments and deficiencies, to use its best efforts
to file the Prospectus and obtain receipts therefor, qualifying the distribution
of the Debentures underlying the Special Warrants no later than 5:00 p.m.
(Toronto time) on the date which is not later than 120 days from the Closing
Date (the "Qualification Deadline"). The Corporation and the Agents agree that
the Qualifying Provinces may include the Province of Quebec in circumstances
where there are subscriptions from residents in Quebec to purchase not less than
Cdn.$1,000,000 of Special Warrants in aggregate. The Corporation also agrees to
(iv) cause the Debentures to be listed on The Toronto Stock Exchange (the "TSE")
by the Qualification Date or as soon as possible thereafter and in any event not
later than the earlier of the date on which the Merger occurs and the
Qualification Date. In the event that receipts for the Prospectus (as defined
below) relating to the distribution of the Debentures are not received on or
before the Qualification Deadline from the securities regulatory authorities of
each of the Qualifying Provinces, the Debentures issuable upon the exercise of
the Special Warrants shall be convertible for 1.10 Shares for every Share that
would have been issued if the Qualification Date had occurred prior to the
Qualification Deadline.
The Corporation further agrees that it shall not cause the
Merger to occur prior to the occurrence of the Shareholder Approval, or the
Prospectus Qualification to occur prior to the Merger occurring, without the
prior consent of the Agents acting reasonably.
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2. Offering
(a) Sale on Exempt Basis - The Agents shall offer for sale and sell the
Special Warrants in the Qualifying Provinces, and the United States (as defined
in Schedule "B" hereto) (collectively the "Qualifying Jurisdictions") and
elsewhere in compliance with all applicable securities laws. The sale of the
Special Warrants to the Purchasers (as used herein, the "Purchasers" shall mean
all purchasers of the Special Warrants offered for sale or sold as contemplated
herein) in Ontario shall be effected in a manner exempt from the prospectus and
offering memorandum requirements of the Securities Act (Ontario) and the
Regulation thereunder and the analogous provisions of securities legislation of
any other Canadian provinces in which the Agents may solicit offers to purchase
Special Warrants. Each Purchaser of the Special Warrants resident in Ontario or
outside Canada (other than U.S. persons) shall purchase under subsection
72(1)(a), (c), (d) or (i) of the Securities Act (Ontario) as qualified in the
case of subsection 72(1)(d) by subsection 27(1) of the Regulation thereto, and
each Purchaser of Special Warrants resident in any province of Canada other than
Ontario shall purchase under the analogous provisions of securities legislation
of such province. With respect to offers and sales of the Special Warrants to
Purchasers in the United States, the Corporation and the Agents agree to be
governed by the representations, warranties terms and conditions set forth in
Schedule "B" attached hereto.
The Corporation agrees that the Agents will be permitted to
appoint other registered dealers (or other dealers duly qualified in their
respective jurisdictions) as its agent to assist in the Offering (as defined
below) and that the Agents may determine the remuneration payable to such other
dealers appointed by them.
(b) Agents' Commission - The Corporation agrees to pay to the Agents at
the Time of Closing (as defined below) a commission of $60 per Special Warrant,
equal to 6% of the purchase price of the Special Warrants (the "Agent's
Commission") in consideration of the services to be rendered by the Agent in
connection with the sale of the Special Warrants (the "Offering"), which
services shall include:
(i) endeavoring to arrange for Purchasers for the Special Warrants;
(ii) acting as fiscal advisors of the Corporation in the preparation of the
relevant documentation relating to the sale of the Special Warrants;
(iii)assisting in the preparation of the Prospectus and the Preliminary
Prospectus in respect of the Subject Securities, together with any
documents supplemental thereto or any amending or supplementary prospectus
or other supplemental documents or any similar document (collectively the
"Supplementary Material") required to be filed under the legislation of any
Qualifying Province;
(iv) assisting in respect of the Prospectus Qualification;
(v) assisting in the preparation of the form of subscription agreements in the
forms set forth in Schedule "C" hereto (the "Subscription Agreements") to
be entered into by the Purchasers of the Special Warrants;
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(vi) assisting in the preparation of the Special Warrant Indenture and the
Debenture Indenture; and
(vii) advising the Corporation with respect to the Offering.
(c) Covenants of Agents - The Agents severally covenant, represent and warrant
to the Corporation that: (i) they will comply with all applicable
securities legislation in connection with the Offering and the Prospectus
Qualification; (ii) they will not offer or sell Special Warrants so as to
require registration thereof, filing of a prospectus with respect thereto
or require the Corporation to become subject to ongoing reporting
requirements under the laws of any jurisdiction other than that of the
Qualifying Provinces or those to which the Corporation is already subject
or as otherwise agreed with the Corporation; (iii) they or their duly
appointed agent, are duly qualified in the Qualifying Provinces in which
they act as agent for the Corporation in connection with the Offering and
the Prospectus Qualification; (iv) they will obtain from each Purchaser an
executed Subscription Agreement in the appropriate form attached as
Schedule "C" or such other form reasonably acceptable to the Corporation
and to the Agents relating to the transactions herein contemplated; (v)
they will not solicit subscriptions for Special Warrants or otherwise do
any act in furtherance of a trade of the Special Warrants outside the
Qualifying Jurisdictions or elsewhere unless the Corporation and the Agents
agree; (vi) they will not make available to prospective Purchasers of the
Special Warrants any documents which would constitute an offering
memorandum as defined under the securities legislation of the Qualifying
Provinces except for the United States covering memorandum (the "Covering
Memorandum") of the Corporation which includes the annual report of the
Corporation for the fiscal year ended December 31, 1995 (containing the
audited consolidated annual financial statements of the Corporation for the
fiscal year ended December 31, 1995), the annual report on Form 20-F of the
Corporation for the year ended December 31, 1995, recent press releases of
the Corporation and the unaudited interim financial statements of the
Corporation for the nine-month period ended September 30, 1996, to be
provided to Purchasers in the United States, and not advertise the proposed
sale of the Special Warrants in printed media of general and regular paid
circulation, radio or television or otherwise; (vii) they will not make any
representations or warranties in respect of the Corporation as an agent or
otherwise except as permitted in writing by the Corporation; and (viii)
they will not solicit subscriptions for Special Warrants except in
accordance with the terms and conditions of this Agreement.
3. Representations of the Corporation - The Corporation represents and warrants
to the Agents and acknowledges that the Agents are relying upon such
representations and warranties, as follows:
(a) the Corporation has no operating subsidiaries other than Min Ven Gold (USA)
Corporation, Compass Mining Inc., Brohm Mining Corp., Helix Mining Inc.,
Stibnite Mine Inc., Barrier Reef Inc., and Dakota Gold Mining Inc. (the
"Subsidiaries") and the Corporation, either directly or indirectly, owns
all of the issued and outstanding shares of each such Subsidiary free and
clear of all mortgages, liens, charges, pledges, security interests,
encumbrances, claims or demands of any kind whatsoever and all of such
shares have been duly authorized and validly issued and are outstanding as
fully paid and non-assessable shares and no person has any right, agreement
or option, present or future, contingent or
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absolute, or any right capable of becoming a right, agreement or option, for the
purchase from the Corporation of any interest in any of such shares or to
the knowledge of the Corporation after due inquiry, for the issue or
allotment of any unissued shares in the capital of any Subsidiary or any
security convertible or exchangeable for any such shares;
(b) each of the Corporation and the Subsidiaries has been duly incorporated and
organized and is validly existing under the laws of the jurisdiction of its
incorporation and has all requisite corporate capacity, power and authority
to carry on its business as now conducted by it and as is presently
proposed to be conducted by it and to own, lease and operate its assets;
(c) each of the Corporation and the Subsidiaries possess all material
certificates, authority, permits or licenses issued by the appropriate
state, provincial, municipal or federal regulatory agencies or bodies
necessary to conduct the business now operated by it and neither the
Corporation nor the Subsidiaries have received any notice of proceedings
relating to the revocation or modification of any such certificate,
authority, permit or license which, if the subject of an unfavorable
decision, ruling or finding would materially and adversely affect the
conduct of the business, operations financial condition or income of the
Corporation or any of the Subsidiaries;
(d) except as disclosed in the 1996 Prospectus (as hereinafter defined) or in
the Public Record (as hereinafter defined), each of the Corporation and the
Subsidiaries has conducted and is conducting its business in compliance in
all material respects with all applicable laws, by-laws, rules and
regulations of each jurisdiction in which that business is carried on and
holds all material licenses, registrations, permits, consents or
qualifications required in order to enable that business to be carried on
as now conducted or as proposed to be conducted, and all such licenses,
registrations, permits, consents and qualifications are valid and
subsisting and in good standing;
(e) except as disclosed in the 1996 Prospectus (as hereinafter
defined) or in the Public Record (as hereinafter defined),
each of the Corporation and the Subsidiaries has conducted and
is conducting its business in compliance in all material
respects with all applicable licensing and environmental
protection, legislation, regulations or bylaws or other
similar legislation, laws, by-laws, rules and regulations or
the lawful requirements of any governmental or regulatory
bodies;
(f) the Corporation is not aware of any licensing or
environmental, legislation, regulation, by-law or lawful
requirement presently in force or proposed to be brought into
force which the Corporation anticipates that it or any of the
Subsidiaries will be unable to comply with without materially
adversely affecting its financial condition, results of
operations, business or prospects of each jurisdiction in
which its business is carried on and holds all material
licenses, certificates registrations, permits, consents or
qualifications required by the
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<PAGE>
appropriate state, provincial, municipal or federal regulatory
agencies or bodies necessary in order to enable its business
to be carried on as now conducted and all such licenses
certificates, registrations, permits, consents and
qualifications are valid and subsisting and in good standing
and do not contain any unusual burdensome provision, condition
or limitation which has a material adverse effect on the
operation of the business of the Corporation or the
Subsidiaries as now conducted or as presently proposed to be
conducted and neither the Corporation nor any of the
Subsidiaries has received any notice of proceedings relating
to the revocation or modification of any such licenses,
certificates, registrations, permits, consents, or
qualifications which, if the subject of an unfavorable
decision, ruling or finding would materially and adversely
affect the conduct of the business, operations financial
condition or income of future prospects of the Corporation and
the Subsidiaries, taken as a whole;
(g) the Corporation is a reporting issuer in good standing under
the securities laws of British Columbia, Alberta and Ontario
only and no material change relating to the Corporation has
occurred with respect to which the requisite material change
report has not been filed under the securities laws of British
Columbia or Ontario and no such disclosure has been made on a
confidential basis;
(h) the Corporation has (and, in the case of the Prospectus
Qualification, will have) full corporate power and authority
to undertake the Offering, the Prospectus Qualification, the
Merger and all other transactions contemplated herein;
(i) the authorized capital of the Corporation consists of an
unlimited number of Shares and 20,000,000 Preference Shares
without nominal or par value, of which at the date hereof
35,479,742 Shares are issued and outstanding as fully paid and
nonassessable Shares;
(j) none of the materials filed by or on behalf of the Corporation
since June 7, 1996 (the "Prospectus Filing Date") with the
applicable securities commissions or the stock exchanges
contain a misrepresentation (as defined in the Securities Act
(Ontario)) as at the date of such filing which has not been
corrected;
(k) since the Prospectus Filing Date, the Corporation has not
become a party to and has not granted any agreement, warrant,
option or right or privilege capable of becoming an agreement,
for the purchase, subscription or issuance of any Shares or
securities convertible into or exchangeable for Shares except
for stock options issued to certain employees, directors and
consultants of the Corporation under the Corporation's Share
Incentive Plan which Shares, when issued, shall be issued as
fully paid and non-assessable shares;
(l) each of this Agreement, the Subscription Agreements, the
Special Warrant Indenture, the Debenture Indenture, the Merger
Agreement and the Debentures, has been, or will be upon
execution (and in the case of the Subscription Agreements,
acceptance) thereof, duly authorized, executed and delivered
by the Corporation and constitutes, or will constitute when
executed, a legal, valid and
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<PAGE>
binding obligation of the Corporation enforceable in
accordance with their respective terms except that: (i) the
enforcement thereof may be limited by bankruptcy, insolvency
and other laws affecting the enforcement of creditors' rights
generally; (ii) rights of indemnity, contribution and waiver
of contribution thereunder may be limited under applicable
law; and (iii) equitable remedies, including, without
limitation, specific performance and injunctive relief, may be
granted only in the discretion of a court of competent
jurisdiction;
(m) the entering into of each of this Agreement, the Subscription Agreements,
the Special Warrant Indenture, the Debenture Indenture, the Merger
Agreement, the issuance of the Debentures upon exercise of the Special
Warrants and the issuance of the Shares issuable upon conversion of the
Debentures, the completion of the Merger and the other transactions
contemplated in the Merger Agreement in the manner contemplated therein and
the performance of the transactions contemplated hereby and thereby will
not result in a breach of, and do not create a state of facts which, after
notice or lapse of time or both, will result in a breach of, and do not and
will not conflict with, any of the material terms, conditions or provisions
of the constating documents or by-laws of the Corporation (or any of its
Subsidiaries) or any material trust indenture, agreement or instrument to
which the Corporation (or any of its Subsidiaries) is a party or by which
the Corporation (or any of its Subsidiaries) is or will be contractually
bound as of the Time of Closing, of which they have knowledge, after due
inquiry;
(n) except as publicly disclosed, no legal or governmental proceedings are
pending or, to the knowledge of the Corporation, are contemplated or
threatened to which the Corporation and/or any of its Subsidiaries is a
party or to which the property of the Corporation and/or any of its
Subsidiaries is subject that would result individually or in the aggregate
in any material adverse change in the operation, business or condition of
the Corporation, on a consolidated basis;
(o) the audited consolidated annual financial statements of the Corporation as
at and tor the period ended December 31, 1995 contained in the
Corporation's annual report for the year ended December 31, 1995:
(i) have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with those of preceding fiscal
periods;
(ii) represent fully, fairly and correctly the consolidated assets, liabilities
and financial condition of the Corporation as at December 31. 1995 and the
consolidated results of its operations and the changes in its financial
position for the year then ended;
(iii) are in accordance with the books and records of the Corporation; and
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(iv) contain and reflect all necessary adjustments for the fair presentation of
the results of operations and the financial condition of the business of
the Corporation on a consolidated basis for the period covered thereby, and
there has not been any material adverse change in the financial position of
the Corporation, or its business, assets, liabilities or undertaking since
December 31, 1995 other than as specified in the Public Record (defined
below);
(p) the unaudited consolidated interim financial statements of the Corporation
and its subsidiaries as at and for the nine month period ended September
30, 1996 previously publicly disclosed:
(i) have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with those of preceding interim
periods;
(ii) represent fully, fairly and correctly the consolidated assets, liabilities
and financial condition of the Corporation as at September 30, 1996 and the
consolidated results of its operations and the changes in its financial
position for the nine month period then ended;
(iii) are in accordance with the books and records of the Corporation; and
(iv) contain and reflect all necessary adjustments for the fair presentation of
the results of operations and the financial condition of the business of
the Corporation on a consolidated basis for the period covered thereby, and
there has not been any material adverse change in the financial position of
the Corporation, or its business, assets, liabilities or undertaking since
September 30, 1996 other than as specified in the Public Record (defined
below);
(q) the auditors of the Corporation who audited the consolidated financial
statements for the year ended December 31, 1995 and who provided their
audit report thereon are independent public accountants as required under
applicable Canadian securities laws;
(r) there has not in the last five fiscal years been any reportable
disagreement (within the meaning of National Policy Statement No. 31) with
the present or any former auditors of the Corporation;
(s) each of the Corporation and its Subsidiaries has filed all necessary tax
returns and notices and, to the knowledge of the Corporation after due
inquiry, has paid all applicable taxes of whatever nature for all tax years
to the date hereof to the extent such taxes have become due or have been
alleged to be due and neither the Corporation nor its Subsidiaries is aware
of any tax deficiencies or interest or penalties accrued or accruing, or
alleged to be accrued or accruing, thereon with respect to itself where, in
any of the above cases, it might reasonably be expected
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to result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Corporation or its Subsidiaries taken as a whole;
(t) other than the Agents, there is no person, firm or corporation acting or
purporting to act at the request of the Corporation, who is entitled to any
brokerage or finder' s fee in connection with the transactions contemplated
herein. In the event that any person, firm or corporation acting or
purporting to act for the Corporation establishes a claim for any fee from
the Agents, the Corporation covenants to indemnify and hold harmless the
Agents with respect thereto and with respect to all costs reasonably
incurred in the defense thereof;
(u) the Corporation and each of its Subsidiaries is validly existing and is
current and up-to-date with all material filings required to be made by it
under the corporate laws of its jurisdiction of incorporation and the
securities laws of the provinces of Canada where it is a reporting issuer
or its equivalent, as applicable, and has all requisite corporate capacity,
power and authority to carry on its business as now conducted by it and as
is presently proposed to be conducted by it and to own its assets and to
carry out the provisions of this Agreement and the transactions
contemplated hereunder;
(v) all of the Corporation's issued and outstanding Shares and Shares reserved
or allotted for issue (except for the Shares issuable under the Debentures)
are listed for trading on the TSE and Amex;
(w) as a result of not listing the Debentures with Amex and not obtaining the
approval of Amex to list such Debentures, and the Shares issuable
thereunder, the Corporation will not be in default of any of the rules and
regulations of Amex;
(x) the prospectus (the "1996 Prospectus") dated June 7, 1996 of the
Corporation constitutes full, true and plain disclosure of all material
facts relating to the Corporation as at the date thereof and does not omit
to state any material fact that is required to be stated in light of the
circumstances in order to make the statements contained therein not
misleading as at the date thereof;
(y) all material changes relating to the business and affairs of the
Corporation and its Subsidiaries occurring on and after the Prospectus
Filing Date have been disclosed v press releases and material change
reports and in the interim financial statements prepared and filed with the
Securities Commissions (the "Public Record");
(z) the Corporation has not withheld, and will not withhold, from the Agents
any facts relating to the Corporation or to the Offering or the Merger that
would be material to a prospective purchaser of the Special Warrants;
(aa) the Corporation, directly or indirectly, owns all material right, title and
interest in its properties as disclosed in the 1996 Prospectus and the
Public Record and
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the properties are free and clear of any material liens,
charges or encumbrances and no royalty is payable in respect
of any of them except as set out in the 1996 Prospectus and
the Public Record. No other material property rights are
necessary for the conduct of the Corporation's or its
Subsidiaries business. There are no material restrictions on
the ability of the Corporation or its Subsidiaries to use,
transfer or otherwise exploit any such property rights except
as set out in the 1996 Prospectus and the Public Record, and
the Corporation and the Subsidiaries do not know of any
material claim or material basis for a claim that may
adversely affect such rights and is not aware of any fact or
circumstance that would or could materially adversely affect
that right, title and interest;
(bb) except as described in the 1996 Prospectus and the Public
Record and except as contemplated under the Merger Agreement,
there are no material contracts or arrangements to which
either the Corporation (or any of its Subsidiaries) is a party
to or by which it is bound or to which the Corporation expects
to become a party or bound before the Prospectus
Qualification;
(cc) no order ceasing or suspending trading in securities of the
Corporation or prohibiting the sale of securities by the
Corporation has been issued and, to the knowledge of the
Corporation, no proceedings for this purpose have been
instituted, are pending, contemplated or threatened since the
Prospectus Filing Date;
(dd) the Corporation has not, directly or indirectly, declared or
paid any dividend or declared or made any other distribution
on any of its Shares or securities or, directly or indirectly,
redeemed, purchased or otherwise acquired any of its Shares or
securities or agreed to do any of the foregoing since the
Prospectus Filing Date;
(ee) there is not in the constating documents of the Corporation or
in any material agreement, mortgage, note, debenture,
indenture or other instrument or document to which the
Corporation is a party, except certain credit arrangements
with Gerald Metals Inc. and as described in the 1996
Prospectus and the Public Record, any restriction upon or
impediment to the declaration or payment of dividends by the
directors of the Corporation or the payment of dividends by
the Corporation to the holders of its Shares;
(ff) the Warrant Agent, at its offices in Vancouver and Toronto,
has been duly appointed as the transfer agent and registrar
for all of the outstanding common shares of the Corporation
and as at the Closing will have been duly appointed as warrant
agent in respect of the Special Warrants;
(gg) the Corporation is a "reporting issuer" within the meaning of
Regulation S "Regulation S") under the United States
Securities Act of 1933, as amended (the "1933 Act") and
neither the Corporation nor, to the knowledge of the
Corporation, any persons (other than the Agents) acting on its
behalf has engaged or will engage in any directed selling
efforts in the United States within the
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meaning of Regulation S with respect to the securities
relating to the Offering, it and they have complied and will
comply with the offering restriction requirements of
Regulation S, neither the Corporation nor, to the knowledge of
the Corporation, any person acting on its behalf has offered
or will offer to sell any of the securities by means of any
form of general solicitation or general advertising (as those
terms are used in Regulation D under the 1933 Act) or in any
manner involving a public offering with the meaning of Section
4(2) of the 1933 Act;
(hh) other than the Merger Agreement, the Corporation has not
entered into, nor is a party to, any agreement or
understanding relating to any acquisition, merger or other
similar transaction; and
(ii) the Merger Agreement is the only agreement, document or other
writing reflecting the agreement or understanding between the
Corporation and USMX as to the terms and conditions of the
Merger.
4. Covenants of the Corporation - In addition to any other covenants of the
Corporation set forth herein, the Corporation hereby covenants to and with the
Agents that it shall:
(a) use its best efforts to complete the Merger in accordance with the terms of
the Merger Agreement and herein;
(b) fulfill all legal requirements to permit the creation, issuance, offering
and sale of the Special Warrants and the issuance of the Debentures
underlying the Special Warrants and the Shares issuable on conversion of
the Debentures including, without limitation, compliance with all
applicable securities legislation to enable the Special Warrants to be
offered for sale and sold without the necessity of filing a prospectus to
Purchasers in the Qualifying Jurisdictions through, in the case of the
Qualifying Provinces, registrants registered under the applicable
legislation of such Qualifying Provinces who have complied with the
relevant provisions of such legislation;
(c) use its best efforts to obtain the necessary regulatory consents from Amex
and the TSE to the Offering on such terms as are mutually acceptable to the
Agents and the Corporation, acting reasonably;
(d) use its best efforts to arrange for conditional listing approval from the
TSE with respect to the listing of the Debentures on the TSE and will seek
to obtain conditional listing approval therefor as soon as possible after
the Closing Date;
(e) use its best efforts to maintain the listing of its Common Shares on the
TSE and Amex, and the listing of Debentures on the TSE and its status as
reporting issuer and its equivalent under the securities legislation of the
Qualifying Provinces from the date hereof until one year after the Expiry
Time;
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(f) call a meeting of shareholders of the Corporation for a date no later than
the Shareholder Qualification Deadline to obtain the approval of not less
than 50% of the votes attached to all shares represented at such meeting
for the issue of the Shares issuable under the Debentures (the "Shareholder
Approval") issuable upon exercise of the Special Warrants, all in
compliance with the requirements of the TSE and to fulfill the requirements
for listing the Debentures on the TSE and the Shares issuable on conversion
of the Debentures on AMEX and the TSE.
(g) use its best efforts, to prepare and file in each of the Qualifying
Provinces the Preliminary Prospectus and other related documents relating
to the proposed distribution of Subject Securities to holders of Special
Warrants as soon as reasonably practicable following the Closing Date;
(h) use its best efforts to obtain receipts for the Preliminary Prospectus in
each of the Qualifying Provinces as soon as reasonably practicable;
(i) resolve as soon as reasonably practicable any regulatory deficiencies in
respect of the Preliminary Prospectus on a basis acceptable to the Agent,
acting reasonably, and, as soon as reasonably practicable after such
deficiencies have been resolved or satisfied, prepare, file and use its
best efforts to obtain receipts under the applicable legislation of each of
the Qualifying Provinces for the Prospectus and take all other reasonable
steps and proceedings that may be necessary in order to complete the
Prospectus Qualification no later than by 5:00 p.m. (Toronto time) on the
Qualification Deadline;
(j) prior to the filing of the Preliminary Prospectus and thereafter and prior
to the filing of the Prospectus and any Supplementary Material, permit the
Agents and their counsel to participate fully in the preparation of such
documents and allow the Agents and their counsel to conduct all due
diligence which the Agents may at its own unfettered discretion require to
conduct in order to fulfill its obligations under applicable securities
legislation and in order to enable the Agents responsibly to execute any
certificate required to be executed by the Agents in connection with the
Preliminary Prospectus, the Prospectus or any Supplementary Material;
(k) ensure that at the respective times of filing and at all times subsequent
to the filing thereof until completion of the distribution of the Subject
Securities, the Preliminary Prospectus, Prospectus and any Supplementary
Material it will fully comply with the requirements of applicable
securities legislation, provided that the foregoing shall not apply with
respect to statements contained in such documents relating solely to or
provided by the Agents;
(l) deliver one copy of the Prospectus and any Supplementary Material to each
holder of Special Warrants, and deliver in Toronto, within three (3)
Business Days of the issue of a receipt for the Preliminary Prospectus and
the Prospectus, as the case may be, and within three Business Days of
execution of any Supplementary Material, without charge to the Agent as
many copies of the
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Preliminary Prospectus, the Prospectus and any Supplementary Material as the
Agents may reasonably request for the purposes contemplated hereunder and
contemplated by the Securities Act (Ontario), and such delivery shall
constitute: (A) the consent of the Corporation to use such documents in
connection with the distribution or the distribution to the public, as the
case may be, of the Subject Securities subject to the provisions of the
securities legislation of the Qualifying Provinces; and (B) the
Corporation's representation and warranty to the Agent that, at the time of
delivery, the information and statements contained therein (except
information and statements relating solely to or provided by the Agent)
contain no misrepresentation and constitute full, true and plain disclosure
of all material facts (as defined in the Securities Act (Ontario)) relating
to the Offering, the Corporation, the Special Warrants and the Subject
Securities;
(m) cause to be delivered to the Agents concurrently with the filing of the
Prospectus and any Supplementary Material, comfort letters of the auditors
of the Corporation in each case dated the date of the Prospectus or the
Supplementary Material to which such letter relates (as the case may be)
addressed to the Agents and to the directors of the Corporation in form and
substance satisfactory to the Agents acting reasonably, relating to the
financial statements to be included in the Prospectus and ny Supplementary
Material and verifying in accordance with the Canadian Institute of
Chartered Accountants Handbook the financial information, accounting data
and other numerical data contained in the Prospectus or any Supplementary
Material and matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus or the Supplementary Material to a date not more than two (2)
Business Days prior to the date of such letter;
(n) use its reasonable best efforts to ensure that until the Expiry Time the
Debentures and the Shares do not constitute "foreign property" within the
meaning of the Income Tax Act (Canada) or any amendments thereto publicly
announced by the Minister of Finance from time to time;
(o) not, without the Agents' prior written approval, amend the attributes of
the Special Warrants, the Debentures or the Shares until the Expiry Time;
(p) not, without the Agents' prior written approval, issue any Shares or other
financial instruments convertible or exercisable into Shares of the
Corporation, other than for purposes of employee or director stock options
or to satisfy any prior outstanding obligations of the Corporation to issue
shares as disclosed in the 1996 Prospectus or the Public Record or as
contemplated herein, for a period of 90 days from the Qualification Date;
(q) use the net proceeds of the Offering for the purposes set forth in the
terms described in the term sheet attached hereto as Schedule "A"; and
(r) comply with the provisions of the term sheet attached hereto as Schedule
"A".
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<PAGE>
(s) use its reasonable best efforts to provide to the Agents and to the Agents'
counsel copies of all documents and other materials obtained or reviewed by
the Corporation in connection with its due diligence examination of the
business and affairs of USMX in anticipation of the Merger, and promptly to
inform the Agents and the Agents' counsel of all matters and developments
relating to the progress of the Merger, including without limitation the
Prospectus Qualification, the Shareholder Approval, and all legal and
regulatory matters pertaining thereto and to the Merger;
(t) use its reasonable best efforts to provide the certificates and legal
opinions pertaining to USMX as required under Section 5 hereof;
(u) provide to the Agents forthwith upon completion of the Merger a certificate
of the Corporation and USMX signed by the Chief Executive Officer.and the
Chief Financial Officer of the Corporation and USMX, as applicable,
certifying as to the date of the Merger (the "Merger Date"), and the
completion of the Merger in accordance with the provisions of the Merger
Agreement, that:
(i) the Corporation and USMX, as applicable, has complied with all
covenants and satisfied all terms and conditions of the Merger
Agreement on its part to be complied with and satisfied as at the
Merger Date;
(ii) the Merger Agreement has not been materially amended or modified; and
(iii)arrangements satisfactory to the Corporation and to the Agent have
been made with respect to obtaining the consent and cooperation of
N.M. Rothschilds & Sons Limited (the "Lender") with respect to the
Merger;
(v) provide to the Agents forthwith upon completion of the Merger a copy of the
opinions delivered pursuant to the Merger Agreement, which shall also be
addressed to the Agents, and a legal opinion of the Corporation's counsel and to
use its reasonable best efforts to provide a legal opinion of USMX's counsel, as
applicable, confirming that:
(i) the Merger was completed in accordance with the provisions
of the Merger Agreement;
(ii) the Merger Agreement constitutes a valid and binding
obligation of the Corporation, enforceable against the
Corporation in accordance with the terms;
(iii)all necessary approvals and actions having been obtained or
taken by the Corporation and USMX in respect of the Merger;
(iv) the corporation created by the completion of the Merger
("Amalco") is a corporation validly existing under the laws
of its jurisdiction of incorporation and is qualified to
carry on business and own its assets
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<PAGE>
underthe laws of each jurisdiction in which it carries on
business and owns its assets;
(v) Amalco has all requisite corporate capacity, power and
authority to carry on its business as previously
conducted by USMX and to own the assets of USMX;
(vi) the registered holder of 100% of the issued and
outstanding shares in the capital of Amalco is the
Corporation; and
(vii)as to the authorized and issued shares of the
Corporation and the shares issuable following the
Merger;
(w) provide to the Agents prior to the earlier of the
Qualification Deadline and the Merger Date a favorable legal
opinion of the USMX's local Alaska counsel, addressed to the
Agents and to the Purchasers, acceptable to counsel to the
Agents, with respect to certain matters affecting USMX and
USMX of Alaska, Inc. in connection with the Offering and the
Merger, including:
(i) the status of the credit arrangements with the Lender
and the adequacy and enforceability of the consent
given by them to the Merger; and
(ii) the status of the lease arrangements with North Pacific
Mining Corporation and the requirement, if any, as to
their consent to the Merger;
(x) use its reasonable best efforts to provide to the Agents prior to the
earlier of the Qualification Deadline and the Merger Date a favorable legal
opinion of USMX' s United States counsel. addressed to the Agents and to
the Purchasers, acceptable to counsel to the Agents acting reasonably. with
respect to the operating subsidiaries of USMX other than the USMX
Subsidiaries (as defined below) the "Other USMX Subsidiaries") and such
other matters as the Agents may reasonably request in connection with the
Offering and the Merger, substantially to the effect that:
(i) the Other USMX Subsidiary has been duly incorporated and is existing under
the laws of its jurisdiction of incorporation;
(ii) the Other USMX Subsidiary has all necessary corporate capacity to own,
lease and operate their respective properties and assets and to conduct
their respective businesses at and in the places where such properties and
assets are now owned, leased or operated or such businesses are now
conducted;
(iii)the Other USMX Subsidiary has full and undisputed title to all of the
material mineral resource properties over which it is conducting or will
conduct surveying, exploration, testing or mining activities;
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<PAGE>
(iv) USMX is shown on the share register of each Other USMX Subsidiary as the
registered holder of all the issued and outstanding shares in the capital
of the Other USMX Subsidiary (with any modification necessary to reflect
the actual holdings of the Corporation); In giving the opinions
contemplated above, such counsel shall be entitled to rely, where
appropriate, as to matters of fact, upon certificates of fact of the
Corporation and USMX signed by officers of each such corporation in a
position to have knowledge of such facts and their accuracy, and
certificates of such public officials and other persons as are necessary or
desirable.
(y) comply fully with all relevant statutory and regulatory requirements
required by Amex to be complied with in connection with the Offering prior
to the earlier of the Qualification Deadline and the Merger Date;
(z) use its best efforts to receive prior to the earlier of the Qualification
Deadline and the Merger Date the approval of Amex to proceed with the
Offering, and to list the Shares issuable upon conversion of the Debentures
for trading on Amex, subject to the usual conditions;
(aa) provide to the Agents a certified copy of documents as to the
following matters prior to the earlier of the Qualification
Deadline and the Merger Date unless otherwise indicated below:
(i) materials respecting the meeting of shareholders of
the Corporation held to obtain the Shareholder
Approval and approval of the Merger, and the
resolutions of the shareholders of each of the
Corporation and USMX providing the Shareholder
Approval and approval of the Merger, as applicable,
and a certificate of the Transfer Agent as to such
approvals;
(ii) the loan documentation respecting the USMX Loan,
forthwith upon the execution of such documentation;
and
(iii) any agreement or documentation with the Lender
amending the terms of the credit arrangements between
the Lender and USMX, or waiver of any default
thereunder, or standstill agreement of the Lender, or
other arrangement between either or both of USMX and
the Corporation on the one hand and the Lender on the
other hand.
With respect to the covenants at (u), (v), (w), (y) (z), and
(aa) above, failure of the Corporation to fulfill such covenants or to deliver
such certificates shall entitle the Agents at their unfettered discretion to
refuse to sign the certificate of the Agents required by the Special Warrant
Indenture to be executed as a pre-condition for the release any of the Escrowed
Proceeds, and refuse to sign the certificate required to be executed by the
Agents in connection with the (final) Prospectus qualifying the Special Warrants
and the Subject Securities, as the Agents may see fit.
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<PAGE>
5. Conditions of Closing - The obligations of the Agents hereunder and the
Purchasers to complete the purchase of the Special Warrants contemplated hereby
shall be conditional upon the fulfillment at or before the Time of Closing (as
defined below) of the following conditions:
(a) the Corporation having obtained all requisite regulatory
approvals required to be obtained by the Corporation in
respect of the Offering on terms mutually acceptable to the
Corporation and the Agent acting reasonably;
(b) the Corporation and the Agents having complied fully with all
relevant statutory and regulatory requirements required to be
complied with prior to the Time of Closing (including without
limitation those of the TSE in connection with the Offering);
(c) the Corporation having received the approval of the TSE to
proceed with the Offering, and to list the Shares issuable
upon conversion of the Debentures for trading on the TSE,
subject to the usual conditions;
(d) the Corporation having taken all necessary corporate action to
authorize and approve this Agreement, the Subscription
Agreements, the Special Warrant Indenture, the Debenture
Indenture and the issuance of the Special Warrants, the
Subject Securities and all other matters relating thereto;
(e) the Agents having received at Closing a favorable legal opinion
of the Corporation' s United States counsel and of McCarthy,
Tetrault, Canadian counsel to the Corporation, addressed to the
Agents and to the Purchasers, acceptable in all reasonable
respects to counsel to the Agents, to the effect, in the case of
the Corporation's United States counsel, that no registration of
the Special Warrants, Debentures or Shares is required under the
United States Securities Act of 1933, as amended, and, in the
case of the Corporation's Canadian counsel in the form set forth
in Schedule "D" attached hereto, and with respect to such other
matters as the Agents may reasonably request in connection with
the Offering.
(f) the Agents having received at Closing a favorable legal
opinion of USMX's United States counsel, addressed to the
Agents and to the Purchasers, acceptable to counsel to the
Agents acting reasonably, with respect to USMX and to its
subsidiaries USMX of Utah, Inc. and Southern Gold Resources
Ltd. (the "USMX Subsidiaries") and such other matters as the
Agents may reasonably request in connection with the Offering
and the Merger, substantially to the effect that:
(i) USMX has been duly incorporated and is existing under the laws o
Delaware;
(ii) each USMX Subsidiary has been duly incorporated and is existing
under the laws of its jurisdiction of incorporation;
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(iii)USMX and each USMX Subsidiary have all necessary corporate
capacity to own, lease and operate their respective properties
and assets and to conduct their respective businesses at and in
the places where such properties and assets are now owned, leased
or operated or such businesses are now conducted;
(iv) the USMX Subsidiary has full and undisputed title to all of the
material mineral resource properties over which it is conducting
or will conduct surveying, exploration, testing or mining
activities;
(v) USMX is shown on the share register of each USMX Subsidiary as
the registered holder of all the issued and outstanding shares in
the capital of the USMX Subsidiary (with any modification
necessary to reflect the actual holdings of the Corporation);
(vi) the authorized capital of USMX consists of 65,000,000 shares,
divided into 45,000,000 Shares and 20,000 preferred shares of
which, as at the Closing Date, 16,184,182 Shares are issued and
outstanding (relying solely on a certificate of the Trustee);
(vii)the Merger Agreement and all documents or agreements relating
thereto (the "Agreements") have been duly authorized by all
necessary corporate action on the part of USMX, and will upon due
execution and delivery by and on behalf of USMX constitute legal,
valid and binding obligations of USMX enforceable in accordance
with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally, except that specific
performance and injunction are equitable remedies which may only
be granted in the discretion of a court of competent jurisdiction
and except as rights to indemnity, contribution and waiver of
contribution may be limited under applicable law; and
(viii) the execution and delivery of the Agreements, and the
fulfillment of the terms thereof, does not and will not conflict
with and does not and will not result in a breach of, any of the
terms, conditions or provisions of the constating documents of
USMX.
(g) the Agents having received at Closing favorable legal opinions of the
Corporation's local counsel with respect to each subsidiary of the
Corporation holding an interest in a material mining property of the
Corporation (each, a "Subsidiary") addressed to the Agents, and each of the
Purchasers, acceptable to counsel to the Agents, to the effect that:
(i) the Subsidiary is a corporation validly existing under the laws of its
jurisdiction of incorporation and is qualified to carry on business
and own its assets under the laws of each jurisdiction in which it
carries on business and owns its assets;
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<PAGE>
(ii) the Subsidiary has all requisite corporate capacity, power and
authority to carry on its business as is now conducted by it and to
own its assets;
(iii)the registered holder of 100% of the issued and outstanding shares in
the capital of the Subsidiary is the Corporation, adjusted to reflect
actual ownership, as necessary; and
(iv) the Subsidiary has full and undisputed title to all of the mineral
resource properties over which it is conducting or will conduct
surveying, exploration, testing or mining activities. In giving the
opinions contemplated in (e), (f) and (g), above, counsel to the
Corporation and to USMX shall be entitled to rely, where appropriate,
as to matters of fact, upon the representations and warranties of
Purchasers contained in the executed Subscription Agreements, a
certificate of fact of the Corporation or USMX, where applicable,
signed by officers in a position to have knowledge of such facts and
their accuracy, a certificate from the Corporation's registrar and
transfer agent with respect to the number of Shares issued and
outstanding and certificates of such public officials and other
persons as are necessary or desirable.
(h) the Agents and each of the Purchasers having received a certificate of the
Corporation dated the Closing Date signed by the Chief Executive Officer of
the Corporation and the Chief Financial Officer of the Corporation or by
such other executive officers acceptable to the Agents certifying as to
certain matters reasonably requested by the Agents including certification
that:
(i) the Corporation has complied with all covenants and satisfied all
terms and conditions of this Agreement on its part to be complied with
and satisfied up to the Time of Closing;
(ii) since September 30, 1996, there has been no material adverse change
(actual, proposed or prospective, whether financial or otherwise) in
the business, affairs, operations, assets, liabilities (contingent or
otherwise) or capital of the Corporation and its subsidiaries taken as
a whole, except a disclosed in the Public Record;
(iii)no order, ruling or determination having the effect of ceasing or
suspending trading in any securities of the Corporation (including the
Special Warrants and the Subject Securities) has been issued and no
proceedings for such purposes, or, to the knowledge of such officers,
are pending, contemplated or threatened;
(iv) the Corporation is a "reporting issuer" not in default under the
securities laws of each of the provinces in which it is a reporting
issuer and no material change relating to the Corporation has occurred
with respect to which the requisite material change statement has not
been filed, unless
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<PAGE>
the Offering contemplated hereby constitutes a material change, and
currently no disclosure of any material change has been made on a
confidential basis; and
(v) the execution and delivery of this Agreement, the Subscription
Agreements and the Special Warrant Indenture, the Debenture Indenture,
and the performance of the transactions contemplated thereby do not
and will not result in a breach of, and do not create a state of facts
which, after notice, or lapse of time or both, will result in a breach
of, and do not and will not conflict with, any of the terms,
conditions or provisions of the constating documents or by-laws of the
Corporation or any trust indenture, agreement, or instrument to which
the Corporation is contractually bound on the Closing Date (as defined
below);
(i) the Agents and each of the Purchasers having received a
certificate of USMX dated the Closing Date signed by the Chief
Executive Officer of USMX and the Chief Financial Officer of USMX
or by such other executive officers acceptable to the Agents
certifying as to certain matters reasonably requested by the
Agents including certification that:
(i) USMX has complied with all covenants and satisfied all terms and
conditions of the Merger Agreement on its part to be complied
with and satisfied up to the Time of Closing (as defined below)
to the extent that such covenants, terms and conditions could be
satisfied as at the Closing Date using the best efforts of USMX;
and
(ii) all of the representations and warranties of USMX contained in
the Merger Agreement are true and correct as of the Closing Date
with the same force and effect as if made at and as of the Merger
Date, after giving effect to the transactions contemplated
thereby;
(iii)since November 1, 1996, there has been no material adverse change
(actual, proposed or prospective, whether financial or otherwise)
in the business, affairs, operations, assets, liabilities
(contingent or otherwise) or capital of the USMX and its
subsidiaries taken as a whole;
(iv) no order, ruling or determination having the effect of ceasing or
suspending trading in any securities of USMX has been issued and
no proceedings for such purposes are pending, or, to the
knowledge of such officers, pending, contemplated or threatened;
(v) USMX is a "reporting issuer" not in default under the securities
laws of each of the jurisdictions in which it is a reporting
issuer and no material change relating to USMX has occurred with
respect to which the requisite material change statement or its
equivalent has not been filed unless the Offering contemplated
hereby or the Merger constitutes a material change
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<PAGE>
and currently no disclosure of any material change has been made on a
confidential basis; and
(vi) the execution and delivery of the Merger Agreement, and the
performance of the transactions contemplated thereby will not
result in a breach of, and will not create a state of facts
which, after notice, or lapse of time or both, will result in a
breach of, and do not and will not conflict with, any of the
terms, conditions or provisions of the constating documents or
by-laws of USMX or any trust indenture, agreement, or instrument
to which USMX is contractually bound on the Closing Date;
(j) the Corporation shall have delivered to the Agents a certificate of the
Warrant Agent as registrar and transfer agent which certifies the issued
and outstanding Shares s at the Closing Date (as hereinafter defined);
(k) the Special Warrant Indenture and the Debenture Indenture, each in form
acceptable to the Agents, shall have been executed and delivered by the
Corporation and the Warrant Agent for the holders of the Special Warrants;
(l) the Corporation shall have delivered opinions of local counsel for the
Corporation pertaining to the material mineral properties owned or held by
the Corporation directly or indirectly and with respect to such additional
properties of the Company as the Agents may reasonably request;
(m) the Corporation shall have delivered opinions of local counsel for USMX
pertaining to the material mineral properties owned or held by USMX
directly or indirectly and with respect to such additional properties of
the Company as the Agents may reasonably request
(n) the Agents being satisfied as to the reasonable likelihood that the
Shareholder Approval shall be obtained prior to the Shareholder
Qualification Deadline; and
(o) the Agents shall be satisfied in their sole discretion with such due
diligence of the Corporation as the Agent or their representatives deem
appropriate.
6. Closing - The purchase and sale of the Special Warrants (the "Closing") shall
be completed at the offices of McCarthy, Tetrault, Suite 4700, Toronto-Dominion
Tower, Toronto-Dominion Centre, Toronto, Ontario M5K 1E6, at 10:00 a.m. (Toronto
time) (the "Time of Closing") on February 5, 1997 or at such other time or on
such other date prior to February 21, 1997 as the Corporation and the Agents may
agree upon (the "Closing Date").
At or before the Time of Closing, the Corporation shall
deliver to the Agent:
(a) certificates representing the Special Warrants duly registered as the
Purchasers may direct;
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<PAGE>
(b) the requisite legal opinions and certificates as contemplated in section 5
hereof; and
(c) such further documentation as may be contemplated herein or as counsel to
the Agents or the applicable regulatory authorities may reasonably require;
against delivery by the Agents to the Corporation or the Warrant Agent, as
applicable, of certified cheques or bank drafts payable to the Corporation
in an aggregate amount of Cdn.$25 million representing Cdn.$1,000 per
Special Warrant (subject to deduction of the Agents' Commission as noted
herein). The Corporation further agrees that it shall provide to the Agents
at such addresses as they may specify including Toronto, Ontario
certificates representing the Special Warrants sufficiently in advance of
the Closing, to be held in escrow by the Agents pending the Closing, in
order to allow the Agents to effect proper delivery thereof to the
Purchasers at the Time of Closing.
7. Expenses - Whether or not Closing occurs, the Corporation shall pay all
costs, fees and expenses of or incidental to the performance of the obligations
under this Agreement including, without limitation: (i) the cost of qualifying
the Subject Securities for distribution in the Qualifying Provinces, (ii) the
cost of printing the Preliminary Prospectus, the Prospectus, an Supplementary
Material and certificates for the Special Warrants and the Subject Securities,
(iii) registration, countersignature and delivery of the Special Warrants and
Subject Securities, (iv) the tees and expenses of the Corporation's auditors,
counsel and any local counsel, (v) the fees and expenses of the Agents' counsel
(to a maximum, exclusive of disbursements and GST of Canadian 575,000) and (vi)
the Agents' reasonable out-of-pocket expenses (including marketing expenses).
Such amounts payable to the Agents shall be paid by the Corporation at the Time
of Closing to the Agents in respect of expenses and fees incurred to such date
and supported by invoices and as and when invoices are rendered in respect of
expenses and fees incurred after the Time of Closing.
8. Material Changes - If after the date hereof until the Expiry Time:
(a) there occurs any material change or material changes (actual, proposed
or prospective) in respect of the Corporation or any of its
subsidiaries;
(b) there occurs any change in any material fact contained in the
Preliminary Prospectus, Prospectus or any Supplementary Material; or
(c) any new material fact arises which would, under the securities
legislation of any of the Qualifying Provinces, require an amendment
to the Preliminary Prospectus, Prospectus or any Supplementary
Material, the Corporation shall:
(i) promptly notify the Agents, in writing, providing full
particulars of any such change;
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(ii) if required by applicable law, prepare and deliver to each
Purchaser an amendment to the Preliminary Prospectus or
Prospectus, as the case may be;
(iii)file or cause to be filed with reasonable promptness, and in any
event within any statutory limitation period therefor, any
document required to be filed with any regulatory body having
jurisdiction and comply with all requirements of any applicable
securities legislation of such jurisdiction; and
(iv) comply with all legal requirements necessary to continue to
qualify the Subject Securities for distribution in the Qualifying
Provinces.
The Corporation shall in good faith discuss with the Agents
any change in circumstances (actual, proposed or prospective) in respect of
which there is reasonable doubt whether written notice should be given to the
Agents pursuant to this section and shall consult with the Agent with respect to
the form and content of any Supplementary Material proposed to be issued or
filed by the Corporation as a result of such change prior to the issuance or
filing thereof.
In this Agreement, the terms "material change", "material
fact", "misrepresentation" and "distribution" include the respective meanings
ascribed thereto in the Securities Act (Ontario).
9. Indemnities - In addition to any other indemnities given to the Agents by the
Corporation, the Corporation hereby covenants and agrees to protect, indemnify
and hold harmless each of the Agents and their respective directors, officers
and employees, solicitors and agents (individually, an "Indemnified Party" and,
collectively, the "Indemnified Parties" from and against all losses (except for
loss of profits), claims, costs, damages or liabilities which they may suffer or
incur caused by or arising directly or indirectly by reason of:
(i) any information or statement (except any information or statement
relating solely to or provided by the Agents) contained in the
Preliminary Prospectus, Prospectus or any Supplementary Material
being or being alleged to be a misrepresentation;
(ii) the omission to state in the Preliminary Prospectus, Prospectus
or any Supplementary Material a material fact required to be
stated therein or necessary to make the statements therein not
misleading (except the omission to state a material fact relating
solely to the Agent);
(iii)the Corporation not complying with any requirement of any
securities legislation or regulatory requirements of any
Qualifying Province in connection with the Offering or the
Prospectus Qualification;
(iv) any order made or any inquiry, investigation or proceeding
commenced or threatened by any regulatory authority based upon an
allegation that
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<PAGE>
any untrue statement or alleged omission or any misrepresentation or
alleged misrepresentation in the Preliminary Prospectus, the
Prospectus or any Supplementary Material exists (except any
information or statement relating solely to or provided by the
Agents) which prevents or restricts the trading in or
distribution of the Special Warrants or the Subject Securities;
or
(v) The Corporation's failure to comply with any of its obligations
hereunder.
If any action or claim shall be asserted against an
Indemnified Party in respect of which indemnity may be sought from the
Corporation pursuant to the provisions hereof, or if any potential claim
contemplated by this section shall come to the knowledge of an Indemnified
Party, the Indemnified Party shall promptly notify the Corporation in writing of
the nature of such action or claim (provided that any failure to so notify shall
not affect the Corporation's liability under this paragraph unless such delay
has prejudiced the defense to such claim). The Corporation shall be entitled but
not obliged to participate in or assume the defense thereof, provided, however
that the defense shall be through legal counsel acceptable to the Indemnified
Party, acting reasonably. In addition, the Indemnified Party shall also have the
right to employ separate counsel in any such action and participate in the
defense thereof, and the fees and expense of such counsel shall be borne by the
Indemnified Party, unless (i) the employment thereof has been specifically
authorized in writing by the Corporation; (ii) the Indemnified Party has been
advised by counsel acceptable to the Corporation, acting reasonably, that
representation of the Corporation and the Indemnified Party by the same counsel
would be inappropriate due to actual or potential differing interests between
them; or (iii) the Corporation has failed within a reasonable time after receipt
of such written notice to assume the defense of such action or claim. It is
understood and agreed that the Corporation shall not, in connection with any
suit in the same jurisdiction, be liable for the legal fees and expenses of more
than one separate legal firm to represent the Indemnified Parties. Neither party
shall effect any settlement of any such action or claim or make any admission of
liability without the written consent of the other party, such consent not to be
unreasonably withheld or delayed. The indemnity hereby provided for shall remain
in full force and effect and shall not be limited to or affected by any other
indemnity in respect of any matters specified in this section obtained by the
Indemnified Party from any other person.
To the extent that any Indemnified Party is not a party to
this Agreement the Agents shall obtain and hold the right and benefit of this
section in trust for and on behalf of such Indemnified Party.
The Corporation hereby waives its right to recover
contribution from the Agents with respect to any liability of the Corporation by
reason of or arising out of any misrepresentation contained in the Preliminary
Prospectus, the Prospectus or in any Supplementary Material; provided, however,
that such waiver shall not apply in respect of liability caused or incurred by
reason of or arising out of any misrepresentation which is based upon or results
from information relating solely to and provided by the Agents contained in such
document.
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<PAGE>
The Corporation hereby consents to personal jurisdiction and
service and venue in any court in which any claim which is subject to
indemnification hereunder is brought against the Agents or any Indemnified Party
and to the assignment of the benefit of this section to any Indemnified Party
for the purpose of enforcement provided that nothing herein shall limit the
Corporation's right or ability to contest the appropriate jurisdiction or forum
for the determination of any such claims.
10. Contribution - In the event that, for any reason, the indemnity provided for
in section 9 hereof is illegal or unenforceable, the Agents and the Corporation
shall contribute to the aggregate of all losses, claims, costs, damages,
expenses or liabilities (except loss of profits in connection with the sale of
Special Warrants) of the nature provided for in section 9 hereof such that the
Agents shall be responsible for that portion represented by the percentage that
the Agents' Commission bears to the gross proceeds from the Offering and the
Corporation shall be responsible for the balance. The Agents shall not in any
event be liable to contribute, in the aggregate, any amounts in excess of the
Agents' Commission or any portion thereof actually received. Notwithstanding the
foregoing, a person guilty of fraudulent misrepresentation shall not be entitled
to contribution from any other party. Any party entitled to contribution will,
promptly after receiving notice of commencement of any claim, action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this section, notify such party
or parties from whom contribution may be sought. In no case shall such party
from whom contribution may be sought be liable under this contribution agreement
unless such notice shall have been provided, but the omission to so notify such
party shall not relieve the party from whom contribution may be sought from any
other obligation it may have otherwise than under this section. The right to
contribution provided in this section shall be in addition and not in derogation
of any other right to contribution which the Agents may have by statute or
otherwise by law.
11. Termination Rights - If any time prior to the Closing:
(i) there shall occur or come into effect any event, condition or
circumstance which, in the sole opinion of the Agents,
constitutes a material change, financial or otherwise in the
business, affairs or condition of the Corporation or its
subsidiaries, taken as a whole, or there arises or there is
disclosure of a material fact or a change in a material fact
which in the sole opinion of the Agent might be expected to
prevent or restrict the Offering or Prospectus Qualification; or
(ii) any order or ruling is issued, any inquiry, investigation or
other proceeding (whether formal or informal) in relation to the
Corporation is made, threatened or announced by any officer or
official of any stock exchange, securities commission or other
regulatory authority, or any law or regulation is promulgated or
changed which, in the Agent' sole opinion, would or could operate
to prevent or restrict trading in or the distribution of the
Special Warrants or Subject Securities or would or could
materially and adversely affect the marketability or sale of the
Special Warrants or Subject Securities as contemplated hereby; or
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<PAGE>
(iii)the Agents should determine in their sole opinion that the
Special Warrants or Subject Securities cannot be profitably
marketed or sold; or
(iv) there should develop, occur or come into effect any occurrence,
catastrophe, crisis or accident of national or international
consequence or any other event, action, governmental regulation,
inquiry or other occurrence of any nature whatsoever including
any outbreak of war, rebellion or armed hostilities which, in the
sole opinion of the Agents, would or could materially and
adversely affect the marketability or sale of the Special
Warrants or Subject Securities, the financial markets in Canada
or elsewhere where the Special Warrants are marketed or proposed
to be marketed or the business of the Corporation or its
subsidiaries; the determination of the occurrence of any of such
events may be made by any Agent, and shall entitle that Agent to
terminate the obligations of that Agent hereunder. In the event
that such termination should occur by any Agent, the other Agents
may, but are not obligated to, fulfill the obligations of that
Agent hereunder. In the event of such termination by the Agents,
there shall be no further liability of the Corporation or the
Agents to one another hereunder, except in respect of any
liability which may have arisen or may thereafter arise pursuant
to sections 7, 9 or 10.
The right of the Agents to terminate their obligations under
this Agreement is in addition to such other remedies as they may have in respect
of any default, act or failure to act of the Corporation in respect of any of
the matters contemplated by this Agreement.
12. Breach of Agreement - Any breach of, or failure by the Corporation to comply
with, any term or condition of this Agreement shall entitle the Agents, on
behalf of the Purchasers, of the Special Warrants, to terminate its obligations
to sell the Special Warrants by notice to that effect given to the Corporation
prior to the Time of Closing. In the event of any such termination, there shall
be no further liability on the part of the Corporation or the Agents except in
respect of any liability which may have arisen or may thereafter arise under
sections 7, 9 or 10 hereof. The Agents may waive, in whole or in part, or extend
the time for compliance with, any terms and conditions without prejudice to its
rights in respect of any other terms and conditions or any other or subsequent
breach or non-compliance provided, however, that any waiver or extension must be
in writing and signed by the Agents in order to be binding upon them.
13. Obligations of the Agents - The Agents' obligation to offer the Special
Warrants for sale shall be several and not joint and each of the Agents shall
offer for sale the percentage of Special Warrants set forth opposite its name
below, namely:
Canaccord Capital Corporation 40%
ScotiaMcLeod Inc. 30%
Newcrest Capital Inc. 30%
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<PAGE>
In the event that one of the Agents shall fail to arrange for
purchasers, at the Closing, up to its applicable percentage of Special Warrants,
the other Agents shall have the right, but shall not be obligated, to offer for
sale all of the percentage of the Special Warrants which would otherwise have
been offered for sale by that Agent who fails to meet its allotted percentage.
In the event that such right is not exercised, the other Agents, if not in
default hereunder, shall be relieved of all obligations to the Corporation
Nothing in this paragraph shall oblige the Corporation to sell to the Purchasers
less than all of the Special Warrants subscribed for or relieve from liability
to the Corporation any Purchaser which shall be so in default. In the event of a
termination by the Corporation of its obligations under this Agreement, there
shall be no further liability on the part of the Corporation to the Agents
except in respect of any liability which may have arisen or may thereafter arise
pursuant to Sections 7, 9 or 10.
ScotiaMcLeod Inc. and Newcrest Capital Inc. irrevocably
appoint Canaccord Capital Corporation as their agent to: (i) grant any consents
to be granted, make any determinations to be made and exercise any discretion to
be exercised by the Agents pursuant hereto, excluding the rights of termination
contained in sections 11 and 12; (ii) settle the contents of any term sheet used
by the Agents and relating to the Special Warrants and the contents of the
Preliminary Prospectus and the Prospectus; and (iii) negotiate and settle the
final terms of the Special Warrant Indenture and the Debenture Indenture.
Canaccord Capital Corporation shall consult with the other Agents in making any
determination or settlement or in respect of any negotiation relating to the
foregoing and shall use its reasonable best efforts to act in the best interests
of all the Agents and use its reasonable best efforts to discuss the actions
Canaccord Capital Corporation proposes to take under this subsection with the
other Agents.
14. Notices - Any notice under this Agreement shall be given in writing and
either delivered or telecopied to the party to receive such notice at the
address or telecopy numbers indicated below:
to the Corporation:
Dakota Mining Corporation
410 Seventeenth Street .
Suite 2450
Denver, Colorado 80202
Attention: Mr. Alan R. Bell
President & Chief Executive Officer
Fax: (303) 573-1012
with a copy to:
McCarthy Tetrault
Barristers and Solicitors
P.O. Box 10424, Pacific Centre
1300 - 777 Dunsmuir Street
Vancouver, British Columbia V7Y 1K2
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<PAGE>
Attention: Mr. Richard Balfour
Fax: (604) 643-7900
to the Agents or any Indemnified Party:
Canaccord Capital Corporation
Suite 1210
320 Bay Street
Toronto, Ontario M5H 4A6
Attention: Matthew Gaasenbeek
Fax: (416) 869-7356
with a copy to:
Cassels Brock & Blackwell
Barristers and Solicitors
Scotia Plaza
Suite 2100
40 King Street West
Toronto, Ontario M5H 3C2
Attention: Mr. Peter Marrone
Fax: (416) 360-8877
or such other address or telecopy number as such party may hereafter designate
by notice in writing to the other party. If a notice is delivered, it shall be
effective from the date of delivery; if such notice is telecopied (with receipt
confirmed), it shall be effective on the Business Day following the date such
notice is telecopied.
15. Survival - All representations, warranties, and agreements of the
Corporation contained herein or contained in any document submitted pursuant to
this Agreement or in connection with the purchase of the Special Warrants shall
survive the purchase of the Special Warrants by the Purchasers and shall
continue in full force and effect unaffected by any subsequent disposition or
conversion of the Special Warrants and the Subject Securities, for a period of
seven years from the Closing Date, and the Agents shall not be limited or
prejudiced by any investigation made by or on behalf of the Agents in the course
of the preparation of the Preliminary Prospectus, the Prospectus or any
Supplementary Material or the distribution of the Special Warrants or the
Subject Securities.
16. Entire Agreement - The provisions herein contained constitute the entire
agreement between the parties hereto and supersede all previous communications,
representations, understandings and agreements between the parties with respect
to the subject
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<PAGE>
matter hereof, whether verbal or written, including without limitation the
engagement letter between the Corporation and the Agent dated and accepted by
the Corporation on December 16, 1996.
17. Counterparts - The execution of this Agreement may be executed in any number
of counterparts all of which when taken together shall be deemed to be one and
the same document and not withstanding their actual date of execution shall be
deemed to be dated as of the date first above written.
18. General - The Agreement shall be governed by and interpreted in accordance
with the laws of Ontario and the laws of Canada applicable therein and time
shall be of the essence hereof.
If the above is in accordance with your understanding, please
sign and return to the Agent a copy of this letter, whereupon this letter and
your acceptance shall constitute a binding agreement between the Corporation and
the Agent.
CANACCORD CAPITAL CORPORATION SCOTIAMcLEOD INC.
Per: Per:
NEWCREST CAPITAL INC.
Per:
The above offer is hereby accepted and agreed to as of the date first above
written.
DAKOTA MINING CORPORATION
Per:
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<PAGE>
SCHEDULE "A"
DAKOTA MINING CORPORATION
PRIVATE PLACEMENT OF SPECIAL WARRANTS
CONVERTIBLE DEBENTURES
TERM SHEET
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<PAGE>
SCHEDULE "A"
DAKOTA MINING CORPORATION
PRIVATE PLACEMENT OF SPECIAL WARRANTS
CONVERTIBLE DEBENTURES
INDICATIVE TERM SHEET
Issuer: Dakota Mining Corporation ("Dakota")
Lead Agent: Canaccord Capital Corporation (together with other
agents, if any, the "Agents")
Offering: Up to 25,000 special warrants. Each special
warrant is exercisable into Cdn.$1,000 principal
amount 7.5% unsecured subordinated convertible
debenture (collectively, the "Debentures"). The
special warrants are being offered pursuant to
available private placement exemptions in Canada
and to institutional accredited investors under
section 4(2) of the United States Securities Act
of 1933 to U.S. Persons.
Amount: Cdn.$20 million (minimum) and Cdn.$25 million
(maximum)
Minimum Purchase: Cdn.$150,000
Issue Price: Cdn.$1,000.00 per Special Warrant
Maturity of Debentures: 7 years (January 31, 2004)
Settlement/Closing: January 31, 1997
Interest Payment: Interest will be payable on
the Debentures semi-annually on June
30 and December 31, with the first
payment for accrued interest on and
from the issue date of the Special
Warrants being June 30, 1997.
Accrued interest payableafter
December 31, 2003 shall be paid on
maturity on January 31, 2004.
Early Redemption: The Debentures will not be redeemable prior to
January 29, 2001. Thereafter, the Debentures
will be redeemable at 100% of their principal
amount if the weighted average trading price of
the common shares is 125% of the conversion price
for the 20 consecutive trading days ending
five days preceding the date on which the notice
of redemption is given.
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<PAGE>
Conversion Period: January 31, 1997 until maturity or redemption at
the option of the holder.
Conversion Price: Cdn.$2.00 (subject to standard anti-dilution and
similar adjustments) .
Conversion Ratio: 500 common shares (subject to standard
anti-dilution and similar adjustments).
Repayment: On maturity or redemption, the
Company will have the option,
subject to prior notice, to repay
the principal amount of the
Debentures in cash or common shares
of the Company at a price equal to
95% of the weighted average trading
price for 20 consecutive trading
days prior to the maturity date or
the redemption date.
In the event that the weighted
average trading price of the
Company's common shares for the 20
consecutive trading day period
preceding the fifth trading day
prior to the maturity date or
redemption date, as the case may be,
is less than Cdn.$2.00 per share,
the Company will have the option, to
repay the principal amount of the
Debentures in common shares at a
price which is the lesser of (i) 95%
of the weighted average trading
price for the 20 consecutive trading
days prior to the maturity date or
the redemption date; and (ii) the
price of the common shares on the
maturity date or the redemption
date.
Greenshoe: Up to 15% of the issue exercisable for five
business days after the closing.
Escrow: The amount of U.S.$5,000,000 of the net proceeds
(after deducting the commission payable to the
Agents on closing)will be released to the Company
on closing. The balance of the net proceeds will
be escrowed on closing subject to the
completion of the proposed merger (the "Merger")
and shareholder approval (the "Shareholder
Approval") to the issue. The escrowed proceeds
shall not be released to the Company unless and
until the Shareholder Approval is obtained and the
Merger occurs on terms described in the
Merger Agreement and otherwise acceptable to
Canaccord, acting reasonably.
Merger: The Merger involves the business combination of
Dakota and USMX Inc. ("USMX") on the basis of 1.1
shares of USMX for every one share of Dakota
(references to the
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<PAGE>
"Company" herein mean Dakota or the company
resulting from the Merger as the context
requires).
Use of Proceeds: The use of proceeds are expected to be as follows
(subject to adjustment to accommodate the Merger).
US$'s CDN$'s
(millions = mm)
USMX
(i) Operations $ 8mm $10.80mm
(ii) Working capital $ 5mm $ 6.75mm
(iii) Feasibility $ 1mm $ 1.35mm
(iv) Exploration $ 3mm $ 4.05mm
$17mm $22.95mm
Take-Over Bid Protection 1. If there is a take-over bid for the
Provisions Applying to Company at any time within three
Special Warrants and years of the issuance of the Special
Debentures: Warrants for consideration on a per
share basis equal to or greater than
Cdn.$1.85, then if the holder of a
Debenture elects to convert into
Common Shares, the conversion price
for the convertible debentures
issuable upon the exercise of the
Special Warrants held by such
Debentureholders shall be adjusted
to be the result obtained when
adding Cdn.$1.85 to the interest
(expressed on a per share basis)
earned on the Debentures to the date
of the take-up and pay under the
take-over bid, subject to a maximum
conversion price of Cdn.$2.00 per
share.
2. For these purposes, "take-over bid" means an offer to
acquire outstanding common shares made to a person or
company where the shares subject to the offer to
acquire, together with the offeror's shares, constitute
in the aggregate 20% or more of the outstanding common
shares on the date of the offer to acquire (other than
a take-overbid that is exempted pursuant to the
requirements of applicable Canadian securities laws).
Holder's Approvals: The approval of the Debentureholders shall be required
for the sale of all or substantially all of the assets
of the Company and for certain other corporate matters.
Commission: 6% commission payable on closing
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<PAGE>
SCHEDULE "B"
United States Offers and Sales
1. The Special Warrants, the Debentures issuable upon exercise of the Special
Warrants and the Shares issuable upon conversion of the Debentures (the
"Securities") have not been and will not be registered under the U.S.
Securities Act of 1933, as amended (the "1933 Act") and may not be offered
or sold within the United States or to, or for the account or benefit of,
U.S. persons except in transactions exempt from the registration
requirements of the 1933 Act. Neither the Agents, their U.S. broker-dealer
affiliates (nor any selling group member) have engaged or will engage in
any directed selling efforts in the United States (as defined in Rule 902
of Regulation S under the 1933 Act) with respect to the securities, and the
Agent has complied and will comply with the offering restriction
requirements of Rule 903 of Regulation S.
2. The Agents, through their registered U.S. broker-dealer affiliates, may
sell the Securities in the United States to institutional accredited
investors in transactions not involving any public offering in the United
States. In that regard, they represent and warrant to the Corporation that:
(a) neither the Agents nor their U.S. broker-dealer affiliates have
utilized any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Securities Act) or have
offered to sell any of the securities in any manner involving a public
offering within the meaning of Section 4(2) of the U.S. Securities
Act;
(b) each offeree was provided with a copy of the U.S. Subscription
Agreement, and no other written material was used in connection with
the offer and sale of the Special Warrants in the United States;
(c) it reasonably believed that each such offeree was an institutional
"accredited investor", as such term is defined in Rule 501(a)(1), (2),
(3) or (7) under the 1933 Act.
3. The Agents represent and warrant that prior to any sales of the Securities
in the United States, they obtained from each U.S. purchaser
representations and warranties to and agreement in writing with the
Corporation that such U.S. Purchaser:
(a) is authorized to consummate the purchase of the Securities;
(b) understands that the Securities have not and will not be
registered under the 1933 Act and that the sale contemplated
hereby is being made in reliance on a private placement exemption
to institutional accredited investors;
(c) is an institutional "accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) (an 'Institutional Accredited
Investor") under the 1933 Act and has such knowledge,
sophistication and experience in business and financial matters
that
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<PAGE>
such Purchaser is capable of evaluating the merits and risks of the
prospective investment;
(d) is purchasing the Securities in a minimum amount of the greater
of Cdn.$375,000 and U.S.$250,000 for its own account (or for
accounts as to which it exercises sole investment management
discretion and has authority to make the statements contained in
such letter, and each such account is purchasing Securities
having such aggregate purchase price), and not with a view to any
resale, distribution or other disposition of the Securities in
any transaction that would be in violation of the securities laws
of the United States or any state thereof;
(e) has received a copy, for its information only, of the U.S.
Subscription Agreement for the Securities relating to the
offering in the United States of the Securities and has been
afforded the opportunity to obtain such additional information as
it deems necessary;
(f) has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of
its investment in the Securities and it is able to bear the
economic risks of such investment;
(g) acknowledges that it has not purchased the Securities as a result
of any form of general solicitation or general advertising,
including advertisements, articles, notices or other
communications published in any newspaper, magazine or similar
media or broadcast over radio or television or any seminar or
meeting whose attendees have been invited by general solicitation
or general advertising (as those terms are used in Rule 502(c)
under the 1933 Act);
(h) agrees that it may offer, sell or otherwise transfer such
Securities (other than pursuant to an effective registration
statement under the 1933 Act) only if:
(i) the sale is to the Corporation; or
(ii) (A) a purchaser's letter containing representations,
warranties and agreements substantially similar to those
contained in this schedule (except that such purchaser' s
letter need not contain the representation set forth in
paragraph (d) above), and satisfactory to the Corporation,
is executed by the purchaser and delivered to the
Corporation prior to the sale; and
(B) all offers or solicitations in connection with the sale
are arranged and conducted solely by the Corporation;
(iii)the sale is made outside the United States in accordance
with the requirements of Rule 904 of Regulation S under the
1933 Act; or
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<PAGE>
(iv) the sale is made pursuant to the exemption from registration
under the 1933 Act provided by Rule 144 thereunder and in
accordance with any applicable state securities or"Blue Sky"
laws; or
(v) the Securities are sold in a transaction that does not
require registration under the 1933 Act or any applicable
United States state laws and regulations governing the offer
and sale of securities, and we have furnished to the
Corporation an opinion of counsel, reasonably satisfactory
to the Corporation, to that effect;
(i) it understands and acknowledges that upon original issuance
of the Securities and for such time as is required under
applicable requirements of the 1933 Act or applicable state
securities laws, the certificates representing the Special
Warrants, and all certificates issued in exchange therefor
or in substitution thereof, shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF, BY
PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE
ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER, (B) OUTSIDE
THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION
S UNDER THE 1933 ACT, (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE 1933 ACT PROVIDED BY RULE 144
THEREUNDER, IF AVAILABLE, AND THE COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS OR (D) IN COMPLIANCE WITH CERTAIN
OTHER PROCEDURES SATISFACTORY TO THE COMPANY.
and that all certificates representing Securities (and all
certificates issued in exchange thereof or in substitution
thereof) issuable upon exercise of the Securities so legended
will bear the same legend and will bear the following
additional legend:
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD
DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE
TORONTO STOCK EXCHANGE. A NEW CERTIFICATE, BEARING NO
LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD
DELIVERY", MAY BE OBTAINED FROM THE TRANSFER AGENT
UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO THE TRANSFER
AGENT AND THE COMPANY, TO THE EFFECT THAT THE SALE OF
THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN
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<PAGE>
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE
1933 ACT.
provided, however, that if the Securities are being sold under
paragraph (h)(iii) above, the legend may be removed by
providing a declaration to the Montreal Trust Company of
Canada (the 'Transfer Agent") as transfer agent for the
Securities to the following effect:
The undersigned (A) acknowledges that the sale of the
securities to which this declaration relates is being
made in reliance on Rule 904 of Regulation S under
the United States Securities Act of 1933, as amended
(the '1933 Act") and (B) certifies that (1) it is not
an affiliate (as defined in Rule 405 under the 1933
Act) of Dakota Mining Corporation, (2) the offer of
such securities was not made to a person in the
United States and either (A) at the time the buy
order was originated, the buyer was outside the
United States, or the seller and any person acting on
its behalf reasonably believe that the buyer was
outside the United States, or (B) the transaction was
executed on or through the facilities of The Toronto
Stock Exchange the Montreal Exchange. the Vancouver
Stock Exchange or the Alberta Stock Exchange and
neither the seller nor any affiliate of the seller
nor any person acting on any of their behalf has
engaged or will engage in any directed selling
efforts in the United States in connection with the
offer and sale of such securities, (4) the sale is
bona fide and not for the purpose of 'washing off'
the resale restrictions imposed because the
securities are "restricted securities" (as such term
is defined in Rule 144(a)(3) under the 1933 Act), (5)
the seller does not intend to replace the securities
and (6) the contemplated sale is not a transaction,
or part of a series of transactions which, although
in technical compliance with Regulation S, is part of
a plan or scheme to evade the registration provisions
of the 1933 Act. Terms used herein have the meanings
given to them by Regulations S.
(j) consents to the Corporation making a notation on its records
or giving instructions to the Transfer Agent of the securities
in order to implement the restrictions on transfer set forth
and described herein.
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SCHEDULE "B"
TO: Dakota Mining Corporation
410 Seventeenth Street
Denver, CO
80202
Dear Sirs:
In connection with our purchase of Special Warrants, and the Debentures (the
"Securities") of Dakota Mining Corporation (the "Company"), we confirm to
you that:
(a) we are authorized to consummate the purchase of the Securities, and
the Subscription Agreement constitutes a legal, valid and binding
obligation enforceable against us in accordance with its terms;
(b) we are an institutional "accredited investor" ( an "Institutional
Accredited Investor") within the meaning of Rule 501(a)(1), (2), (3)
or (7) under the United States Securities Act of 1933, as amended (the
"1933 Act") and are acquiring the Securities for our own account or
for the account or benefit of an Institutional Accredited Investor as
to which we exercise sole investment discretion, and not with a view
to any resale, distribution or other disposition of the Securities in
violation of the United States securities laws;
(c) we understand that the Securities have not been and will not be
registered under the 1933 or any applicable state securities laws and
that the sale contemplated hereby is being made in reliance on a
private placement exemption to accredited investors under the 1933 Act
and exemptions from registration under applicable state securities
laws;
(d) we have such knowledge, sophistication and experience in business and
financial matters that we are capable of evaluating the merits and
risks of the prospective investment and are able to bear the economic
risk of such investment;
(e) we are purchasing the Securities having an aggregate purchase price of
at least US$250,000 for our own account (or for accounts as to which
we exercise investment management discretion and have authority to
make the statements contained in this letter);
(f) we acknowledge that we have not purchased the Securities as a result
of any general solicitation or general advertising, including
advertisements, articles, notices or other communications published in
any newspaper, magazine or similar media or broadcast over radio or
television, or any seminar or meeting whose attendees have been
invited by general solicitation or general advertising;
(g) we agree that we may offer, sell or otherwise transfer such Securities
(other than pursuant to an effective registration statement under the
1933 Act) only if:
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(i) the sale is to the Company; or
(ii) the sale is made outside the United States in accordance with the
requirements of Rule 904 of Regulation S under the 1933 Act; or
(iii)the sale is made pursuant to the exemption from registration
under the 1933 Act provided by Rule 144 thereunder and in
accordance with applicable state securities laws; or
(iv) the securities are sold in a transaction that does not require
registration under the 1933 Act or any applicable United States
state laws and regulations governing the offer and sale of
securities, and we have furnished to the Company an opinion of
counsel, reasonably satisfactory to the Company, to that effect;
provided that, in the case of sales in accordance with (iv)
above, the purchaser executes and delivers letter agreement
containing terms that are substantially similar to this Schedule;
(h) we understand and acknowledge that upon original issuance and for such
time as is required under applicable requirements of the 1933 Act or
applicable state securities laws, the certificates representing the
Special Warrants and all certificates issued in exchange therefor or
in substitution thereof, shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE
HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT
OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY (A) TO THE ISSUER, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT, (C)
PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR (D) IN COMPLIANCE WITH CERTAIN
OTHER PROCEDURES SATISFACTORY TO THE COMPANY.
and that all certificates representing Debentures (and all
certificates issued in exchange therefor or in substitution
thereof) issuable upon exercise of the securities so legended
shall bear the same legend and shall bear the following
additional legend:
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE
"GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON
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THE TORONTO STOCK EXCHANGE. A NEW CERTIFICATE,
BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE
"GOOD DELIVERY", MAY BE OBTAINED FROM THE TRANSFER
AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY
EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE
TRANSFER AGENT AND THE COMPANY, TO THE EFFECT THAT
THE SALE OF THE SECURITIES REPRESENTED HEREBY IS
BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION
S UNDER THE 1933 ACT;
provided that if the Debentures are being sold under paragraph
(g)(iii) above, the legend may be removed by providing a
declaration to the Montreal Trust Company of Canada as
transfer agent for the securities to the following effect:
"The undersigned (A) acknowledges that the sale of
the securities to which this declaration relates is
being made in reliance on Rule 904 of Regulation S
under the United States Securities Act of 1933, as
amended (the "1933 Act") and (B) certifies that (1)
it is not an affiliate (as defined in Rule 405 under
the 1933 Act) of Dakota Mining Corporation, (2) the
offer of such securities was not made to a person in
the United States and either (A) at the time the buy
order was originated, the buyer was outside the
United States, or the seller and any person acting on
its behalf reasonably believe that the buyer was
outside the United States, or (B) the transaction was
executed on or through the facilities of The Toronto
Stock Exchange, the Montreal Exchange, the Vancouver
Stock Exchange or the Alberta Stock Exchange and
neither the seller nor any affiliate of the seller
nor any person acting on any of their behalf has
engaged or will engage in any directed selling
efforts in the United States in connection with the
offer and sale of such securities, (4) the sale is
bona fide and not for the purpose of "washing off"
the resale restrictions imposed because the
securities are "restricted securities" (as such term
is defined in Rule 144(a)(3) under the 1933 Act), (5)
the seller does not intend to replace the securities
and (6) the contemplated sale is not a transaction,
or part of a series of transactions which, although
in technical compliance with Regulation S, is part of
a plan or scheme to evade the registration provisions
of the
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<PAGE>
1933 Act. Terms used herein have the meanings
given to them by Regulations S."
DATED:
Name of Purchaser
By:
Name:
Title:
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SCHEDULE "C"
Subscription Agreements
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<PAGE>
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND, DURING THE 40 DAY
PERIOD IMMEDIATELY FOLLOWING YOUR ACQUISITION OF SUCH SECURITIES, SUCH
SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO UNITED STATES
PERSONS UNLESS THE SECURITIES ARE REGISTERED UNDER THE 1933 ACT OR AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
DAKOTA MINING CORPORATION
SUBSCRIPTION AGREEMENT
(For Non-U.S. Residents)
February 4, 1997
TO: DAKOTA MINING CORPORATION
AND TO: CANACCORD CAPITAL CORPORATION
RE: SUBSCRIPTION FOR AND PURCHASE OF SPECIAL
WARRANTS OF DAKOTA MINING CORPORATION
Reference is made to an engagement letter (the "Engagement Letter" dated
December 23, 1996 between Dakota Mining Corporation (the "Company") and
Canaccord Capital Corporation (the "Agent") providing for the issuance and sale
by the Company to purchasers of between 20,000 and 25,000 special warrants (the
"Special Warrants") for a consideration of Cdn.$1,000.00 per Special Warrant
(the "Offering") on the terms and conditions set forth in the Engagement Letter.
A copy of a term sheet (the "Term Sheet") outlining the features of the Special
Warrants and certain terms contained in the Engagement Letter is attached as
Schedule "A" hereto. Pursuant to the Engagement Letter, the Company and the
Agent will enter into a definitive agency agreement (the "Agency Agreement")
which shall set forth certain terms relating to the Special Warrants.
1. Subscription
The undersigned (the "Subscriber") hereby irrevocably
subscribes for and agrees to purchase, subject to the terms and conditions set
forth herein, that number of Special Warrants of the Company set out above, and
above the Subscriber's name on page 17 hereof at a price of Cdn.$1,000.00 per
Special Warrant. The Subscriber understands that the Special Warrants subscribed
for constitute a portion of an offering of between 20,000 and 25,000 Special
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<PAGE>
Warrants by the Company, pursuant to the terms of the Agency Agreement under
which the Agent will offer the Special Warrants for sale, on a best efforts
basis, on behalf of the Company.
2. Description of Special Warrants
The Special Warrants shall be created and issued pursuant to a
special warrant indenture (the "Special Warrant Indenture") between Montreal
Trust Company of Canada, as trustee (the "Trustee"), and the Company to be dated
as of the Closing Date (as hereinafter defined). The specific attributes of the
Special Warrants shall be set forth in the Special Warrant Indenture, which
shall provide, among other things, that the holders of Special Warrants shall be
entitled to receive, without payment of any additional consideration, upon
exercise of each Special Warrant in accordance with the terms of the Special
Warrant Indenture, one $1,000.00 principal amount unsecured convertible
debenture of the Company (each, a "Debenture" and collectively, the
"Debentures") subject to adjustment as described herein. Upon maturity or
redemption of the Debentures, the Company will have the option, subject to prior
notice, to repay the principal amount of the Debentures in cash or in common
shares of the Company (the "Common Shares" or "Shares").
The Special Warrants shall be exchangeable at the option of
the holder at any time on or before 5:00 p.m. (Vancouver time) on the earlier of
(a) the 5th business day after a receipt is issued by the last of the securities
regulatory authorities in each of the Qualifying Jurisdictions (as hereinafter
defined) for the final prospectus (the "Prospectus") qualifying the issuance
(the "Prospectus Qualification") of the Debentures and (b) February 4, 1998 (the
earlier of such dates hereinafter referred to as the "Expiry Date"). All of the
net proceeds (after deducting the commission payable to the Agent on closing)
will be escrowed on closing. The amount of U.S.$5,000,000 will be released to
the Company provided that certain conditions relating to the Merger (as
hereinafter defined) are fulfilled to the satisfaction of the Agent. The balance
of the net proceeds (the "Escrow Proceeds") will remain escrowed subject to the
completion of the proposed merger involving USMX Inc. and the Company (the
"Merger") and shareholder approval (the "Shareholder Approval") to the issue.
The Escrow Proceeds shall not be released to the Company unless and until the
Shareholder Approval is obtained and the Merger occurs on terms described in the
letter agreement as between the Company and USMX Inc., dated January 3, 1997
(the "Merger Agreement") and which are otherwise acceptable to the Agent. Any
Special Warrants not exercised by the Expiry Date shall be exercised by the
Trustee on behalf of the holder immediately prior thereto without any further
action on the part of the holder as described herein.
The Company shall undertake to file the Prospectus and obtain
receipts therefor from the applicable securities regulatory authorities British
Columbia, Alberta, Ontario and in each of the provinces of Canada in which
Subscribers are resident, as applicable (the "Qualifying Jurisdictions") not
later than the later of May 31, 1997 and the date which falls 120 days from the
Closing Date (as hereinafter defined), or such later date as may be designated
by the Agent (the "Qualification Deadline").
In the event that receipts for the Prospectus are not obtained
prior to the Qualification Deadline, subject to the Redemption Obligation and
the Redemption Option
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<PAGE>
described below, the holders of the Special Warrants shall be entitled to
acquire prior to the Expiry Date, for no additional consideration, 1.10 Common
Shares for every Share of the Company otherwise issuable as and at such time as
the Debentures are converted.
Subject to the Redemption Obligation and the Redemption Option
as discussed below, in the event that the Shareholder Approval has not been
obtained on a date (the "Shareholder Approval Date") which occurs on or before
April 30, 1997 (the "Shareholder Qualification Deadline") the terms of the
Debentures shall provide that, unless the Shareholder Qualification Deadline is
extended up to May 31, 1997 in accordance with the Merger Agreement, the number
of Special Warrants proportionate to the Escrow Proceeds shall be subject to
automatic redemption by the Company (the "Redemption Obligation") and, unless
the holders elect to keep their Special Warrants outstanding, holders of such
Special Warrants who do not so elect will receive the Escrow Proceeds for their
Special Warrants at the issue price plus interest earned thereon (on a pro rata
basis if the Redemption Obligation exceeds the available Escrow Proceeds). The
Special Warrants of those holders which were not repurchased pursuant to the
Redemption Obligation shall remain outstanding until the earlier of February 4,
1998 and the date on which the Shareholder Approval is obtained or no longer
required, provided that Special Warrants whose exchange into Debentures requires
Shareholder Approval may not be exchanged for Debentures until such Shareholder
Approval is obtained or no longer required.
In the event that the Merger does not place on or before the
Qualification Deadline, the holders of the Special Warrants shall have the
option (the "Redemption Option") for a period of five business days after the
Qualification Deadline to cause the Company to redeem their Special Warrants by
giving notice to the Company or otherwise tendering their Special Warrants to
the Company, which shall be redeemed and paid for with the Escrow Proceeds
together with interest earned thereon. If the Escrow Proceeds are insufficient
for the redemption of all of the Special Warrants to which such notice relates
or so tendered, then the Special Warrants to be redeemed shall be redeemed on a
pro rata basis.
The Special Warrants and the Debentures issuable upon exercise
of the Special Warrants have not been and will not be registered under the
United States Securities Act of 1933, as amended (the "1933 Act), and may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. Persons unless they are registered under the 1933 Act, or an exemption
from the registration requirements of the 1933 Act is available.
The foregoing description of the Special Warrants is a summary
only and is subject to the detailed provisions of the Special Warrant Indenture
under which such securities shall be issued. In the event of a conflict, the
provisions of the Special Warrant Indenture shall prevail.
3. Payment
The aggregate amount payable by the Subscriber in respect of
the Special Warrants (the "Subscription Price") must accompany this Subscription
Agreement and shall be made in Canadian dollars by certified cheque or bank
draft drawn on a Canadian chartered bank
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<PAGE>
and payable to Canaccord Capital Corporation or payable in such other manner as
may be specified by the Agent to be dealt with in accordance with the provisions
set forth herein.
4. Questionnaire, Undertaking, Direction and Form 20A(IP)
The Subscriber must complete, sign and return the following
documents along with two (2) executed copies of this Subscription Agreement to
Canaccord Capital Corporation (Attention: Mark Polubiec ) as soon as possible
and, in any event, not later than two days prior to the Closing Date (defined
below):
(a) Schedule I, a questionnaire and undertaking required by The Toronto
Stock Exchange on which the Debentures will be listed;
(b) Schedule II, a direction with respect to registration and delivery
instructions;
and
(c) if the Subscriber is an individual, Schedule III, a form 20A (IP)
required by the British Columbia Securities Commission.
The Company will file the questionnaires and undertakings of
Subscribers whose subscriptions are accepted by the Company with The Toronto
Stock Exchange.
5. Other Documentation
The Subscriber may also be required to execute any further
documentation as required by The Toronto Stock Exchange or The American Stock
Exchange, or under securities legislation or by any other regulatory authority
of the Qualifying Jurisdictions, the United States or the jurisdiction in which
the Subscriber is resident and covenants and agrees to do so upon request by the
Company or the Agent.
6. Closing
Delivery and payment for the Special Warrants (the "Closing")
will be completed at the offices of McCarthy Tetrault, Barristers & Solicitors,
Suite 4700, Toronto-Dominion Bank Tower, Toronto-Dominion Centre, Toronto,
Ontario M5K 1E6 at 12:00 a.m. (Toronto time) (the "Closing Time") on February 4,
1997 or such other date or time on or before February 21, 1997 as the Company
and the Agent shall mutually agree (the "Closing Date").
Certificates representing the Special Warrants (individually,
a "Special Warrant Certificate" and collectively, the "Special Warrant
Certificates") will be available for delivery against payment to the Company of
the Subscription Price in the manner specified below.
It is a condition of Closing that all necessary regulatory
approvals be obtained and the documents completed in accordance with Section 4
hereof be received prior to the Closing Date. By its execution of this
Subscription Agreement, the Company hereby agrees with the
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<PAGE>
Subscriber that the Subscriber shall have the benefit of the following
provisions set forth in the Agency Agreement:
(a) the representations and warranties made by the Company to the Agent
and the undersigned as a purchaser of the Special Warrants; and
(b) the covenants of the Company in favour of the Agent and the
undersigned as a purchaser of the Special Warrants;
which representations or warranties, covenants and conditions are hereby
incorporated by reference such that they form an integral part of this
Subscription Agreement and all of which shall survive the closing of the
purchase and sale of the Special Warrants and shall continue in full force and
effect for the benefit of the Subscriber for the period set forth in the Agency
Agreement.
7. Prospectus Exemptions
The sale and delivery of the Special Warrants to the
Subscriber is conditional upon such sale being exempt from the requirements as
to the filing of a prospectus and as to the delivery of an offering memorandum
as defined in the applicable securities legislation or upon the issuance of such
rulings, orders, consents or approvals as may be required to permit such sale
without the requirement of filing a prospectus or delivering an offering
memorandum.
The Subscriber acknowledges and agrees that: (a) it (or others
for whom it is contracting hereunder) was not provided with, has not requested,
and does not need to receive, a prospectus or an offering memorandum as defined
in the applicable securities legislation or similar document; (b) its decision
to execute this subscription agreement and to purchase the Special Warrants
agreed to be purchased hereunder (or by others for whom it is contracting
hereunder) has not been based upon any verbal or written representations as to
fact or otherwise made by or on behalf of the Company, the Agent or any other
person or company and that its decision (or the decision of others for whom it
is contracting hereunder) is based entirely upon the Term Sheet and publicly
available information concerning the Company which was obtained by the
Subscriber and not provided to it by either the Company or the Agent; (c) the
sale of the Special Warrants was not accompanied by any advertisement in printed
media of general and regular paid circulation, radio or television or any other
form of advertisement or as part of a general solicitation; and (d) it (or
others for whom it is contracting hereunder) has been advised to consult its own
legal advisors with respect to applicable resale restrictions and it (or others
for whom it is contracting hereunder) is solely responsible (and neither the
Company nor the Agent is in any way responsible) for compliance with applicable
resale restrictions.
The Subscriber acknowledges and agrees that the Special
Warrants and the Debentures issuable upon exercise of the Special Warrants are
subject to statutory hold periods during which these securities may not be
offered, resold or otherwise transferred in Canada, the United States or
elsewhere except in compliance with applicable securities laws and the
requirements of applicable stock exchanges and that the Subscriber shall not so
offer, resell or otherwise transfer these securities except in compliance with
applicable securities laws and the requirements of applicable stock exchanges.
The Subscriber confirms that no representation has
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been made respecting the applicable hold periods for the Special Warrants.
Subscribers are advised to consult with their own legal advisers in connection
with any applicable resale restrictions.
8. Representations, Warranties and Covenants of the Subscriber
The Subscriber hereby represents and warrants to the Company
and the Agent (which representations and warranties shall survive Closing) that:
1. the Subscriber and any beneficial purchaser for whom the Subscriber is
acting is resident in the jurisdiction set out below the Subscriber's
signature on page 17;
2. either (A) the Subscriber is purchasing the Special Warrants as
principal for its own account and not for the benefit of any other
person and not with a view to the resale or distribution of all or any
of the Special Warrants, or (B) if the Subscriber is not purchasing as
principal the Subscriber is duly authorized to enter into this
subscription and to execute all documentation in connection with the
purchase on behalf of each beneficial purchaser and acknowledges that
the Company is required by law to disclose on a confidential basis to
certain regulatory authorities the identity of each beneficial
purchaser for whom it may be acting;
3. the delivery of this subscription, the acceptance of it by the
Company, the issuance of the Special Warrants to the Subscriber and
the acquisition of the Debentures upon the exercise of the Special
Warrants complies with all applicable laws of the Subscriber's
jurisdiction of residence or domicile and all other applicable laws
and will not cause the Company to become subject to or comply with any
disclosure, prospectus or reporting requirements under any such
applicable laws;
4. if the Subscriber is not purchasing in accordance with subparagraphs
5, 6, 7 or 8, it is purchasing pursuant to an exemption from
prospectus and registration requirements (particulars of which are
disclosed herewith) available to it under applicable securities
legislation and shall deliver to the Company and the Agent such
further particulars of the exemptions(s) and the Subscriber's
qualification thereunder as the Company and the Agent may reasonably
request;
5. if the Subscriber is subject to the applicable securities legislation
of the Province of Ontario, it is one of the following:
(i) a bank to which the Bank Act (Canada) applies or the Federal
Business Development incorporated under the Federal Business
Development Act (Canada); or
(ii) a credit union or an entity which the Credit Union and Caisses
Populaires Act, 1994 applies, or a subsidiary of such persons
where such persons own beneficially all of the voting securities
of that subsidiary; or
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(iii)a loan corporation or trust corporation registered under the
Loan and Trust Corporations Act (Ontario); or
(iv) an insurance company licensed under the Insurance Act (Ontario);
or
(v) Her Majesty in right of Canada, or any province or territory of
Canada; or
(vi) a municipal corporation or public board or commission in Canada,
(vii)is recognized or designated as an exempt purchaser and is not an
individual or is purchasing a sufficient number of Special
Warrants such that the aggregate acquisition cost to the
Subscriber of such Special Warrants is not less than $150,000; or
(viii) in the case of the purchase of Special Warrants by the
Subscriber as agent for a disclosed principal, each beneficial
purchaser of such Special Warrants for whom the Subscriber is
acting is purchasing as a principal for its own account, and not
for the benefit of any other person, and not with a view to the
resale or distribution of all or any of the Special Warrants, and
(a) is purchasing a sufficient number of Special Warrants so
that such beneficial purchaser has an aggregate acquisition
cost of not less than $150,000 for such Special Warrants; or
(b) is recognized or designated as an exempt purchaser under
applicable securities legislation and is not an individual,
and the Subscriber is an agent with due and proper authority
to execute this agreement and all documentation in
connection with the purchase on behalf of the beneficial
purchaser, or
(ix) in the case of the purchase of Special Warrants by the Subscriber
as a trustee or as agent for a principal which is undisclosed or
identified by account number only, the Subscriber is a trust
corporation registered under the Loan and Trust Corporations Act
(Ontario) and is purchasing such Special Warrants as trustee or
as agent for accounts fully managed by the Subscriber and the
beneficial purchaser of the Special Warrants for whom the
Subscriber is acting is an individual or corporation and is
purchasing as principal for its own account, and not for the
benefit of any other person, and:
(a) is purchasing a sufficient number of Special Warrants so
that such beneficial purchaser has an aggregate acquisition
cost for such Special Warrants of not less than $150,000, or
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(b) is recognized or designated as an exempt purchaser under
applicable securities legislation and, if subject to the
securities legislation of Ontario and is not an individual,
and the Subscriber is a trustee or agent with due and proper
authority to execute this agreement and all other
documentation in connection with the purchase on behalf of
the beneficial purchaser, and
(x) neither the Subscriber nor any purchaser on whose behalf the
Subscriber is acting has been formed, created, established or
incorporated for the purpose of permitting the purchase of the
Special Warrants without a prospectus by groups of individuals
whose individual share of the aggregate acquisition cost is less
than $150,000; and
(xi) where the Subscriber or the beneficial purchaser is not a
corporation or an individual (including, without limitation, a
syndicate, partnership, trust, association or other form of
unincorporated organization), the Subscriber or the beneficial
purchaser falls within one of the following categories:
(a) pension plans,
(b) group of pension plans under common management,
(c) organizations of members of a family fund formed to make
investments of family funds,
(d) testamentary trusts and estates,
(e) organizations which have primary ongoing business activities
other than investing in securities,
(f) mutual funds other than private mutual funds (within the
meaning of paragraph (a) of the definition of "private
mutual fund" in subsection 1(1) of the Securities Act
(Ontario)),
(g) group registered retirement savings plans or group deferred
profit sharing plans, or
(h) a partnership, interests in which are offered by prospectus,
where the partnership invests in securities in reliance upon
clause 72(1)(d) of the Securities Act (Ontario) and section
27 of the Regulation made thereunder or under subsection
14(f) of the Regulation made thereunder; and but subject
nevertheless to the requirement that it will not resell the
Special Warrants, or the Debentures issued pursuant thereto,
except in
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accordance with the provisions of applicable securities
legislation and stock exchange rules;
6. if the Subscriber is subject to the applicable securities legislation of
the Province of British Columbia, it is one of the following:
(i) the Federal Business Development Bank incorporated under the Federal
Business Development Act (Canada), or a savings institution or a
subsidiary of either of such persons where such person owns
beneficially all of the voting securities of the subsidiary, except
the voting securities required by law to be owned by directors of that
subsidiary, or
(ii) an insurance company or a subsidiary of such insurance company where
such insurance company owns beneficially all of the voting securities
of the subsidiary, except the voting securities required by law to be
owned by directors of that subsidiary, or
(iii) Her Majesty in Right of Canada or a province, or
(iv) a municipal corporation or public board or commission in Canada,
(v) is recognized or designated as an exempt purchaser under applicable
securities legislation or is purchasing a sufficient number of Special
Warrants such that the aggregate acquisition cost of the Subscriber of
such Special Warrants is not less than $97,000, or
(vi) in the case of the purchase of Special Warrants by the Subscriber as
agent for a disclosed principal, each beneficial purchaser of such
Special Warrants for whom the Subscriber is acting is purchasing as
principal for its own account, and not for the benefit of any other
person and not with a view to the resale or distribution of all of any
of the Special Warrants, and
(a) is purchasing a sufficient number of Special Warrants so that the
beneficial purchaser has an aggregate acquisition cost of not
less than $97,000 for such Special Warrants; or
(b) is recognized or designated as an exempt purchaser under
applicable securities legislation, and the Subscriber is an agent
with due and proper authority to execute this agreement and all
documentation in connection with the purchase on behalf of the
beneficial purchaser, or
(vii)in the case of the purchase of Special Warrants by the Subscriber as a
trustee or as agent for a principal which is undisclosed or identified
by account number only, the Subscriber is a trust company or an
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extra-provincial trust corporation authorized to carry on business under
the Financial Institutions Act (British Columbia), or an insurance
company or extra-provincial insurance corporation authorized to carry
on business under the Financial Institutions Act (British Columbia),
or a trust company or insurer authorized under the laws of a province
or territory of Canada other than British Columbia to carry on
business in such province or territory, purchasing or selling as an
agent or trustee for accounts that are fully managed by the Subscriber
or a portfolio manager registered under the Securities Act (British
Columbia) or is exempt from such registration, or is a portfolio
manager registered or exempt from registration under the laws of a
province or territory of Canada other than British Columbia,
purchasing or selling as an agent for accounts that are fully managed
by the Subscriber and the Subscriber is purchasing Special Warrants
which have an aggregate acquisition cost of not less than $97,000, or
the beneficial purchaser of the Special Warrants for whom the
Subscriber is acting is purchasing as principal for its own account,
not for the benefit of any other person, and:
(a) is purchasing a sufficient number of Special Warrants so that the
beneficial purchaser has an aggregate acquisition cost for such
Special Warrants of not less than $97,000, or
(b) is recognized or designated as an exempt purchaser under
applicable securities legislation, and the Subscriber is a
trustee or agent with due and proper authority to execute this
agreement and all other documentation in connection with the
purchase on behalf of the beneficial purchaser, and
(viii) neither the Subscriber nor any purchaser on whose behalf the
Subscriber is acting has been formed, created, established or
incorporated or used primarily to permit a group of individuals to
purchase securities without a prospectus unless each individual is
purchasing securities having an aggregate acquisition cost of at least
$97,000, and
(ix) the Subscriber and any purchaser on whose behalf the Subscriber is
acting acknowledges that, as the Special Warrants are subject to a
hold period under applicable British Columbia securities legislation
and pursuant to British Columbia Securities Commission Blanket Order
BOR#95/17, an initial trade report in the appropriate form in respect
of the resale of the Special Warrants or of the Debentures acquired on
the exercise thereof, must be filed within ten days of the initial
trade of such securities.
7. if the Subscriber is subject to the applicable securities legislation of
the Province of Alberta, it is one of the following:
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(i) the Federal Business Development Bank incorporated under the Federal
Business Development Act (Canada) or a bank, or
(ii) a loan corporation, trust corporation, treasury branch or credit union
or a subsidiary of such persons where such persons own beneficially
all of the voting securities of that subsidiary, or
(iii)an insurance company licensed under the Insurance Act (Alberta) or a
subsidiary of such insurance company where such insurance company owns
beneficially all of the voting securities of the subsidiary, or
(iv) the Government of Canada, the Government of Alberta or the Government
of any other province, or
(v) a municipal corporation or public board or commission in Canada, or
(vi) is recognized or designated as an exempt purchaser under applicable
securities legislation and is not an individual or is purchasing a
sufficient number of Special Warrants such that the aggregate
acquisition cost to the Subscriber of such Special Warrants is not
less than $97,000, or
(vii)in the case of the purchase of Special Warrants by the Subscriber as
agent for a disclosed principal, each beneficial purchaser of such
Special Warrants for whom the Subscriber is acting is purchasing as
principal for its own account, and not for the benefit of any other
person and not with a view to the resale or distribution of all or any
of the Special Warrants, and
(a) is purchasing a sufficient number of Special Warrants so that
such beneficial purchaser has an aggregate acquisition cost of
not less than $97,000 for such Special Warrants; or
(b) is recognized or designated as an exempt purchaser under
applicable securities legislation and is not an individual, and
the Subscriber is an agent with due and proper authority to
execute this agreement and all documentation in connection with
the purchase on behalf of the beneficial purchaser, or
(viii) in the case of the purchase of Special Warrants by the Subscriber as
a trustee or as agent for a principal which is undisclosed or
identified by account number only, the Subscriber is a trust
corporation as defined in the securities legislation of the Province
of Alberta trading as a trustee or an agent for accounts that are
fully managed by the Subscriber or a portfolio manager or a person or
a company trading as an agent that is exempt from registration as a
portfolio manager under applicable securities legislation for accounts
that are fully managed by the Subscriber and the
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<PAGE>
beneficial purchaser of the Special Warrants for whom the Subscriber is
acting is an individual or corporation and is purchasing as principal
for its own account, not for the benefit of any other person, and:
(a) is purchasing a sufficient number of Special Warrants so
that the beneficial purchaser has an aggregate acquisition
cost for such Special Warrants of not less than $97,000, or
(b) is recognized or designated as an exempt purchaser under
applicable securities legislation, and the Subscriber is a
trustee or agent with due and proper authority to execute
this agreement and all other documentation in connection
with the purchase on behalf of the beneficial purchaser, and
(ix) neither the Subscriber nor any purchaser on whose behalf the
Subscriber is acting has been formed, created, established or
incorporated for the purpose of permitting the purchase of the Special
Warrants without a prospectus by groups of individuals whose
individual share of the aggregate acquisition cost is less than
$97,000;
8. If the Subscriber is subject to the applicable securities legislation of a
Province of Canada or other jurisdiction other than the Provinces of
British Columbia, Alberta or Ontario, the Subscriber is purchasing the
Special Warrants in accordance with the securities laws applicable thereto
and in reliance upon a prospectus exemption contained therein;
9. the Subscriber, or the beneficial purchaser (i), is not a U.S. Person (as
defined in Rule 902(o) of Regulation S ("Regulation S") under the 1933 Act,
which definition includes, but is not limited to, any natural person
resident in the United States, any corporation or partnership incorporated
or organized under the laws of the United States, or any estate or trust of
which any executor, administrator or trustee is a U.S. Person); (ii) is not
purchasing the Special Warrants for the account or benefit of any U.S.
Person or for offering, resale or delivery for the account or benefit of
any U.S. Person or for the account of any person in any jurisdiction other
than the jurisdiction set out in the name and address of the Subscriber
below; and (iii) was not offered the Special Warrants in the United States
and was outside the United States at the time of execution and delivery of
this Subscription Agreement;
10. the Subscriber acknowledges that the Special Warrants, and the Debentures
(collectively, the "Securities") have not been registered under the 1933
Act and the Company has no obligation or present intention of filing a
registration statement under the 1933 Act in respect of the Securities;
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11. no U.S. Person, either directly or indirectly, has any beneficial interest
in any of the Securities purchased by the Subscriber hereunder, nor do we
have any agreement or understanding (written or oral) with any U.S. Person
respecting:
(a) the transfer of any assignment of any rights or interest in any of the
Securities;
(b) the division of profits, losses, fees, commissions or any financial
stake in connection with this subscription; or
(c) the voting of the Securities;
12. the current structure of this transaction and all transactions and
activities contemplated hereunder is not a scheme to avoid the registration
requirements of the 1933 Act, without limiting the foregoing, the
Subscriber hereby acknowledges that the United States Securities and
Exchange Commission deems a "scheme" to include, without limitation, the
purchase of Securities purchased by the Subscriber hereunder that have an
active United States trading market:
(a) at a discount, with the intention of reselling the Securities into the
United States immediately or shortly following the expiration of the
40 day period during which such resales are prohibited under
Regulation S; or
(b) coupled with the purchaser's hedging or taking an offsetting "short"
position with respect to such Securities in a United States market;
13. the Subscriber has no intention to distribute either directly or indirectly
any of the Securities in the United States or to any U.S. Person;
14. the Subscriber has not and will not engage in any directed selling efforts
in the United States in respect of the Securities, including any activities
undertaken for the purpose of, or that could reasonably be expected to have
the effect of, conditioning the market in the United States, for the resale
of the Securities;
15. the Subscriber agrees that if it decides to offer, sell or otherwise
transfer the Securities as permitted according to their terms, the same may
be offered, sold or otherwise transferred only:
(a) to the Company;
(b) in accordance with Rule 904 of Regulation S under the 1933 Act;
(c) with the prior written consent of the Company, pursuant to another
applicable exemption from registration under the 1933 Act; provided an
opinion of counsel of recognized standing reasonably satisfactory to
the Company is delivered; or
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(d) pursuant to an effective registration statement under the 1933 Act, in
each case in accordance with applicable state securities laws;
16. the Subscriber understands and acknowledges that upon the initial issuance
thereof, and until such time as the same is no longer required under the
1933 Act or applicable state securities laws, the certificates representing
the Securities, and all certificates issued in exchange therefor or in
substitution thereof, shall bear the following legends:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE United States SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT
OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER,
(B) OUTSIDE THE United States in accordance with RULE
904 OF REGULATION S UNDER THE 1933 ACT, (C) WITH THE
PRIOR WRITTEN CONSENT OF THE ISSUER, PURSUANT TO
ANOTHER APPLICABLE EXEMPTION FROM REGISTRATION UNDER
THE 1933 ACT; PROVIDED AN OPINION OF COUNSEL OF
RECOGNIZED STANDING REASONABLY SATISFACTORY TO THE
ISSUER IS DELIVERED
and further certifies that the certificates representing the
Securities, and all certificates issued in exchange therefor
or in substitution thereof, shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY
MAY NOT BE EXERCISED BY OR ON
BEHALF OF ANY U.S. PERSON UNLESS
REGISTERED UNDER THE 1933 ACT OR AN
EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE.
If the Securities are being sold in accordance with paragraph
15 (b) above, the legend or legends may be removed by
providing a declaration to the registrar and transfer agent to
the following effect (or as the Company may prescribe from
time to time):
The undersigned (A) acknowledges that the sale of the Securities to
which this declaration relates is being made in reliance upon
Rule 904 of Regulation S under the United
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<PAGE>
States Securities Act of 1933, as amended (the "1933
Act") and (B) certifies that (1) it is not an
affiliate (as defined in Rule 405 under the 1933 Act)
of Dakota Mining Corporation, (2) the offer of such
securities was not made to a person in the United
States and either (A) at the time the buy order was
originated, the buyer was outside the United States,
or the seller and any person acting on its behalf
reasonably believe that the buyer was outside the
United States, or (B) the transaction was executed on
or through the facilities of The Toronto Stock
Exchange, the Montreal Exchange, the Vancouver Stock
Exchange or the Alberta Stock Exchange and neither
the seller nor any affiliate of the seller nor any
person acting on any of their behalf has engaged or
will engage in any directed selling efforts in the
United States in connection with the offer and sale
of such securities, (4) the sale is bona fide and not
for the purpose of "washing off" the resale
restrictions imposed because the securities are
"restricted securities" (as such term is defined in
Rule 144(a)(3) under the 1933 Act, (5) the seller
does not intend to replace the securities sold in
reliance on Rule 904 of the 1933 Act with fungible
unrestricted securities and (6) the contemplated sale
is not a transaction, or part of a series of
transactions which, although in technical compliance
with Regulation S, is part of a plan or scheme to
evade the registration provisions of the 1933 Act.
Terms used herein have the meanings given to them by
Regulation S.
17. the Subscriber understands and acknowledges that the Company shall instruct
the transfer agent for the Securities not to record a transfer without
first being notified by the Company that it is satisfied that such transfer
is exempt from or not subject to registration under the 1933 Act and
applicable state securities laws.
18. the Subscriber confirms and acknowledges that the term sheet attached
hereto is the definitive term sheet and we have relied on it, and not any
prior term sheet (if any), to make our investment decision.
19. if the Subscriber or any purchaser on whose behalf the Subscriber is acting
is not resident in Canada, such person will:
(a) not sell or otherwise dispose of the Special Warrants or the
Debentures issuable upon exercise of the Special Warrants, except in
accordance with applicable Canadian laws; and
(b) if such person sells or otherwise disposes of the Special Warrants or
the Debentures upon exercise of the Special Warrants to a person other
than
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<PAGE>
a resident of Canada, such person covenants to obtain from such
purchaser a covenant in the same form as provided herein;
20. this agreement has been duly authorized, executed and delivered by, and
constitutes a legal, valid, binding and enforceable obligation of, the
Subscriber or the beneficial purchaser for whom the Subscriber is
purchasing;
21. if an individual, the Subscriber has attained the age of majority and in
every case is legally competent to execute this agreement and to take all
actions required pursuant hereto; and
22. the Subscriber is capable of assessing the proposed investment as a result
of the Subscriber's experience or as a result of advice received from a
registered person other than the Company or an affiliate thereof;
23. the Subscriber is not an insider of the Company as defined under the
Securities Act (Ontario).
9. Reliance Upon Representations, Warranties and Covenants
The Subscriber acknowledges that the representations and
warranties and covenants contained in this Subscription Agreement and in the
Schedules hereto are made with the intent that they may be relied upon by the
Company and the Agent to, among other things, determine its eligibility or (if
applicable) the eligibility of others on whose behalf it is contracting
hereunder to purchase the Special Warrants and the Subscriber hereby agrees to
indemnify the Company and the Agent and any person who controls the Company and
the Agent against all losses, claims, costs, expenses and damages or liabilities
which they may suffer or incur which are caused by or arise from, directly or
indirectly, their reliance thereon. The Subscriber further agrees that by
accepting the Special Warrants the Subscriber shall be representing and
warranting that the foregoing representations and warranties are true as at the
Closing Time with the same force and effect as if they had been made by the
Subscriber at the Closing Time and that they shall survive the purchase by the
Subscriber of the Special Warrants and shall continue in full force and effect
notwithstanding any subsequent disposition by him of the Special Warrants or the
Debentures.
10. The Agent
The Subscriber understands that upon completion of the
purchase from the Company of the Special Warrants, the Agent will receive from
the Company a cash commission equal to 6% of the gross proceeds received by the
Company from the sale of the Special Warrants to be sold under the Offering. No
other fee or commission is payable by the Company in connection with the sale of
the Special Warrants. The Subscriber further understands that the Agent, its
directors, officers, employees and affiliates may, from time to time, hold
positions in securities of the Company.
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<PAGE>
11. Contractual Right of Action for Rescission
In the event that a holder of Special Warrants, who acquires
the Debentures upon the exercise of the Special Warrants as provided for in the
Prospectus, is or becomes entitled under the Securities Act (Ontario), the
Securities Act (British Columbia) the Securities Act (Alberta) or securities
laws of any other jurisdiction to the remedy of rescission by reason of the
Prospectus or any amendment thereto containing a misrepresentation, such holder
shall be entitled to rescission not only of the holder's exercise of its Special
Warrant(s) but also of the private placement transaction pursuant to which the
Special Warrants were initially acquired, and shall be entitled in connection
with such rescission to a full refund of all consideration paid on the
acquisition of the Special Warrants. In the event such holder is a permitted
assignee of the interest of the original Special Warrants subscriber, such
permitted assignee shall be entitled to exercise the rights of rescission and
refund granted hereunder as if such permitted assignee were such original
subscriber. The foregoing is in addition to any other right or remedy available
to a holder of Special Warrants under Section 130 of the Securities Act
(Ontario), or otherwise at law or pursuant to the applicable securities
regulatory requirements of the Qualifying Jurisdictions.
12. Costs
All costs and expenses incurred by the Subscriber (including
any fees and disbursements of any special counsel retained by the Subscriber)
relating to the sale of the Special Warrants to the Subscriber shall be borne by
the Subscriber.
13. Appointment of Canaccord Capital Corporation as Subscriber's Agent
The Subscriber, on its own behalf and (if applicable) on behalf of
others for whom the Subscriber is contracting hereunder, hereby:
(a) irrevocably authorizes Canaccord Capital Corporation, to negotiate and
settle the form of the Special Warrant Indenture and any other
agreement to be entered into in connection with this transaction and
to waive on its own behalf and on behalf of the purchasers of Special
Warrants in whole or in part, or extend the time for compliance with,
any of the closing conditions in such manner and on such terms and
conditions as Canaccord Capital Corporation may determine, acting
reasonably, without in any way affecting the Subscriber's obligations
or the obligations of such others hereunder;
(b) acknowledges and agrees that Canaccord Capital Corporation and the
Company may vary, amend, alter or waive, in whole or in part, one or
more of the conditions or covenants to be set forth in the Agency
Agreement in such manner and on such terms and conditions as it may
determine, acting reasonably, without affecting in any way the
Subscriber's or such others' obligations hereunder; provided, however,
that Canaccord Capital Corporation shall not vary, amend, alter or
waive any such condition where to do so would result in a material
change to any of the material attributes of the Special Warrants
described herein; and
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<PAGE>
(c) irrevocably authorizes Canaccord Capital Corporation to swear,
accept, execute, file and record any documents (including
receipts) necessary to accept delivery of the Special Warrants
on the Closing Date and to terminate this subscription on
behalf of the Subscriber in the event that any condition
precedent of the Offering has not been satisfied.
14. Appointment of Trustee
The Subscriber hereby directs the Trustee or other suitable
party to exercise all of the Special Warrants held by the Subscriber, on the
Subscriber's behalf, if the Subscriber has not so exercised all or part of the
Special Warrants on or before the Expiry Date, such direction being subject to
revocation by the Subscriber at any time by providing the Trustee or other
suitable party with written notice of such revocation. The Subscriber
acknowledges and agrees that the terms of this Subscription Agreement do not
require the Subscriber to give the authorization and direction set forth herein
and the Subscriber may elect not to so authorize and direct by deleting this
paragraph 14 and placing the Subscriber's initials beside the same at the time
the Subscriber executes this Subscription Agreement.
15. Conditional Upon TSE and ASE Approval
Without limitation, this subscription is conditional upon and
subject to the Company receiving approval of The Toronto Stock Exchange (the
"TSE") and The American Stock Exchange (the "ASE") of this subscription and the
transactions contemplated hereby and the acceptance of the listing of the
Debentures by the TSE (if so required by the Agent) and the listing of the
Shares to be issued upon exercise of the Debentures on the ASE and the TSE.
16. Facsimile Subscriptions
The Company and the Agent will be entitled to rely upon
delivery by facsimile machine of an executed copy of this Subscription Agreement
and acceptance of the Company of such facsimile copy will be legally effective
to create a valid and binding agreement between the Subscriber and the Company
in accordance with the terms hereof.
17. Governing Law
This Subscription Agreement is governed by the laws of the
Province of British Columbia and the federal laws of Canada applicable therein.
18. Survival
This Subscription Agreement, including without limitation the
representations, warranties and covenants contained herein, shall survive and
continue in full force and effect and be binding upon the Subscriber
notwithstanding the completion of the purchase of the Special Warrants by the
Subscriber pursuant hereto, the issuance of Special Warrants by the Company and
any subsequent disposition by the Subscriber of the Special Warrants, or the
Debentures.
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<PAGE>
19. Assignment
This Subscription Agreement is not transferable or assignable
by the parties hereto.
20. Time of the Essence
Time shall be of the essence of this Subscription Agreement.
21. Entire Agreement
This Subscription Agreement contains the entire agreement of
the parties hereto relating to the subject matter hereof and there are no
representations, covenants or other agreements relating to the subject matter
hereof except as otherwise stated or referred to herein.
22. Language
The Subscriber hereby acknowledges that it has consented and
requested that all documents evidencing or relating in any way to the sale of
Special Warrants be drawn up in the English language only. Nous, soussignes,
reconnaissans par les presentees avoir consenti et exige que tous les documents
faisant foi ou se rapportant de quelqu maniere a la vente de ces warrants soient
re diges en langue anglaise seulement.
IN WITNESS WHEREOF the Subscriber has duly executed this
subscription as of the date first above mentioned.
Number of Special Warrants to be purchased at Cdn.$1,000 each:
Total Purchase Price:
(Name of Subscriber - Please type or print)
(Signature and, if applicable, Office)
(Address of Subscriber)
(City, Province, Postal Code)
If the Subscriber is signing as agent for a principal, and the
Subscriber is not a trust company signing as trustee or as an agent for a
fully-managed account, please complete the following:
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<PAGE>
(Name of Beneficial Purchaser - Please type or print)
(Address of Beneficial Purchaser)
(City, Province, Postal Code)
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<PAGE>
ACCEPTANCE
The above-mentioned Subscription Agreement is hereby accepted
and agreed to by Dakota Mining Corporation.
DATED at Toronto, Ontario, the day of February, 1997.
DAKOTA MINING CORPORATION
Per: Authorized Signing Officer
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<PAGE>
SCHEDULE "A"
DAKOTA MINING CORPORATION
Term Sheet
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<PAGE>
SCHEDULE I
THE TORONTO STOCK EXCHANGE
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
To be completed by each proposed private placement purchaser of listed
securities or securities which are convertible into listed securities.
1. DESCRIPTION OF TRANSACTION
(a) Name of issuer of the securities DAKOTA MINING CORPORATION
(b) Number and class of securities to be purchased:
Special Warrants each exchangeable for one $1,000 principal
amount 7.5% unsecured subordinated convertible debenture
(c) Purchase Price: (Cdn.)$1,000
2. DETAILS OF PURCHASER
(a) Name of Purchaser:
(b) Address:
(c) Names and addresses of persons having a greater than 10%
beneficial interest in the Purchaser:
3. RELATIONSHIP TO ISSUER
(a) Is the Purchaser (or any person named in response to 2(c) above)
an insider of the Issuer for the purposes of the Ontario
Securities Act (before giving effect to this private placement)?
If so, state the capacity in which the Purchaser (or person named
in response to 2(c)) qualifies as an insider:
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(b) If the answer to (a) is "no", are the Purchaser and the Issuer
controlled by the same person or company? If so, give details:
4. DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER
Give details of all trading by the Purchaser, as principal, in the
securities of the Issuer (other than debt securities which are not
convertible into equity securities), directly or indirectly, within the
90 days preceding the date hereof:
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<PAGE>
This undertaking is to be used when the private placement is for
special warrants
UNDERTAKING
TO: The Toronto Stock Exchange
The undersigned has subscribed for an agreed to purchase, as principal, the
securities described in Item 1 of this Private Placement Questionnaire and
Undertaking.
The undersigned undertakes not to sell or otherwise dispose of any of the said
securities so purchased or any securities derived therefrom for a period equal
to the lesser of:
(a) six months from the date of the closing of the transaction herein
or for such period as is prescribed by applicable securities
legislation, whichever is longer; and
(b) a period ending on the date that a receipt for a final prospectus
relating to the said securities or any securities derived
therefrom has been issued by the Ontario Securities Commission,
without the prior consent of The Toronto Stock Exchange and any other regulatory
body having jurisdiction.
DATED AT:
(Name of Purchaser - please print)
this day of 1997
(Authorized Signature)
(Official Capacity - please print)
(please print here name of
individual whose signature appears
above if different from name of
purchaser printed above)
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<PAGE>
SCHEDULE "II"
Dakota Mining Corporation
410 Seventeenth Street
Denver, CO
80202
U.S.A.
Dear Sirs:
Re: Dakota Mining Corporation
Private Placement of Special Warrants
1. Number of Special Warrants at Cdn.$1,000.00 for an aggregate
subscription price of $ .
2. Delivery - please deliver the Special Warrant certificate(s) at
the address appearing above unless indicated otherwise below:
3. Registration - registration of the single certificate which is to
be delivered at Closing should be made as follows:
(name)
(address)
4. The undersigned hereby acknowledges that it will deliver to the
Company all such additional completed forms in respect of the
Subscribers' purchase of Special Warrants of the Company as may
be required for filing with the appropriate securities
commissions and regulatory authorities and stock exchanges.
DATED: , 1997.
(name of purchaser)
Per:
(signature)
(position)
In case more than one Special Warrant certificate is to be delivered at closing,
please complete a Schedule "II" for each certificate to be delivered.
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<PAGE>
SCHEDULE "III"
This is the form required under section 135 of the Rules and, if applicable, by
an order issued under section 59 of the Securities Act.
FORM 20A(IP)
Securities Act
Acknowledgment of Individual Purchaser
1. I have agreed to purchase from Dakota Mining Corporation (the
"Issuer") [number and description of securities] (the "Securities") of
the Issuer.
2. I am purchasing the Securities as principal and, on closing of the
agreement of purchase and sale, I will be the beneficial owner of the
Securities.
3. I [circle one] have/have not received an offering memorandum
describing the Issuer and the Securities.
4. I acknowledge that:
(a) no securities commission or similar regulatory authority has
reviewed or passed on the merits of the Securities, AND (b) there
is no government or other insurance covering the Securities, AND
(c) I may lose all of my investment, AND (d) there are
restrictions on my ability to resell the Securities and it is my
responsibility what those restrictions are and to comply with
them before selling the Securities, AND (e) I will not receive a
prospectus that the British Columbia Securities Act (the "Act")
would otherwise require be given to me because the Issuer has
advised me that it is relying on a prospectus exemption, AND (f)
because I am not purchasing the Securities under a prospectus, I
will not have the civil remedies that would otherwise be
available to me, AND (g) the Issuer has advised me that it is
using an exemption from the requirement to sell through a dealer
registered under the Act, except purchases referred to in
paragraph 5(g), and as a result do not have the benefit of any
protection that might have been available to me by having a
dealer act on my behalf.
5. I also acknowledge that: [circle one]:
(a) I am purchasing Securities that have an aggregate acquisition
cost of $97,000 or more, OR
(b) my net worth jointly with my spouse at the date of the agreement
of purchase and sale of the security, is not less than $400,000,
OR
(c) my annual net income before tax is not less than $75,000, or my
annual net income before tax jointly with my spouse is not less
than $125,000, in each of the two most recent calendar years, and
I reasonably expect to have annual net
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<PAGE>
income before tax of not less than $75,000 or annual net income before
tax jointly with my spouse of not less than $125,000 in the
current calendar year, OR
(d) I am registered under the Act, OR
(e) I am a spouse, parent, brother, sister or child of a senior
officer or director of the Issuer, or of an affiliate of the
Issuer, OR
(f) I am a close personal friend of a senior officer or director of
the Issuer, or of an affiliate of the Issuer, OR
(g) I am purchasing securities under section 128(c) ($25,000
registrant required) of the Rules, and I have spoke to a person,
[Name of registered person: (the "Registered Person")] who has
advised me that the Registered Person is registered to trade or
advise in the Securities and that the purchase of the Securities
is a suitable investment for me.
6. If I am an individual referred to in paragraph 5(b), 5(c), or 5(d), I
acknowledge that, on the basis of information about the Securities
furnished by the Issuer, I am able to evaluate the risks and merits of
the Securities because: [circle one]:
(a) of my financial, business or investment experience, OR
(b) I have received advice from a person [Name of Adviser: (the
"Adviser") who has advised me that the Adviser is:
(i) registered to advise, or exempted from the requirement to be
registered to advise, in respect of the Securities, and
(ii) not an adviser of, or in a special relationship with, the
Issuer.
The statements made in this report are true.
DATED, 199 .
Signature of Purchaser
Name of Purchaser
Address of Purchaser
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<PAGE>
1/24/97-3
DAKOTA MINING CORPORATION
SUBSCRIPTION AGREEMENT
(For United States Residents)
February 4, 1997
TO: DAKOTA MINING CORPORATION
AND TO: SCOTIA CAPITAL MARKETS (USA) INC. AND CANACCORD CAPITAL
CORPORATION
RE: SUBSCRIPTION FOR AND PURCHASE OF SPECIAL WARRANTS
OF DAKOTA MINING CORPORATION
Reference is made to an engagement letter (the "Engagement
Letter" dated December 23, 1996 between Dakota Mining Corporation (the
"Company") and Canaccord Capital Corporation (the "Agent") providing for the
issuance and sale by the Company to purchasers of between 20,000 and 25,000
special warrants (the "Special Warrants") for a consideration of Cdn.$1,000.00
per Special Warrant (the "Offering") on the terms and conditions set forth in
the Engagement Letter. A copy of a term sheet (the "Term Sheet") outlining the
features of the Special Warrants and certain terms contained in the Engagement
Letter is attached as Schedule "A" hereto. Pursuant to the Engagement Letter,
the Company and the Agent will enter into a definitive agency agreement (the
"Agency Agreement") which shall set forth certain terms relating to the Special
Warrants. The Special Warrants are being offered pursuant to section 4(2) of the
United States Securities Act of 1933 by Scotia Capital Markets (USA) Inc.
1. Subscription
The undersigned (the "Subscriber") hereby irrevocably
subscribes for and agrees to purchase, subject to the terms and conditions set
forth herein, that number of Special Warrants of the Company set out above the
Subscriber's name on page 8 hereof at a price of Cdn.$1,000.00 per Special
Warrant. The Subscriber understands that the Special Warrants subscribed for
constitute a portion of an offering of between 20,000 and 25,000 Special
Warrants by the Company, pursuant to the terms of the Agency Agreement under
which the Agent will offer the Special Warrants for sale on a best efforts
basis, on behalf of the Company.
2. Description of Special Warrants
The Special Warrants shall be created and issued pursuant to a
special warrant indenture (the "Special Warrant Indenture") between Montreal
Trust Company of Canada, as trustee (the "Trustee"), and the Company to be dated
as of the Closing Date (as hereinafter defined). The specific attributes of the
Special Warrants shall be set forth in the Special Warrant Indenture, which
shall provide, among other things, that the holders of Special Warrants shall
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<PAGE>
be entitled to receive, without payment of any additional consideration, upon
exercise of each Special Warrant in accordance with the terms of the Special
Warrant Indenture, one $1,000 principal amount unsecured convertible debenture
of the Company (each, a "Debenture" and collectively, the "Debentures") subject
to adjustment as described herein. Upon maturity or redemption of the
Debentures, the Company will have the option, subject to prior notice, to repay
the principal amount of the Debentures in cash or in common shares of the
Company (the "Common Shares" or "Shares").
The Special Warrants shall be exchangeable at the option of
the holder at any time on or before 5:00 p.m. (Vancouver time) on the earlier of
(a) the 5th business day after a receipt is issued by the last of the securities
regulatory authorities in each of the Qualifying Jurisdictions (as hereinafter
defined) for the final prospectus (the "Prospectus") qualifying the issuance
(the "Prospectus Qualification") of the Debentures and (b) February 4, 1998 (the
earlier of such dates hereinafter referred to as the "Expiry Date"). All of the
net proceeds (after deducting the commission payable to the Agent on closing)
will be escrowed on closing. The amount of U.S.$5,000,000 will be released to
the Company provided that certain conditions relating to the Merger (as
hereinafter defined) are fulfilled to the satisfaction of the Agent. The balance
of the net proceeds will remain escrowed subject to the completion of the
proposed merger involving USMX Inc. and the Company (the "Merger") and obtaining
the requisite shareholder approval (the "Shareholder Approval") to the issue.
The escrowed proceeds shall not be released to the Company unless and until the
Shareholder Approval is obtained and the Merger occurs on terms described in a
letter agreement between the Company and USMX Inc., dated January 3, 1997 (the
"Merger Agreement") and which are otherwise acceptable to the Agent. Any Special
Warrants not exercised by the Expiry Date shall be exercised by the Trustee on
behalf of the holder immediately prior thereto without any further action on the
part of the holder as described herein.
The Company shall undertake to file the Prospectus and obtain
receipts therefor from the applicable securities regulatory authorities in
British Columbia, Alberta, Ontario and in each of the provinces of Canada in
which Subscribers are resident as applicable (the "Qualifying Jurisdictions")
not later than the later of May 31, 1997 and the date which falls 120 days from
the Closing Date (as hereinafter defined), or such later date as may be
designated by the Agent (the "Qualification Deadline").
Subject to the Redemption Obligation and the Redemption Option
as discussed below, in the event that receipts for the Prospectus are not
obtained prior to the Qualification Deadline, the terms of the Debentures shall
provide that the holders shall be entitled to acquire, for no additional
consideration, 1.10 Common Shares for every Share of the Company otherwise
issuable as and at such time as the Debentures are converted.
In the event that the Shareholder Approval has not been
obtained on a date (the "Shareholder Approval Date") which occurs on or before
April 30, 1997 (the "Shareholder Qualification Deadline"), unless the
Shareholder Qualification Deadline is extended up to May 31, 1997 in accordance
with the Merger Agreement, the number of Special Warrants proportionate to the
Escrow Proceeds shall be subject to automatic redemption by the Company (the
"Redemption Obligation") and, unless the holders elect to keep their Special
Warrants outstanding, holders of such Special Warrants who do not so elect will
receive the Escrow
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<PAGE>
Proceeds for their Special Warrants at the issue price plus interest earned
thereon (on a pro rata basis if the Redemption Obligation exceeds the available
Escrow Proceeds). The Special Warrants of those holders which were not
repurchased pursuant to the Redemption Obligation shall remain outstanding until
the earlier of February 4, 1998 and the date on which the Shareholder Approval
is obtained or no longer required, provided that Special Warrants whose exchange
into Debentures requires Shareholder Approval may not be exchanged for
Debentures until such Shareholder Approval is obtained or no longer required.
In the event that the Merger does not place on or before the
Qualification Deadline, the holders of the Special Warrants shall have the
option (the "Redemption Option") for a period of five business days after the
Qualification Deadline to cause the Company to redeem their Special Warrants by
giving notice to the Company or otherwise tendering their Special Warrants to
the Company, which shall be redeemed and paid for with the Escrow Proceeds
together with interest earned thereon. If the Escrow Proceeds are insufficient
for the redemption of all of the Special Warrants to which such notice relates
or so tendered, then the Special Warrants to be redeemed shall be redeemed on a
pro rata basis.
The Special Warrants, and the Debentures have not been and
will not be registered under the United States Securities Act of 1933, as
amended (the "1933 Act), and may not be offered or sold within the United States
or to, or for the account or benefit of, U.S. Persons unless they are registered
under the 1933 Act, or an exemption from the registration requirements of the
1933 Act is available.
The foregoing description of the Special Warrants is a summary
only and is subject to the detailed provisions of the Special Warrant Indenture
under which such securities shall be issued. In the event of a conflict, the
provisions of the Special Warrant Indenture shall prevail.
3. Payment
The aggregate amount payable by the Subscriber in respect of
the Special Warrants (the "Subscription Price") must accompany this Subscription
Agreement and shall be made in Canadian dollars by certified cheque or bank
draft drawn on a Canadian chartered bank and payable to Canaccord Capital
Corporation or payable in such other manner as may be specified by the Agent to
be dealt with in accordance with the provisions set forth herein.
4. Questionnaire and Undertaking and Direction
The Subscriber must complete, sign and return the following
documents along with two (2) executed copies of this Subscription Agreement to
any of the Agent as soon as possible:
(a) Schedule I, a questionnaire and undertaking required by The Toronto
Stock Exchange on which the Debentures will be listed; and
(b) Schedule II, a direction with respect to registration and delivery
instructions.
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<PAGE>
The Company will file the questionnaires and undertakings of
Subscribers whose subscriptions are accepted by the Company with The Toronto
Stock Exchange.
5. Other Documentation
The Subscriber may also be required to execute any further
documentation as required by The Toronto Stock Exchange or The American Stock
Exchange or under securities legislation or by other regulatory authorities in
the Qualifying Jurisdictions, the United States or the jurisdiction in which the
Subscriber is resident and covenants and agrees to do so upon request by the
Company or the Agent.
6. Closing
Delivery and payment for the Special Warrants (the "Closing")
will be completed at the offices of McCarthy Tetrault, Barristers & Solicitors,
Suite 4700, Toronto Dominion Tower, Toronto-Dominion Centre, Toronto, Ontario
M5K 1E6 at 12:00 a.m. (Toronto time) (the "Closing Time") on February 4, 1997 or
such earlier or later date or time on or before February 21, 1997 as the Company
and the Agent shall mutually agree (the "Closing Date").
Certificates representing the Special Warrants (individually,
a "Special Warrant Certificate" and collectively, the "Special Warrant
Certificates") will be available for delivery against payment to the Company of
the Subscription Price in the manner specified below.
It is a condition of Closing that all necessary regulatory
approvals be obtained and the documents completed in accordance with Section 4
hereof be received prior to the Closing Date. By its execution of this
Subscription Agreement, the Company hereby agrees with the Subscriber that the
Subscriber shall have the benefit of the following provisions set forth in the
Agency Agreement:
(a) the representations and warranties made by the Company to the Agent
and the undersigned as a purchaser of the Special Warrants; and
(b) the covenants of the Company in favour of the Agent and the
undersigned as a purchaser of the Special Warrants;
which representations or warranties, covenants and conditions are hereby
incorporated by reference such that they form an integral part of this
Subscription Agreement and all of which shall survive the closing of the
purchase and sale of the Special Warrants and shall continue in full force and
effect for the benefit of the Subscriber for the period set forth in the Agency
Agreement.
7. Prospectus Exemptions
The sale and delivery of the Special Warrants to the
Subscriber is conditional upon such sale being exempt from the requirements as
to the filing of a prospectus and as to the delivery of an offering memorandum
as defined in the applicable securities legislation or upon
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<PAGE>
the issuance of such rulings, orders, consents or approvals as may be required
to permit such sale without the requirement of filing a prospectus or delivering
an offering memorandum.
The Subscriber acknowledges and agrees that: (a) it (or others
for whom it is contracting hereunder) was not provided with, has not requested,
and does not need to receive, a prospectus or an offering memorandum as defined
in the applicable securities legislation or similar document; (b) its decision
to execute this subscription agreement and to purchase the Special Warrants
agreed to be purchased hereunder (or by others for whom it is contracting
hereunder) has not been based upon any verbal or written representations as to
fact or otherwise made by or on behalf of the Company, the Agent or any other
person or company and that its decision (or the decision of others for whom it
is contracting hereunder) is based entirely upon the Term Sheet and publicly
available information concerning the Company which was obtained by the
Subscriber and not provided to it by either the Company or the Agent; (c) the
sale of the Special Warrants was not accompanied by any advertisement in printed
media of general and regular paid circulation, radio or television or any form
of advertisement or as part of a general solicitation; and (d) it (or others for
whom it is contracting hereunder) has been advised to consult its own legal
advisors with respect to applicable resale restrictions and it (or others for
whom it is contracting hereunder) is solely responsible (and neither the Company
nor the Agent is in any way responsible) for compliance with applicable resale
restrictions.
The Subscriber acknowledges and agrees that the Special
Warrants, and the Debentures issuable upon exercise of the Special Warrants are
subject to statutory hold periods during which these securities may not be
offered, resold or otherwise transferred in Canada, the United States or
elsewhere except in compliance with applicable securities laws and the
requirements of applicable stock exchanges and that the Subscriber shall not so
offer, resell or otherwise transfer these securities except in compliance with
applicable securities laws and the requirements of applicable stock exchanges.
The Subscriber confirms that no representation has been made respecting the
applicable hold periods for the Special Warrants. Subscribers are advised to
consult with their own legal advisers in connection with any applicable resale
restrictions.
8. Representations, Warranties and Covenants of the Subscriber
The Subscriber hereby represents and warrants to the Company
and the Agent (which representations and warranties shall survive closing) that:
1. the Subscriber and any beneficial purchaser for whom the Subscriber is
acting is resident in the jurisdiction set out below your signatures
on page 8;
2. the Subscriber is not an insider of the Company as defined under the
Securities Act (Ontario); and
3. the statements made in Schedule "B" are true and correct as at the
date thereof.
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<PAGE>
9. Reliance Upon Representations, Warranties and Covenants
The Subscriber acknowledges that the representations and
warranties and covenants contained in this Subscription Agreement and in the
Schedules hereto are made with the intent that they may be relied upon by the
Company and the Agent to, among other things, determine its eligibility or (if
applicable) the eligibility of others on whose behalf it is contracting
hereunder to purchase the Special Warrants and the Subscriber hereby agrees to
indemnify the Company and the Agent and any person who controls the Company or
the Agent against all losses, claims, costs, expenses and damages or liabilities
which they may suffer or incur which are caused by or arise from, directly or
indirectly, their reliance thereon. The Subscriber further agrees that by
accepting the Special Warrants the Subscriber shall be representing and
warranting that the foregoing representations and warranties are true as at the
Closing Time with the same force and effect as if they had been made by the
Subscriber at the Closing Time and that they shall survive the purchase by the
Subscriber of the Special Warrants and shall continue in full force and effect
notwithstanding any subsequent disposition by him of the Special Warrants or the
Debentures.
10. The Agent
The Subscriber understands that upon completion of the
purchase from the Company of the Special Warrants, the Agent will receive from
the Company a cash commission equal to 6% of the gross proceeds received by the
Company from the sale of the Special Warrants to be sold under the Offering. No
other fee or commission is payable by the Company in connection with the sale of
the Special Warrants. The Subscriber further understands that the Agent, its
directors, officers, employees and affiliates may, from time to time, hold
positions in securities of the Company.
11. Contractual Right of Action for Rescission
In the event that a holder of Special Warrants, who acquires
the Debentures upon the exercise of the Special Warrants as provided for in the
Prospectus, is or becomes entitled under the Securities Act (British Columbia),
the Securities Act (Alberta) or the Securities Act (Ontario) or the securities
laws of any other jurisdiction to the remedy of rescission by reason of the
Prospectus or any amendment thereto containing a misrepresentation, such holder
shall be entitled to rescission not only of the holder's exercise of its Special
Warrant(s) but also of the private placement transaction pursuant to which the
Special Warrants were initially acquired, and shall be entitled in connection
with such rescission to a full refund of all consideration paid on the
acquisition of the Special Warrants. In the event such holder is a permitted
assignee of the interest of the original Special Warrants subscriber, such
permitted assignee shall be entitled to exercise the rights of rescission and
refund granted hereunder as if such permitted assignee were such original
subscriber. The foregoing is in addition to any other right or remedy available
to a holder of Special Warrants under Section 130 of the Securities Act
(Ontario), or otherwise at law or pursuant to the applicable securities
regulatory requirements of the Qualifying Jurisdictions.
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<PAGE>
12. Costs
All costs and expenses incurred by the Subscriber (including
any fees and disbursements of any special counsel retained by the Subscriber)
relating to the sale of the Special Warrants to the Subscriber shall be borne by
the Subscriber.
13. Appointment of Canaccord Capital Corporation as Subscriber's Agent
The Subscriber, on its own behalf and (if applicable) on
behalf of others for whom the Subscriber is contracting hereunder, hereby:
(a) irrevocably authorizes Canaccord Capital Corporation, to negotiate and
settle the form of the Special Warrant Indenture and any other
agreement to be entered into in connection with this transaction and
to waive on its own behalf and on behalf of the purchasers of Special
Warrants in whole or in part, or extend the time for compliance with,
any of the closing conditions in such manner and on such terms and
conditions as Canaccord Capital Corporation may determine, acting
reasonably, without in any way affecting the Subscriber's obligations
or the obligations of such others hereunder;
(b) acknowledges and agrees that Canaccord Capital Corporation and the
Company may vary, amend, alter or waive, in whole or in part, one or
more of the conditions or covenants set forth in the Agency Agreement
in such manner and on such terms and conditions as it may determine,
acting reasonably, without affecting in any way the Subscriber's or
such others' obligations hereunder; provided, however, that Canaccord
Capital Corporation shall not vary, amend, alter or waive any such
condition where to do so would result in a material change to any of
the material attributes of the Special Warrants described herein; and
(c) irrevocably authorizes Canaccord Capital Corporation to swear, accept,
execute, file and record any documents (including receipts) necessary
to accept delivery of the Special Warrants on the Closing Date and to
terminate this subscription on behalf of the Subscriber in the event
that any condition precedent of the Offering has not been satisfied.
14. Appointment of Trustee
The Subscriber hereby directs the Trustee or other suitable
party to exercise all of the Special Warrants held by the Subscriber, on the
Subscriber's behalf, if the Subscriber has not so exercised all or part of the
Special Warrants on or before the Expiry Date, such direction being subject to
revocation by the Subscriber at any time by providing the Trustee or other
suitable party with written notice of such revocation. The Subscriber
acknowledges and agrees that the terms of this Subscription Agreement do not
require the Subscriber to give the authorization and direction set forth herein
and the Subscriber may elect not to so authorize and direct by deleting this
paragraph 14 and placing the Subscriber's initials beside the same at the time
the Subscriber executes this Subscription Agreement.
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<PAGE>
15. Conditional Upon TSE and ASE Approval
Without limitation, this subscription is conditional upon and
subject to the Company receiving approval of The Toronto Stock Exchange (the
"TSE") and The American Stock Exchange (the "ASE") of this subscription and the
transactions contemplated hereby and the acceptance of the listing of the
Debentures by the TSE (if so required by the Agent) and the listing of the
Shares to be issued upon exercise of the Debentures on the ASE and the TSE.
16. Facsimile Subscriptions
The Company and the Agent will be entitled to rely upon
delivery by facsimile machine of an executed copy of this Subscription Agreement
and acceptance of the Company of such facsimile copy will be legally effective
to create a valid and binding agreement between the Subscriber and the Company
in accordance with the terms hereof.
17. Governing Law
This Subscription Agreement is governed by the laws of the
Province of British Columbia and the federal laws of Canada applicable therein.
18. Survival
This Subscription Agreement, including without limitation the
representations, warranties and covenants contained herein, shall survive and
continue in full force and effect and be binding upon the Subscriber
notwithstanding the completion of the purchase of the Special Warrants by the
Subscriber pursuant hereto, the issuance of Special Warrants by the Company and
any subsequent disposition by the Subscriber of the Special Warrants, or the
Debentures.
19. Assignment
This Subscription Agreement is not transferable or assignable
by the parties hereto.
20. Time of the Essence
Time shall be of the essence of this Subscription Agreement.
21. Entire Agreement
This Subscription Agreement contains the entire agreement of
the parties hereto relating to the subject matter hereof, and there are no
representations, covenants or other agreements relating to the subject matter
hereof except as otherwise stated or referred to herein.
22. Language
The Subscriber hereby acknowledges that it has consented and
requested that all documents evidencing or relating in any way to the sale of
Special Warrants be drawn up in the
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<PAGE>
English language only. Nous, soussignes, reconnaissans par les presentees avoir
consenti et exige que tous les documents faisant foi ou se rapportant de quelqu
maniere a la vente de ces warrants soient re diges en langue anglaise seulement.
IN WITNESS WHEREOF the Subscriber has duly executed this
subscription as of the date first above mentioned.
Number of Special Warrants to be purchased at Cdn.$1,000 each:
Total Purchase Price:
(Name of Subscriber - Please type or print)
(Signature and, if applicable, Office)
(Address of Subscriber)
(City, Province, Postal Code)
If the Subscriber is signing as agent for a principal, and the
Subscriber is not a trust company signing as trustee or as an agent for a
fully-managed account, please complete the following:
(Name of Beneficial Purchaser - Please type or print)
(Address of Beneficial Purchaser)
(City, Province, Postal Code)
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<PAGE>
ACCEPTANCE
The above-mentioned Subscription Agreement is hereby accepted
and agreed to by Dakota Mining Corporation.
DATED at Toronto, Ontario, the day of February, 1997.
DAKOTA MINING CORPORATION
Per:
Authorized Signing Officer
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<PAGE>
SCHEDULE "A"
DAKOTA MINING CORPORATION
Term Sheet
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<PAGE>
SCHEDULE I
THE TORONTO STOCK EXCHANGE
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
To be completed by each proposed private placement purchaser of listed
securities or securities which are convertible into listed securities.
1. DESCRIPTION OF TRANSACTION
(a) Name of issuer of the securities DAKOTA MINING CORPORATION
(b) Number and class of securities to be purchased:
Special Warrants each exchangeable for one $1,000 principal
amount 7.5% unsecured subordinated convertible debenture
(c) Purchase Price: (Cdn.)$1,000
2. DETAILS OF PURCHASER
(a) Name of Purchaser:
(b) Address:
(c) Names and addresses of persons having a greater than 10%
beneficial interest in the Purchaser:
3. RELATIONSHIP TO ISSUER
(a) Is the Purchaser (or any person named in response to 2(c) above)
an insider of the Issuer for the purposes of the Ontario
Securities Act (before giving effect to this private placement)?
If so, state the capacity in which the Purchaser (or person named
in response to 2(c)) qualifies as an insider:
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<PAGE>
(b) If the answer to (a) is "no", are the Purchaser and the Issuer
controlled by the same person or company? If so, give details:
4. DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER
Give details of all trading by the Purchaser, as principal, in the
securities of the Issuer (other than debt securities which are not
convertible into equity securities), directly or indirectly, within the
90 days preceding the date hereof:
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<PAGE>
This undertaking is to be used when the private placement is for special
warrants
UNDERTAKING
TO: The Toronto Stock Exchange
The undersigned has subscribed for an agreed to purchase, as principal, the
securities described in Item 1 of this Private Placement Questionnaire and
Undertaking.
The undersigned undertakes not to sell or otherwise dispose of any of the said
securities so purchased or any securities derived therefrom for a period equal
to the lesser of:
(a) six months from the date of the closing of the transaction herein or
for such period as is prescribed by applicable securities legislation,
whichever is longer; and
(b) a period ending on the date that a receipt for a final prospectus
relating to the said securities or any securities derived therefrom
has been issued by the Ontario Securities Commission, without the
prior consent of The Toronto Stock Exchange and any other regulatory
body having jurisdiction.
DATED AT:
(Name of Purchaser - please print)
this day of 1997
(Authorized Signature)
(Official Capacity - please print)
(please print here name of
individual whose signature appears
above if different from name of
purchaser printed above)
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<PAGE>
SCHEDULE "II"
Dakota Mining Corporation
410 Seventeenth Street
Denver, CO
80202
U.S.A.
Dear Sirs:
Re: Dakota Mining Corporation
Private Placement of Special Warrants
1. Number of Special Warrants at Cdn.$1,000.00 for an aggregate subscription
price of $ .
2. Delivery - please deliver the Special Warrant certificate(s) at the address
appearing above unless indicated otherwise below:
3. Registration - registration of the single certificate which is to be
delivered at Closing should be made as follows:
(name)
(address)
4. The undersigned hereby acknowledges that it will deliver to the Company all
such additional completed forms in respect of the Subscribers' purchase of
Special Warrants of the Company as may be required for filing with the
appropriate securities commissions and regulatory authorities and stock
exchanges.
DATED: , 1997.
(name of purchaser)
Per:
(signature)
(position)
In case more than one Special Warrant certificate is to be delivered at closing,
please complete a Schedule "II" for each certificate to be delivered.
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<PAGE>
SCHEDULE "III"
This is the form required under section 135 of the Rules and, if applicable, by
an order issued under section 59 of the Securities Act.
FORM 20A(IP)
Securities Act
Acknowledgment of Individual Purchaser
1. I have agreed to purchase from Dakota Mining Corporation (the "Issuer")
[number and description of securities] (the "Securities") of the Issuer.
2. I am purchasing the Securities as principal and, on closing of the
agreement of purchase and sale, I will be the beneficial owner of the
Securities.
3. I [circle one] have/have not received an offering memorandum describing the
Issuer and the Securities.
4. I acknowledge that:
(a) no securities commission or similar regulatory authority has reviewed
or passed on the merits of the Securities, AND
(b) there is no government or other insurance covering the Securities, AND
(c) I may lose all of my investment, AND
(d) there are restrictions on my ability to resell the Securities and it
is my responsibility what those restrictions are and to comply with
them before selling the Securities, AND
(e) I will not receive a prospectus that the British Columbia Securities
Act (the "Act") would otherwise require be given to me because the
Issuer has advised me that it is relying on a prospectus exemption,
AND
(f) because I am not purchasing the Securities under a prospectus, I will
not have the civil remedies that would otherwise be available to me,
AND
(g) the Issuer has advised me that it is using an exemption from the
requirement to sell through a dealer registered under the Act, except
purchases referred to in paragraph 5(g), and as a result do not have
the benefit of any protection that might have been available to me by
having a dealer act on my behalf.
5. I also acknowledge that: [circle one]:
(a) I am purchasing Securities that have an aggregate acquisition cost of
$97,000 or more, OR
(b) my net worth jointly with my spouse at the date of the agreement of
purchase and sale of the security, is not less than $400,000, OR
(c) my annual net income before tax is not less than $75,000, or my annual
net income before tax jointly with my spouse is not less than
$125,000, in each of the two most recent calendar years, and I
reasonably expect to have annual net
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<PAGE>
income before tax of not less than $75,000 or annual net
income before tax jointly with my spouse of not less than
$125,000 in the current calendar year, OR
(d) I am registered under the Act, OR
(e) I am a spouse, parent, brother, sister or child of a senior officer or
director of the Issuer, or of an affiliate of the Issuer, OR
(f) I am a close personal friend of a senior officer or director of the
Issuer, or of an affiliate of the Issuer, OR
(g) I am purchasing securities under section 128(c) ($25,000 - registrant
required) of the Rules, and I have spoke to a person, [Name of
registered person: (the "Registered Person")] who has advised me that
the Registered Person is registered to trade or advise in the
Securities and that the purchase of the Securities is a suitable
investment for me.
6. If I am an individual referred to in paragraph 5(b), 5(c), or 5(d), I
acknowledge that, on the basis of information about the Securities
furnished by the Issuer, I am able to evaluate the risks and merits of
the Securities because: [circle one]:
(a) of my financial, business or investment experience, OR
(b) I have received advice from a person [Name of Adviser: (the "Adviser")
who has advised me that the Adviser is:
(i) registered to advise, or exempted from the requirement to be
registered to advise, in respect of the Securities, and
(ii) not an adviser of, or in a special relationship with, the Issuer.
The statements made in this report are true.
DATED, 199 .
Signature of Purchaser
Name of Purchaser
Address of Purchaser
144554\0514777.WP
- 17 -
<PAGE>
SCHEDULE "D"
Legal Opinion of Corporation's Counsel
At the Closing Time, the Agents shall receive a favourable
legal pinion from counsel for the Corporation addressed to the Agents, their
counsel and the Corporation dated the Closing Date, with respect to the
following matters:
(a) the Corporation has been duly incorporated and is existing under
the laws of Canada;
(b) each Canadian Subsidiary has been duly incorporated and is
existing under the laws of its jurisdiction of incorporation;
(c) the Corporation and each Canadian Subsidiary have all necessary
corporate capacity to own, lease and operate their respective
properties and assets and to conduct their respective businesses
at and in the places where such properties and assets are now
owned, leased or operated or such businesses are now conducted;
(d) the Corporation is shown on the share register of each Subsidiary
as the registered holder of all the issued and outstanding shares
in the capital of the Subsidiary (with any modification necessary
to reflect the actual holdings of the Corporation);
(e) the authorized capital of the Corporation consists of o shares,
divided into o Shares and o of which, as at the Closing Date, o
Shares are issued and outstanding (relying solely on a
certificate of the Trustee);
(f) the Debentures have been duly authorized and created and when
issued upon exercise of the Special Warrants, will be validly
issued as fully paid and non-assessable securities of the
Corporation;
(g) the Shares issuable in exchange for the Debentures have been
allotted and reserved for issue pursuant to the exercise of the
Debentures and when issued, will be validly issued as fully paid
and non-assessable shares of the Corporation;
(h) all necessary corporate action has been taken by the Corporation
to duly authorize the creation, issuance and sale of the Special
Warrants and the Special Warrants have been validly created and
issued;
(i) the form and terms of the definitive certificates representing
the Debentures and the Special Warrants have been approved and
adopted by the directors of the Corporation and the Share
certificates comply with all legal requirements relating thereto
including the requirements of the TSE;
(j) each of the Agency Agreement, the Special Warrant Indenture, the
Debenture Indenture and the Subscription Agreements (the
"Agreements") have been duly
144554\0514777.WP
<PAGE>
authorized by all necessary corporate action on the part of
the Corporation, have been duly executed and delivered by and
on behalf of the Corporation and constitute legal, valid and
binding obligations of the Corporation enforceable in
accordance with their terms, except as enforcement thereof may
be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally,
except that specific performance and injunction are equitable
remedies which may only be granted in the discretion of a
court of competent jurisdiction and except as rights to
indemnity, contribution and waiver of contribution may be
limited under applicable law and except as to other
qualifications as to enforceability as are agreed to by
counsel to the Agents;
(k) the execution and delivery of the Agreements, the fulfillment of
the terms hereof and the issuance and sale of the Special
Warrants and the issue of Debentures issuable upon exercise of
the Special Warrants, does not and will not conflict with and
does not and will not result in a breach of, any of the terms,
conditions or provisions of the constating documents of the
Corporation;
(l) the Warrant Agent at its principal office in the City of
Vancouver and Toronto has been duly appointed the transfer agent
and registrar for the Special Warrants;
(m) the Warrant Agent at its principal office in the City of
Vancouver and Toronto has been duly appointed the trustee for the
Debentures;
(n) the TSE has conditionally approved the listing of the Shares
issuable upon conversion of the Debentures, subject to the
Corporation fulfilling all of the requirements of the TSE on or
before the date specified in the letter or letters from the TSE
indicating conditional approval was granted (relying upon such
letters from the TSE);
(o) the issue of the Special Warrants being exempt from the
prospectus and registration requirements of applicable securities
laws;
(p) the issuance of the Debentures issuable upon exercise of the
Special Warrants and the issuance of the Shares issuable in
exchange for the Debentures is exempt from the prospectus and
registration requirements of applicable securities laws;
(q) the resale restrictions applicable to the first trade of the
Shares issued upon conversion of the Debentures where the
distribution of the Shares is qualified pursuant to the
Prospectus;
(r) the resale restrictions applicable to the first trade of the
Shares issued upon conversion of the Debentures where no
Prospectus has been filed in connection therewith;
(s) at the Closing Time, the Debentures do not constitute "foreign
property" within the meaning of the Income Tax Act (Canada), or
any amendments thereto publicly announced by the Minister of
Finance prior to that time; and
144554\0514777.WP
- 2 -
<PAGE>
(t) as to such other matters as counsel to the Agent may reasonably
request.
Any modifications of the foregoing shall be subject to the
approval of the Agents and their counsel acting reasonably. The delivery of a
definitive opinion at the Closing Time accepted by the Agents and their counsel
shall be deemed to constitute the approval of the Agents and their counsel to
any such modifications.
- 3 -
GERALD METALS, INC.
HIGH RIDGE PARK STAMFORD, CT 06905 (203) 609-8300
TELEX. 620226
Fax: (203) 609-8301
February 26, 1997
Mr. Robert R. Gilmore
Vice President, Finance
& Chief Financial Officer
Dakota Mining Corporation
410 Seventeenth Street, Suite 2450
Denver, CO 80202
Dear Robbie:
I am pleased to outline our indicative terms under which Gerald Metals will
provide a refining/purchase contract, pre-production advance facility and a
standby facility for gold production from Dakota Mining Corporation. Our terms
are subject to technical review, credit approval and legal due diligence and
documentation. This letter does not constitute a committed offer.
1. BORROWER/SELLER: Dakota Mining Corporation ("Dakota") and its subsidiaries,
Brohm Mining Corp. ("Brohm"), and Stibnite Mine Inc. and
Barrier Reef, Inc. ("Stibnite"), joint and several.
2. LENDER/BUYER Gerald Metals, Inc. ("Gerald")
3. AMOUNT:
A. Preproduction Advance Facility of U.S. $5,000,000
("Advance Facility").
B. Standby Facility of U.S. $2,500,000 ("Standby Facility").
The Advance Facility above shall be made in conjunction with a commercial gold
refining/purchase contract between Gerald and Dakota.
<PAGE>
GERALD METALS, INC.
DAKOTA MINING CORPORATION
February 28, 1997
Page 2
4. PURPOSE:
A. Advance Facility
For the Gilt Edge Mine and seasonal startup of the Stibnite Mine, and general
corporate purposes related thereto.
B. Standby Facility
Shall be used as a bridge facility for working capital needs of the Illinois
Creek Mine.
5. SECURITY:
A. Continuing first-priority security interest on all personal property of
Dakota, including Inventory Receivables, Equipment.
B. First security interest on all Inventory and Equipment at Brohm
and Stibnite.
C. First mortgage on all Real Property and Personal Property at Brohm
and Stibnite as applicable.
D. 100% of the Stock of Brohm Mining Corp.
E. 100% of the Stock of Stibnite Mine Inc., and Barrier Reef, Inc.
F. Guarantees of related companies as required.
G. During the term of the Standby Facility, Dakota shall assign the
note and security interest related to the U.S. $3,000,000 loan to
USMX.
6. DRAWDOWN:
A. The Advance Facility will be drawn at closing in the amount of
U.S. $3,230,000 for the purpose of repaying the working capital
facility dated April 22, 1996. Thereafter, the Advance Facility may
be drawn down as mutually agreed, in minimum increments of U.S.
$500,000. All funds must be drawn by March 31, 1998.
B. The Standby Facility may be drawn down after agreement by N.M.
Rothschild to the merger agreement between Dakota and USMX. Each
drawdown shall be in a minimum amount of U.S. $250,000.
7. REPAYMENT:
GERALD METALS, INC.
DAKOTA MINING CORPORATION
February 28, 1997
Page 3
A. The Advance Facility is to be repaid in five consecutive monthly payments
of U.S. $1,000,000, beginning June 30, 1998. Dakota will have the ability
to prepay the Advance Facility. Dakota will be responsible for breakage
costs, if any.
B. The Standby Facility is to be repaid in full by July 31, 1997.
8. INTEREST RATE:
LIBOR plus 2.25 percent per annum payable monthly in arrears on any outstanding
balance.
9. REFINING/PURCHASE CONTRACT:
Dakota shall enter into a commercial refining/purchase contract with Gerald for
80 percent of the gold production from Dakota and its subsidiaries for a term of
three years from the date of this Facility. Pricing shall be by mutual agreement
and under the following trading facilities:
SPOT: Dakota shall make such sales to Gerald at spot market bid prices for gold
at any time(s) during normal business hours in New York. In addition, Gerald
will accept firm offers at specific prices to work on behalf of Dakota during
Gerald's business day or on a 24-hour basis using Gerald's European and Far East
offices.
FORWARD Gerald shall provide Dakota with a forward pricing facility.
OPTIONS: Gerald shall provide Dakota quotes for physical bullion options for
both puts and calls.
Forwards and options are subject to our standard trading and margin agreements.
Physical gold shall be delivered in accordance with separate refining contract.
10. HEDGING REQUIREMENTS:
Prior to closing of the Advance Facility, Dakota shall implement a gold hedging
program with Gerald for approximately 70,000 troy ounces at a price to be
mutually agreed.
11. FACILITY FEE:
A. U.S. $150,000 Payable at closing of this Advance Facility.
B. Dakota shall grant to Gerald a one-year gold call option for 5,000 troy
ounces of gold struck at U.S. $385 per troy ounce.
GERALD METALS, INC.
DAKOTA MINING CORPORATION
February 28, 1997
Page 4
C. 5-year option from the date of closing to purchase 100,000 fully registered
shares of Dakota stock at the market on the day of closing.
12. COMMITMENT FEE:
.50 percent per annum to be calculated on the undrawn portion of the Facilities,
pro rated for the period of availability of each Facility.
13. LEGAL FEES:
All charges and expenses, including those of special and local counsel incurred
by Gerald in connection with the proposed Facilities, including but not limited
to, legal costs incurred in connection with the preparation of appropriate legal
documents shall be for Dakota's account. Gerald has established a cap on its
legal fees of U.S. $20,000.
14. CONSULTING FEES:
All charges and expenses incurred by Gerald's independent consultant to review
the engineering studies and inspect the mines from time to time shall be for
Dakota's account.
15. CONDITIONS PRECEDENT TO LENDING:
A. Advance Facility:
Customary provisions for this type of financing, including but not limited to:
Mine operating review for Stibnite and Anchor Hill, done by William Calhoun,
with results acceptable to Gerald:
Issuance of all required permits;
Satisfactory completion of legal and financial due diligence;
Perfection of Security Interest;
Receipt of final credit approval.
B. Standby Facility:
Provisions listed in A. above.
Agreement of N.M. Rothschild to the merger between Dakota and USMX.
<PAGE>
GERALD METALS, INC.
DAKOTA MINING CORPORATION
February 28, 1997
Page 5
16. EVENTS OF DEFAULT:
Customary for this type of financing including, without limitation, payment
default, material adverse change, violation of covenants, loss of
licenses/permits and cross-default with other obligations of Dakota.
17. FORCE MAJEURE:
Neither an event of force majeure nor political interference shall void any of
the obligations of the borrower hereunder.
18. GOVERNING LAW:
The laws of the State of New York.
19. OTHER
A. These terms are conditional upon entering into an intercreditor agreement
covering the guaranty issued by Dakota to N.M. Rothschild, a purchase/refining
contract, and related documents in form and substance satisfactory to Gerald and
our counsel which may include terms and conditions not expressly described
herein.
B. This agreement supersedes all previous discussions and agreements whether
written or verbal relating to this transaction.
C. Mine operating reports as may be required.
Please confirm you agreement by signing where indicated below and returning to
us by fax.
Very truly yours, ACCEPTED:
GERALD METALS INC. DAKOTA MINING CORPORATION
Robert C. Kaeser Robert R. Gilmore
Vice President Vice President, Finance
& Chief Financial Officer
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of March ____, 1997, between USMX, Inc.
("USMX"), a Delaware corporation and USMX of Alaska, Inc. ("USMXA"), an Alaska
corporation (collectively the "Borrowers") and Dakota Mining Corporation, a
Canadian corporation (the "Lender").
WITNESSETH THAT:
WHEREAS, the Lender has agreed to establish for the Borrowers a line of
credit upon and subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the Lender and the Borrowers agree as follows:
ARTICLE I: DEFINITIONS
As used herein the following terms and words shall have the meanings
hereinafter assigned to them:
"Account" means the bank account designated as such by the Lender to
the Borrowers, which Account may be changed from time to time by the Lender upon
reasonable notice to the Borrowers.
"Agreement" means this Loan Agreement, as the same may be amended from
time to time.
"Borrowers" means USMX and USMXA.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by any of the government of the United States,
the State of Colorado, or the government of Canada shall not be regarded as a
Business Day.
"Default" means any of the events specified in Article IX of this
Agreement whether or not there has been satisfied any requirement in connection
with such event for the giving of notice, lapse of time or the happening of any
further condition, event or act.
"Illinois Creek Gold Property" means that certain mining property held
by USMXA in Alaska which is security, inter alia, for the loans made under one
of the Rothschild Credit Agreements.
"Indebtedness" means at any time all indebtedness, liabilities and
obligations, absolute or contingent, direct or indirect, matured or unmatured,
liquidated or unliquidated of the Borrowers to the Lender arising under this
Agreement, or created by reason or in respect hereof, including, without
limitation, all amounts paid or advanced by the Lender to or on behalf of the
Borrowers, all accrued interest on all such amounts paid or advanced by the
Lender to or on behalf of the Borrowers and all fees and expenses to be paid or
reimbursed by the Borrowers pursuant to the terms hereof.
<PAGE>
"Intercreditor Agreement" means the agreement referred to in Section
2.04.
"Loan" means the credit extended by the Lender to the Borrowers
pursuant to this Agreement.
"Loan Documents" means this Agreement, the Notes, the Pledge
Agreements, the Mortgage, and all other agreements and instruments, in form and
substance satisfactory to the Lender, executed and delivered from time to time
in connection with or in furtherance of the transactions contemplated by this
Agreement.
"Maturity Date" means August 31, 1997; provided, if the Agreement and
Plan of Merger between USMX and Lender is terminated for any reason described in
Section 11.3 of such Agreement, then the Maturity Date shall be 15 days after
such date of termination.
"Maximum Lawful Rate" means the maximum nonusurious interest rate, if
any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Notes or on the other amounts that may be
owing to the Lender pursuant to this Agreement or the Notes under the laws of
the State of Colorado and the transactions contemplated by this Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated
February 7, 1997 among Lender, USMX and Dakota Merger Corporation.
"Merger" means the merger transactions contemplated by the Merger
Agreement.
"Mortgage" means that certain Mortgage of even date by and between USMX
and the Lender, respecting pledging of the Thunder Mountain contract and rights
described therein, a copy of which Mortgage is attached hereto as Exhibit B.
"Notes" mean the two promissory notes of the Borrowers in the principal
amounts of $2,000,000 and $3,000,000 respectively evidencing the borrowings
hereunder, which shall be substantially in the form of Exhibits A1 and A2
respectively attached hereto, and all renewals, extensions and replacements
thereof and modifications thereto.
"Person" means an individual, partnership, joint venture, corporation,
bank, trust, unincorporated organization and/or a government or any department
or agency thereof.
"USMXA Pledge Agreement" means that pledge agreement of even date by
and between USMX as pledgor et al. and the Lender as pledgee, a copy of which is
attached hereto as Exhibit C.
"MXUS Pledge Agreement" means that pledge agreement of even date by and
between USMX and USMX of Nevada, Inc. as pledgor and the Lender as pledgee, a
copy of which is attached hereto as Exhibit D.
"Rothschild Credit Agreements" means those certain Credit Agreements
dated as of July 11, 1996 between USMX and USMXA, respectively, and NM
Rothschild & Sons Limited ("Rothschild"), all instruments and documents
delivered in connection therewith, and all modifications, extensions and
renewals to such Credit Agreements and related instruments and documents.
"U.S. Dollars," "Dollars" and "$" means lawful money of the United
States of America in such form or funds as shall be customary at the time for
settlement of payments due in United States funds.
ARTICLE II: LINE OF CREDIT
II:.1 The Loans. Upon the terms and conditions and relying upon the
representations and warranties set forth in this Agreement, the Lender hereby
agrees to provide a line of credit to Borrowers on a joint and several liability
basis up to an aggregate principal amount of $5,000,000. The Loans shall be
evidenced by the two Notes: Note 1 in the principal amount of $2,000,000
attached as Exhibit A1 and Note 2 in the principal amount of $3,000,000 attached
as Exhibit A2. The Borrowers have entered into the Pledge Agreements and the
Mortgage so as to provide security for the Loans. Allocations of advances by
Lender to Borrower under the line of credit will be made to Note 1 or Note 2 in
such amounts as Lender shall determine in its discretion. Lender shall advise
Borrowers of its allocation of advances.
II:.2 Repayment of the Loans. Subject to the provisions of Article IX
below, the Loans shall be due and payable on or before the Maturity Date.
II:.3 Use of Proceeds. The outstanding balance (including accrued
interest) on that certain $250,000 promissory note from USMX to Lender dated
February 13, 1987 will be paid in full from the proceeds of the line of credit.
At least $2.0 million of the draws of the line of credit shall be used by
Borrowers to fund costs and expenses directly associated with developing the
Illinois Creek Gold Property substantially in accordance with the Development
Plan under the Rothschild Credit Agreements. Such expenditures shall be made as
approved by Lender, after consultation with Rothschild. Draws of the remaining
$3.0 million shall be allocated between funding of the Illinois Creek Gold
Property costs and expenses and USMX's general corporate costs and expenses, as
approved by Lender, after consultation with Rothschild. USMX will prepare a plan
of payment of its and USMXA's present outstanding liabilities, which plan shall
be submitted to Lender and Rothschild for approval. The plan will contain
provisions to retire outstanding liabilities by paying a portion of the
obligations immediately and the balance at the closing of the Lender/USMX
merger. Creditors will be paid for future goods and services on a current basis
until closing of the Merger.
II:.4 Intercreditor Agreement. The Loan is subject to the terms and
conditions of an Intercreditor Agreement between Lender, and Rothschild of even
date.
ARTICLE III: INTEREST
III:.1 Interest Rate. Subject to the provisions of Section 3.03 hereof,
for the period from the date of the first advance by the Lender to the Borrowers
under this Agreement to and including the Maturity Date, the aggregate unpaid
principal balance of the Loans shall bear interest, calculated on the basis of a
365 (or, if appropriate, 366) day year, for the actual number of days lapsed, at
a rate per annum equal to one percentage point above the floating Prime Rate as
published on the "Money Rates" column of the Wall Street Journal, from time to
time. Such interest shall be due and payable at maturity, whether by
acceleration or otherwise.
III:.2 Post-Maturity Interest. Subject to the provisions of Section
3.03 hereof, past due principal and, to the extent permitted by applicable law,
past due interest, pursuant to demand, or otherwise, shall bear interest at the
rate of 15% per annum from their due dates until paid. All such accrued interest
shall be due and payable on demand.
III:.3 Maximum Interest Rate. Anything in this Agreement or the Notes
to the contrary notwithstanding, the Borrowers shall never be required to pay
unearned interest on the Notes and shall never be required to pay interest on
such Notes at a rate in excess of the Maximum Lawful Rate, and if the effective
rate of interest which would otherwise be payable under this Agreement and such
Notes shall receive any unearned interest or shall receive monies that are
deemed to constitute interest which would increase the effective rate of
interest payable under this Agreement and such Notes to a rate in excess of the
Maximum Lawful Rate, then (a) the amount of interest which would otherwise be
payable under this Agreement and such Notes shall be reduced to the Maximum
Lawful Rate, and (b) any unearned interest paid by the Borrowers or any interest
paid by the Borrowers in excess of the Maximum Lawful Rate shall, at the option
of the older of such Notes, be either refunded to the Borrowers or credited on
the principal of such Notes. It is further agreed that, without limitation of
the foregoing, all calculations of the rate of interest contracted for, charged
or received by the Lender under the Notes, or under this Agreement, that are
made for the purpose of determining whether such rate exceeds the Maximum Lawful
Rate shall be made, to the extent permitted by the applicable law (now or
hereafter enacted), by amortizing, prorating and spreading in equal parts during
the period of the full stated term of the Loan evidenced by the Notes all
interest at any time contracted for, charged or received by the Lender in
connection therewith. If at any time and from time to time (i) the amount of
interest payable to the Lender on any date shall be limited to the Maximum
Lawful Rate pursuant to this Section 3.03 and (ii) in respect of any subsequent
interest computation period the amount of any interest otherwise payable to the
Lender would be less than the amount of interest payable to the Lender computed
at the Maximum Lawful Rate, then the amount of interest payable to the Lender
computed at the Maximum Lawful Rate, then the amount of interest payable to the
Lender in respect of such subsequent interest computation period shall continue
to be computed at the Maximum Lawful Rate until the total amount of interest
payable to the Lender shall equal the total amount of interest which would have
been payable to the Lender if the total amount of interest has been computed
without giving effect to clause (a) of this Section 3.03.
ARTICLE IV: PREPAYMENTS: PAYMENTS
IV:.1 Optional Prepayments. Except as otherwise provided in Article V
below, the Loan may be prepaid at any time without penalty or premium upon at
least one (1) Business Day prior written notice to the Lender (once given any
such notice shall be irrevocable and the Borrowers shall be obligated to prepay
in accordance therewith); provided, that accrued and unpaid interest on the
amount prepaid shall be due and payable on the date of prepayment.
IV:.2 Payment at Account; Currency; Net Payments. The proceeds of the
Loan shall be made available to the Borrowers in immediately available, freely
transferable U.S. Dollars by delivering to the Account to be further disbursed
according to the Use of Proceeds Section 2.03. All sums payable by the Borrowers
under this Agreement, whether principal, interest, fees or otherwise, shall be
paid in full to the Lender in immediately available, freely transferable U.S.
Dollars when due hereunder, without set off, withholding or deduction of any
kind whatsoever; provided, however, to the extent the Borrowers are prohibited
from making any such payments free from any set off, withholding or deduction,
the Borrowers shall pay to the Lender such additional amounts as shall fully
indemnify and save harmless the Lender from such set off, withholding or
deduction. Any payments due and payable under this Agreement or the Notes on a
day that this not a Business Day shall be due and payable on the next succeeding
Business Day and such extension of time shall in such case be included in the
computation of the amount of interest due.
ARTICLE V: CONDITIONS
V:.1 Conditions Precedent to the Loan. The obligation of the Lender to
make the Loan and to fund advances from the Account is subject to all of the
following conditions precedent being satisfied:
a. The Borrowers shall have executed and delivered to the
Lender the Loan Documents required by the Lender to be in effect on the date of
the Loan and the Borrowers' counsel shall have delivered such opinion, in form
and substance satisfactory to the Lender, as to the due authorization,
execution, delivery and enforceability of each of the Loan Documents and as to
such other matters as the Lender may reasonably require.
b. No Event of Default shall have occurred and be continuing,
or would result from the granting of such credit whether or not the Borrowers
are taking steps to cure such Event of Default and whether or not the
Indebtedness has become due and payable pursuant to Section 9.01.
c. The representations and warranties of the Borrowers
contained in Article VI shall be true on and as of the date of the Loan advance
as though made on and as of such date and the acceptance of the Loan or advance
by the Borrowers shall be deemed to constitute a representation and warranty to
such effect.
d. The Borrowers shall have delivered to Lender (i) executed
Pledge Agreements; (ii) an executed Mortgage; and (iii) stock certificates for
the shares subject to the MXUS Pledge Agreement and undated executed stock
powers assigning such shares of stock under the Pledge Agreements to Lender.
e. The Intercreditor Agreement between Lender and Rothschild
shall have been executed fully and is in effect.
f. Borrowers shall have prepared and Lender and Rothschild
shall have approved a plan of payment of Borrowers' outstanding liabilities and
Lender and Rothschild shall have approved such plan, as contemplated by Section
2.03.
V:.2 Deferral. The Lender, at the Lender's option, may provide credit
hereunder notwithstanding that certain of the conditions therefor have not been
satisfied and the providing of such credit shall not operate so as to waive the
Lender's right to require compliance thereafter with any such requirement.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
VI:.1 Representations and Warranties. In order to induce the Lender to
enter into this Agreement, the Borrowers represent and warrant to the Lender
that, except as otherwise permitted or disclosed by Borrowers to Lender in the
Merger Agreement or otherwise disclosed to Lender in writing:
a. Organization and Authority. The Borrowers are duly
organized, validly existing and in good standing under the laws of their
jurisdictions of incorporation and have all requisite corporate power, capacity
and authority (i) to own, lease and operate their assets, properties and
business and to carry on their business as now being conducted, and (ii) to
execute, deliver and perform their obligations under this Agreement. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action by the Borrowers. The Borrowers and all affiliated entities
under the control of the Borrowers ("Affiliates") have all necessary material
United States federal, state and local and Canadian federal, provincial and
local licenses, permits and authorizations to own or lease their properties and
assets and to carry on their businesses as now being conducted.
b. Conflicting Agreements and Other Matters. The execution,
delivery and performance by the Borrowers of this Agreement does not and will
not violate or conflict with or result in a breach of or constitute (or with
notice or lapse of time or both constitute) a default under (a) the
incorporating documents or by-laws of Borrowers or any of their Affiliates, (b)
any indenture, mortgage, bond, licenses, permit or loan or credit Agreement or
any other Agreement or instrument to which the Borrowers or any of their
Affiliates is a party or by which the Borrowers or any of their Affiliates or
any of their properties may be bound or affected or (c) any statute or law or
judgment, decree, order, writ, injunction, regulation or rule of any court or
governmental authority of any state or of the United States or of Canada or any
province thereof or of any political subdivision of any of the foregoing. The
execution, performance and delivery by the Borrowers of this Agreement will not
result in the creation of any lien with respect to the assets of the Borrowers
or any of their Affiliates except as otherwise provided by this Agreement, the
Mortgage and the Pledge Agreements.
c. Binding Obligations. Each of the Loan Documents constitutes
a legal, valid and binding obligation of the Borrowers enforceable against the
Borrowers in accordance with their respective terms except as enforceability may
be limited by (i) any applicable bankruptcy, reorganization, winding-up,
insolvency, moratorium or other laws of general application effecting creditors'
rights from time to time in effect and (ii) general equitable principles
including rules governing the granting of specific performance and injunctive
relief, which are within the discretion of the court having jurisdiction.
d. Consents. No authorization, consent, validation, approval, license,
qualification or formal exemption from, and no filing, declaration or
registration with, any court, governmental agency or regulatory authority or any
securities exchange or any other person, whether located in the United States or
Canada or elsewhere, is required in connection with the authorization,
execution, delivery or performance by the Borrowers of this Agreement or the
Pledge Agreements, except for approvals required by Rothschild or in connection
with the Mortgage and MXUS Pledge Agreement which will be obtained prior to
making an advance under the line of credit.
e. Litigation. There is no action, suit, inquiry, litigation, arbitration
or administrative or legal proceeding presently pending or, to the best
knowledge of the Borrowers, threatened against the Borrowers or any of their
Affiliates before any court or administrative agency of any country or
subdivision thereof.
f. Financial Statements. The financial statements of the
Borrowers most recently submitted to the Lender of December 31, 1996 are
materially correct and complete in all material respects and have been prepared
in accordance with generally accepted accounting principles consistently
applied. The written information and reports furnished to the Lender do not
contain any material misstatement of fact nor do they omit a material fact
necessary to make the statements contained therein not misleading. Since the
dates of the most recent financial statements and reports of the Borrowers
provided to the Lender, there has not been any adverse change in the financial
condition, assets or business of the Borrowers and the Borrowers have not
incurred any additional liabilities or obligations, whether accrued, absolute,
contingent or otherwise except in the ordinary course of business and disclosed
in writing to Lender.
g. Environmental Matters. Borrowers and their Affiliates are
in material compliance with all applicable laws, rules and regulations governing
exploration and mining activities and the discharge of any wastes, effluents or
other materials into the environment. Borrowers and their Affiliates have
obtained all licenses, permits and authorizations to carry on the exploration
and mining activities now being conducted by Borrowers and their Affiliates.
Borrowers are not aware of any condition on the properties of Borrowers or any
of their Affiliates or of any other facts or circumstances which might cause
Borrowers or any of their Affiliates to be subject to damages, injunctive
relief, clean up costs or any other liabilities under any applicable
environmental laws, rules or regulations.
h. Correct and Full Disclosure. Neither the financial
statements referred to in Section 6.01(f) nor any other written material
furnished by or on behalf of the Borrowers in connection with the negotiation or
confirmation of the transactions as contemplated hereby, contained, as of the
time such statements or material were so furnished, any untrue statements of a
material fact or omitted as of such time a material fact necessary to make the
statements contained therein not misleading, and all such statements and
material, taken as a whole, together which this Agreement, do not contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained herein or therein not misleading to the best of the
knowledge, information and belief of the Borrowers. There is no fact which the
Borrowers have not disclosed to the Lender in writing which materially adversely
affects or, so far as the Borrowers can now reasonably foresee, will materially
adversely affect the assets, affairs, business, prospects, operations or
conditions of the Borrowers and their Affiliates, financial or otherwise, or the
ability of the Borrowers to perform their obligations under this Agreement.
VI:.2 Continuance of Representations and Warranties. The
representations and warranties set forth in Section 7.01 hereof shall survive
the execution of this Agreement and shall continue as long as there shall be any
Indebtedness outstanding under this Agreement as if repeated and given again to
the Lender on each day during the term hereof.
ARTICLE VII: AFFIRMATIVE COVENANTS
The Borrowers hereby covenant and agree with the Lender that, except
with the prior written consent of the Lender, for the period from the date
hereof until all Indebtedness being fully satisfied, the Borrowers will duly
perform and observe each of the covenants and agreements as follows:
VII:.1 Further Assurances and Books.
a. The Borrowers will promptly cure any defects in the
execution and delivery of this Agreement, the other Loan Documents and any other
documents arising herefrom. The Borrowers at their expense will from time to
time promptly execute and deliver to the Lender upon request any and all
additional or substitute Notes reasonably requested by the Lender and all such
other and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrowers hereunder or
under any other Loan Document or more fully to state the obligations set out
herein or to make any recordings, to file any notices, or obtain any consents,
all as may be reasonably necessary or appropriate in connection herewith or
therewith.
b. The Borrowers will maintain proper books of record and
account in accordance with generally accepted accounting principles. The
Borrowers will permit the Lender or any Person designated by the Lender to
discuss the affairs and finances of the Borrowers, insofar as they relate to
this Agreement, with the Borrowers' principal officers, all at such times as the
Lender may reasonably request.
c. Whenever and as often as the Lender may request, the
Borrowers will promptly execute and deliver all such further instruments
(including, without limitation, additional security agreements, pledge
agreements and financing statements) and do such other acts as the Lender may
request for the purpose of protecting or perfecting any lien or security
interest created or granted or intended to be created or granted in connection
with this Agreement, the Notes or the Pledge Agreements or in order to ensure
that any such lien or security interest is of the priority contemplated by the
Pledge Agreements, this Agreement or the Notes, or in order to supervise or
protect any collateral or otherwise to carry out more effectually the purposes
and intent of this Agreement, the Pledge Agreements and the Notes. The Borrowers
will also at their expense obtain and furnish to the Lender all such options of
legal counsel as the Lender may request in connection with any such security
instrument or act of the Borrowers.
VII:.2 Expenses. If an Event of Default and acceleration of the
maturity of the Loan occurs or if the Loan is terminated for any reason
described in Section 11.3 of the Merger Agreement, the Borrowers will, on
demand, pay all legal fees and disbursements reasonably incurred by the Lender
upon the occurrence of any event which constitutes a Default or an Event of
Default.
VII:.3 Notice of Default. The Borrowers shall promptly notify the
Lender if the Borrowers learn of the occurrence of any event which constitutes a
Default or an Event of Default and shall provide a detailed statement by a
responsible officer of the Borrowers of the steps being taken to cure such
Default or Event of Default, or to avoid the happening of, an Event of Default.
VII:.4 Reporting Requirements. So long as any Indebtedness remains
outstanding, the Borrowers will promptly deliver to the Lender all financial
statements, reports, proxy materials and other like information distributed by
the Borrowers to their shareholders. Promptly after request, the Borrowers shall
provide Lender with such additional financial or other information as the Lender
may reasonably request.
VII:.5 Payment of Taxes and Other Claims. The Borrowers will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, and before penalties accrue thereon, (1) all taxes, assessments and
governmental charges levied or imposed upon or against the Borrowers or any of
their Affiliates, when the nonpayment of any such amounts may have an adverse
effect on Borrowers, (2) all governmental charges or taxes at any time payable
or ruled to be payable in respect of the existence, execution or delivery of
this Agreement. Notwithstanding the foregoing, Borrowers shall have the right to
protest and contest any such taxes, assessments or charges so long as such
protests or contests are being diligently prosecuted by Borrowers.
VII:.6 Maintenance of Corporate Existence. The Borrowers will maintain
their corporate existence and right to carry on their business and duly procure
all necessary renewals and extensions thereof and use their best efforts to
maintain, preserve and renew all such rights, powers, privileges and franchises.
ARTICLE VIII: NEGATIVE COVENANTS
The Borrowers covenant and agree with the Lender as follows that,
except with the prior written consent of the Lender (which consent will not be
unreasonably withheld), except as provided, disclosed or contemplated in the
Merger Agreement or in the plan of payment described in Section 2.03 hereof or
otherwise herein, or except as may be necessary to comply with the Rothschild
Credit Agreements, for the period from the date hereof until all Indebtedness
being fully satisfied, the Borrowers will duly perform and observe each of the
covenants and agreements as follows:
VIII:.1 Loans, Advances, and Investments. The Borrowers will make no
loans, advances, investments or any other similar transfer of assets to or in
any Person.
VIII:.2 Payments in Respect of Stock. The Borrowers will not declare or
pay any dividend or distribution on any of the shares of their capital stock,
and will not repurchase or redeem any of the shares of their capital stock.
VIII:.3 Sale of Assets. The Borrowers will not sell, lease, assign,
transfer or otherwise dispose of in a single transaction or in a series of
transactions all or a significant portion of the Borrowers' assets (whether now
owned or hereafter acquired).
VIII:.4 Partnership and Joint Venturers. The Borrowers will not form
any subsidiary, partnership, joint venture or any other combination or
participate in any such partnership, joint venture or other combination.
VIII:.5 Merger or Amalgamation. The Borrowers will not merge,
consolidate, combine or amalgamate with any other corporation or entity except
under the Merger Agreement.
VIII:.6 Borrowings, Mortgages, etc. The Borrowers will not borrow any
funds from any Person, except in the ordinary course of business or as otherwise
provided herein. In addition, the Borrowers will not, except in the ordinary
course of business, create or permit to exist any lien, encumbrances or security
interest (including the charge upon assets purchased under a conditional sales
agreement, purchase money mortgage, security agreement or other title retention
agreement) upon any of their assets, whether now owned or hereafter acquired, or
assign or otherwise convey any right to receive income except pursuant to the
Pledge Agreements; provided however nothing in this Section 8.06 shall prevent
Borrowers from obtaining further financing from Rothschild for the Illinois
Creek Gold Property.
VIII:.7 Payments with Respect to Junior Debt. The Borrowers will not
make any payments, assignments, repurchases, redemptions or any similar
transfers with respect to any indebtedness for borrowed money whether for
principal, interest or other obligations other than pursuant to the Rothschild
Credit Agreements and the Notes, except pursuant to Section 2.03.
ARTICLE IX: EVENTS OF DEFAULT AND REMEDIES
IX:.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
a. the Borrowers shall fail to pay the full amount of principal or interest
or any other sums required to be paid to the Lender pursuant to this Agreement
on the due date thereof;
b. the Borrowers shall fail to perform or observe any term, covenant or
agreement on their part to be performed or observed under any provision of this
Agreement, other than the payment of principal and interest, whether or not such
performance or observance shall be within the control of the Borrowers, except
that with respect to covenants contained in Article VII hereof, no Event of
Default shall occur unless such failure shall continue unremedied for a period
of five (5) Business Days after the Borrowers first become aware of such
failure:
c. the Borrowers shall fail to perform any term, covenant or agreement on
their part to be performed or observed under any provision of the Pledge
Agreements and such failure continues for five Business Days after notice
thereof;
d. any material representation, statement or warranty by the Borrowers to
the Lender contained in or pursuant to (i) this Agreement, (ii) any other Loan
Document, or (iii) the Pledge Agreements shall be or become false or untrue in
any material respect;
e. the Borrowers shall suffer a default or event of default
under any of the Rothschild Credit Agreements and Rothschild shall have
exercised its right to accelerate indebtedness due from the Borrowers under the
Rothschild Credit Agreements.
f. the Borrowers, or either of them shall (i) apply for or
consent to the appointment of a receiver, trustee or liquidator of itself or of
all or a substantial part of their assets, (ii) make a general assignment for
the benefit of credits, (iii) file a voluntary petition in bankruptcy or a
petition seeking reorganization or an arrangement with credits, (iv) avail
themselves of any insolvency law or other law pertaining to creditors'
arrangements or reorganizations, or admit the materials allegations of a
petition or application filed in respect of themselves in any bankruptcy,
reorganization or insolvency proceeding, or (v) take any corporate or other
action for the purpose of effecting any of the foregoing;
g. an order, judgment or decree shall be entered by any court
of competent jurisdiction, approving a petition seeking reorganization of the
Borrowers or appointing a receiver, trustee, liquidator, assignee, custodian,
sequestrator (or similar official) of the Borrowers or of all or a substantial
part of their assets, unless the attorneys for the Lender shall advise that such
proceedings are unlikely to be successful;
h. a receiver, trustee, liquidator, assignee, custodian,
sequestrator (or similar official) of the Borrowers or of all or substantially
all of their assets is appointed by any creditor of the Borrowers or if a
bankruptcy petition is filed or presented against the Borrowers, unless the
attorneys for the Lender shall advise that such proceedings are unlikely to be
successful;
i. except for the Peak Oilfield Service Co. dispute and so
long as the Merger Agreement is in effect, a final nonappealable judgment for
the payment of money against the Borrowers in excess of $100,000 shall be
rendered and remain undischarged for a period of five (5) Business Days; or lien
foreclosure proceedings shall be commenced upon the property of the Borrowers
without being opposed by bona fide proceedings by the Borrowers; or
j. any material provision of this Agreement, the Notes, the
Pledge Agreements, any other Loan Document shall at any time for any reason
cease to be the legal, valid and binding obligation of the Borrowers party
thereto, or shall be null and void, or the validity or enforceability thereof
shall be contested by the Borrowers, any governmental authority or agency or any
other Person, or the Borrowers or any other Person or party thereto shall deny
in writing that it has any or further liability or obligation under this
Agreement, the Notes, the Pledge Agreements, or any other Loan Document;
k. the Pledge Agreements, Mortgage or any other security
agreement, financing statement or similar document or instrument executed,
delivered or entered into for the benefit of the Lender shall for any reason
cease (i) to create a valid and perfected security and lien in and to the
property purported to be covered thereby, having the priority required by such
document or instrument or (ii) to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by any debtor, grantor or mortgagor shall deny it has any further
liability or obligation under such security agreement, pledge, deed of trust or
similar document or instrument.
If any of the events described in Subsection (f), (g) or (h) of Section
9.01 shall occur, the entire principal amount of any Indebtedness then
outstanding shall become immediately due and payable, all without notice of
intent to accelerate and without presentment, demand, protest, notice of protest
or dishonor or any other notice of default or notice of any other kind, all of
which are hereby expressly waived by the Borrowers. Upon the occurrence and at
any time during the continuance of any other Event of Default specified in
Section 9.01, subject to the terms of the Intercreditor Agreement the holder of
the Notes may declare the entire principal amount of all Indebtedness then
outstanding thereunder to be immediately due and payable without presentment,
demand, notice of intent to accelerate, protest, notice of protest or dishonor
or other notice of default or notice of any other kind, all of which are hereby
expressly waived by the Borrowers, and all obligations of the Lender hereunder
to extent credit shall immediately cease and terminate and the Borrower shall
cease to have any right to obtain credit hereunder.
IX:.2 Remedies Cumulative. The Lender shall have all of the rights and
remedies granted in the Loan Documents and available at law or in equity, and
these same rights and remedies shall be cumulative and may be pursued
separately, successively or concurrently at the sole discretion of the Lender.
The exercise or failure to exercise any of the same shall not constitute a
waiver or release thereof or of any other right or remedy, and the same shall be
nonexclusive.
IX:.3 Waiver. The Lender may by written instrument in its absolute
discretion at any time and from time to time waive any breach by the Borrowers
of any of the covenants herein. No course of dealing between the Borrowers and
the Lender nor any delay in exercising any rights hereunder or under any other
security shall operate as a waiver of any rights of the Lender.
IX:.4 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Lender in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude any other or further exercise thereof or
of any other right, power or privilege.
ARTICLE X: MISCELLANEOUS
X:.1 Notices. Any notice, direction or other instrument required or
permitted to be given under this Agreement shall be in writing and may be given,
in the case of the Borrowers, by delivering same or mailing same by registered
mail or in the case of any of the parties hereto by sending same by telegram,
telex, telecommunication device or other similar form of communication to the
following addresses:
If to the Borrowers:
USMX, Inc.
USMX of Alaska Inc.
Attn: Donald P. Bellum, President
141 Union Boulevard, Suite 100
Lakewood, CO 80228
with a copy to:
Bearman, Talesnick & Clowdus, Professional
Corporation
Attn: Robert M. Bearman, Esq.
1200 17th Street, Suite 2600
Denver, CO 80202
If to the Lender:
Dakota Mining Corporation
Attn: Robert R. Gilmore, Vice President,
Finance & CFO
410 Seventeenth Street, Suite 2450
Denver, CO 80202
with a copy to:
Parcel, Mauro, Hultin & Spaanstra, P.C.
Attn: Richard F. Mauro, Esq.
1801 California Street, Suite 3600
Denver, Colorado 80202
Any notice, direction or instrument aforesaid shall:
a. if delivered, be deemed to have been given or made at the time of
delivery if the same is a Business Day or if not a Business Day,
on the first Business Day thereafter;
b. if sent by telegraph, telex, telecommunication device or other
similar form of communication, be deemed to have been given or
made on the day on which it was sent if the same is a Business
Day or if not a Business Day, on the first Business Day
thereafter; and
c. if mailed in the United States of America or Canada, be deemed to
have been given or made on the fifth Business Day after deposit
in the mails.
Any party may give written notice of change of address in the same manner, in
which event such notice shall thereafter be given to it as above provided at
such changed address. No failure to provide a copy shall invalidate any notice
given.
X:.2 Modifications. No provision of this Agreement or the other Loan
Documents may be modified, waived or terminated except by instrument in writing
executed by the party against whom a modification, waiver or termination is
sought to be enforced.
X:.3 Severability. In case any of the provisions of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable, such
invalidity, illegality or unenforceability shall not affect any other provisions
hereof, and this instrument shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
X:.4 Captions. The captions, headings and arrangements used in this
Agreement are for convenience only and do not in any way affect, limit, amplify
or modify the terms and provisions hereof.
X:.5 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado. Borrowers consent to the
personal jurisdiction of the State or federal courts in Colorado in any action
commenced in connection with this Agreement.
X:.6 Counterparts. This Agreement may be executed in several
counterparts, and by the parties hereto on separate counterparts. Each
counterpart, when executed and delivered by the party or parties thereto, shall
constitute an original instrument, and all such separate counterparts shall
constitute but one and the same agreement.
10.07 Further Actions. From time to time, as and when requested by any
party, the other parties shall execute and deliver, or cause to be executed and
delivered, such documents and instruments and shall take, or cause to be taken,
such further or other actions as may be reasonably requested in order to:
(a) carry out the intent and purposes of this Loan Agreement
(b) effect the creation of security interests hereunder (or to
evidence the foregoing); and
(c) consummate and give effect to the other transactions, covenants,
and agreements contemplated by this Loan Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
USMX, INC.
By: Donald P. Bellum
Title: President
USMX OF ALASKA, INC.
By: Donald P. Bellum
Title: President
DAKOTA MINING CORPORATION
By:
Title:
<PAGE>
- 17 -
<PAGE>
EXHIBIT A1
PROMISSORY NOTE
U.S. $2,000,000.00 March __, 1997
Denver, Colorado
FOR VALUE RECEIVED, the undersigned, USMX, Inc. and USMX of Alaska,
Inc. (jointly and severally the "Borrowers"), HEREBY PROMISE TO PAY to the order
of Dakota Mining Corporation (the "Lender"), the principal sum of U.S. Two
Million Dollars (U.S. $2,000,000.00) or, if less, the aggregate unpaid principal
amount of all Loans made by the Lender to the Borrowers under this Promissory
Note pursuant to the Loan Agreement (as hereinafter defined) outstanding on the
Maturity Date (as that term is defined in the Loan Agreement), or such earlier
date as contemplated by Article 9.01 of the Loan Agreement, provided that
accrued and unpaid interest on any amount prepaid shall be due and payable on
the date of the prepayment; and provided, further, that payment on the Maturity
Date shall be in the amount necessary to pay in full the unpaid principal
balance and any and all accrued and past due interest.
Interest on the unpaid principal balance of the Loan (as that term is
defined in the Loan Agreement) shall be calculated on a basis of a 365 (or, if
applicable, 366) day year for the actual number of days elapsed, at a rate per
annum equal to one percentage point above the floating Prime Rate as published
in the "Money Rates" column of the Wall Street Journal, from time to time. Such
interest shall be due and payable at maturity, whether by acceleration or
otherwise. Past due principal and, to the extent permitted by applicable law,
past due interest, pursuant to demand or otherwise, shall bear interest from its
due dates until paid, at the rate of fifteen percent per annum.
Both principal and interest are payable in U.S. Dollars (as that term
is defined in the Loan Agreement) to the Lender in immediately available funds.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, that certain Loan Agreement of even date between
Borrowers and Lender and is subject to the terms and provisions the
Intercreditor Agreement as defined in the Loan Agreement.
USMX, INC.
By: Donald P. Bellum
Title: President
USMX OF ALASKA, INC.
By: Donald P. Bellum
Title: President
<PAGE>
- 1 -
EXHIBIT A2
PROMISSORY NOTE
U.S. $3,000,000.00 March __, 1997
Denver, Colorado
FOR VALUE RECEIVED, the undersigned, USMX, Inc. and USMX of Alaska,
Inc. (jointly and severally the "Borrowers"), HEREBY PROMISE TO PAY to the order
of Dakota Mining Corporation (the "Lender"), the principal sum of U.S. Three
Million Dollars (U.S. $3,000,000.00) or, if less, the aggregate unpaid principal
amount of all Loans made by the Lender to the Borrowers under this Promissory
Note pursuant to the Loan Agreement (as hereinafter defined) outstanding on the
Maturity Date (as that term is defined in the Loan Agreement), or such earlier
date as contemplated by Article 9.01 of the Loan Agreement, provided that
accrued and unpaid interest on any amount prepaid shall be due and payable on
the date of the prepayment; and provided, further, that payment on the Maturity
Date shall be in the amount necessary to pay in full the unpaid principal
balance and any and all accrued and past due interest.
Interest on the unpaid principal balance of the Loan (as that term is
defined in the Loan Agreement) shall be calculated on a basis of a 365 (or, if
applicable, 366) day year for the actual number of days elapsed, at a rate per
annum equal to one percentage point above the floating Prime Rate as published
in the "Money Rates" column of the Wall Street Journal, from time to time. Such
interest shall be due and payable at maturity, whether by acceleration or
otherwise. Past due principal and, to the extent permitted by applicable law,
past due interest, pursuant to demand or otherwise, shall bear interest from its
due dates until paid, at the rate of fifteen percent per annum.
Both principal and interest are payable in U.S. Dollars (as that term
is defined in the Loan Agreement) to the Lender in immediately available funds.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, that certain Loan Agreement of even date between
Borrowers and Lender and is subject to the terms and provisions the
Intercreditor Agreement as defined in the Loan Agreement.
USMX, INC.
By: Donald P. Bellum
Title: President
USMX OF ALASKA, INC.
By: Donald P. Bellum
Title: President
<PAGE>
- 2 -
EXHIBIT C
USMXA PLEDGE AGREEMENT
This Pledge Agreement is entered into as of March ____, 1997, by and
between Dakota Mining Corporation (the "Lender"), and USMX, Inc., a Delaware
corporation (the "Borrower").
RECITALS
A. Pursuant to the provisions of a Loan Agreement (the "Loan Agreement")
dated March ____, 1997 and two Promissory Notes in the amount of $2,000,000
(Note 1) and $3,000,000 (Note 2) respectively, dated March ____, 1997, each by
and between the Lender and the Borrower, the Borrower has incurred or may incur
Indebtedness to the Lender in the principal amount of up to U.S. $5,000,000.00.
Certain defined terms herein shall have the same meanings as set forth in the
Loan Agreement.
B. In order to secure such Indebtedness evidenced by Note 1 for $2,000,000
only, Borrower desires to grant to Lender and Lender desires to obtain from
Borrower, a pledge of all of the shares of the common stock of USMX of Alaska,
Inc. (the "USMXA Stock") (100,000) owned by Borrower.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Borrower hereby pledges to Lender, and grants a security interest to
Lender in, all of the USMXA Stock owned by Borrower in order to secure the
performance of all of Borrower's obligations and liabilities to Lender under the
terms and provisions of the Loan Agreement (except payment obligations of Note
2) and Note 1. In connection with such pledge, Borrower has delivered to
Rothschild as collateral under one of the Rothschild Credit Agreements the
certificate(s) representing all of the shares of the USMXA Stock (100,000) along
with an undated executed stock assignment assigning all of such shares to
Rothschild. Rothschild, Borrower and Lender have entered into an Intercreditor
Agreement on which, inter alia, they have agreed that Rothschild shall hold such
USMXA Stock as collateral for the benefit of Lender on the terms set forth in
the Intercreditor Agreement. Such assignment shall not be exercised unless and
until there is an Event of Default by Borrower under the terms and provisions of
the Loan Agreement and Lender has complied with the terms of the Intercreditor
Agreement. This USMXA Pledge Agreement, and all rights of Lender hereunder in
USMXA Stock, will terminate upon the consummation of the Merger.
2. Upon the occurrence of an Event of Default under the Loan Agreement,
and subject to the terms of the Intercreditor Agreement, and in addition to all
other rights and remedies provided to Lender hereunder or at law, with respect
to the pledge of the USMXA Stock, Lender shall have all the rights and remedies
of a secured creditor under the Uniform Commercial Code as adopted in Colorado,
or other applicable law.
3. While this USMXA Pledge Agreement remains in effect, until such time
as Borrower's obligations pursuant to Note 1 have been fully satisfied and
except as provided or contemplated in the Rothschild Credit Agreements, Borrower
shall not sell, transfer, convey or encumber in any manner the USMXA Stock to
any person or entity without the prior written consent of the Lender.
4. Notwithstanding any provisions of this Agreement, the obligations of
Borrower under Note 1 shall be with full recourse against Borrower, and Borrower
shall have an absolute obligation to pay the amounts specified in Note 1.
5. Any notices pursuant to this Agreement shall be validly given or
served if in writing and shall be effective if given to in accordance with the
provision of Section 10.01 of the Loan Agreement.
6. The waiver by either party of a breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation thereof.
7. The interpretation and enforcement of this Agreement shall be
governed by Colorado law. Borrower consents to the personal jurisdiction of the
state or federal courts in Colorado in any action commenced in connection with
this Agreement.
IN WITNESS WHEREOF, this Agreement is executed by the parties effective
as of the date first written above.
USMX, INC.
By: Donald P. Bellum
Title: President
DAKOTA MINING CORPORATION
By:
Title:
<PAGE>
- 3 -
EXHIBIT D
MXUS PLEDGE AGREEMENT
This Pledge Agreement is entered into as of March ____, 1997, by and
between Dakota Mining Corporation (the "Lender"), and USMX, Inc., a Delaware
corporation ("USMX") and USMX of Nevada, Inc., a Nevada corporation ("USMXN")
(collectively the "Pledgors").
RECITALS
A. Pursuant to the provisions of a Loan Agreement (the "Loan
Agreement") dated March ____, 1997 and two Promissory Notes in the amount of
$2,000,000 ("Note 1") and $3,000,000 ("Note 2"), each dated March ____, 1997,
each by and between the Lender and Borrower (the "Notes"), USMX has incurred or
may incur Indebtedness to the Lender in the principal amount of up to U.S.
$5,000,000.00. Certain defined terms herein shall have the same meaning as set
forth in the Loan Agreement.
B. In order to secure such Indebtedness evidenced by Note 2, Pledgors
desire to grant to Lender and Lender desires to obtain from Pledgors, a pledge
of all of the 10,000 shares of the common stock of MXUS, S.A de C.V. (the "MXUS
Stock") owned by Pledgors (9999 by USMX and one by USMXN). USMXN acknowledges
that it is in its best interest to pledge its MXUS stock to Lender. Pledgors are
also entering into a pledge agreement of even date granting Rothschild a second
priority security in MXUS Stock.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Pledgors hereby pledge and grant a security interest to Lender in
all of the MXUS Stock owned by Pledgors in order to secure (a) on a first and
prior lien basis, the performance of all of Borrowers' obligations and
liabilities to Lender under Note 2 and under the terms and provisions of the
Loan Agreement as the same relate to Note 2; and (b) on a second and
subordinated lien basis, all amounts due Rothschild under the Rothschild Credit
Agreements. The second and subordinated lien rights of Rothschild will
automatically terminate upon the consummation of the Merger contemplated by the
Merger Agreement.
2. Upon the occurrence of an Event of Default under the Loan Agreement,
and subject to the terms of the Intercreditor Agreement, and in addition to all
other rights and remedies provided to Lender hereunder or at law, with respect
to the pledge of the MXUS Stock, Lender shall have all the rights and remedies
of a secured creditor under the Uniform Commercial Code as adopted in Colorado,
or other applicable law.
3. Until such time as Borrowers' obligations pursuant to the Note 2
have been fully satisfied, Pledgors shall not sell, transfer, convey or encumber
in any manner the MXUS Stock to any person or entity without the prior written
consent of the Lender.
4. The pledge of the MXUS Stock as provided in this Agreement shall be
in effect until such time as the obligations of Borrowers to Lender under Note 2
are completely discharged in full.
5. During the term of this pledge, the Pledgors shall retain all
dividends, if any, accruing from the MXUS Stock so long as the Borrowers are not
in default under Note 2.
6. During the term of this pledge, and so long as the Borrowers are not
in default under Note 2, the Pledgors shall have the right to vote the MXUS
Stock on all corporate matters, and Lender shall execute proxies in favor of the
Pledgors as may be required to accommodate such voting.
7. Notwithstanding any provisions of this Agreement, the obligations of
USMX under the Note 2 shall be with full recourse against Borrowers, and
Borrowers shall have an absolute obligation to pay the amounts specified in Note
2.
8. The parties and Rothschild have entered into an Intercreditor
Agreement of even date in which they have agreed, inter alia, to sharing of the
collateral given hereunder and to other matters respecting the terms of this
MXUS Pledge Agreement. Reference is made to such Intercreditor Agreement and its
terms are incorporated herein by this reference.
9. Any notices pursuant to this Agreement shall be validly given or served
if in writing to the following addresses:
If to Lender: Dakota Mining Corporation
Attn: Robert R. Gilmore, CFO
410 Seventeenth Street, Suite 2450
Denver, CO 80202
If to Pledgors: % USMX, Inc.
Attn: Donald P. Bellum, President
141 Union Boulevard, Suite 100
Lakewood, CO 80228
or such other addresses as either party later may designate to the other in
writing to be effective if given in accordance with Section 10.01 of the Loan
Agreement.
10. The waiver by either party of a breach or violation of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation thereof.
11. The interpretation and enforcement of this Agreement shall be
governed by Colorado law. Borrowers consent to the personal jurisdiction of the
state or federal courts in Colorado in any action commenced in connection with
this Agreement.
12. Any transfer of securities hereunder will be done in compliance with
all applicable securities laws and regulations.
IN WITNESS WHEREOF, this Agreement is executed by the parties effective
as of the date first written above.
USMX, INC.
By: Donald P. Bellum
Title: President
USMX OF NEVADA, INC.
By: Donald P. Bellum
Title: President
DAKOTA MINING CORPORATION
By:
Title:
MORTGAGE
THIS MORTGAGE INDENTURE ("Mortgage") is made this ____ day of March,
1997, between USMX, INC., a Delaware corporation, whose address is 141 Union
Boulevard, Suite 100, Lakewood, Colorado 80228, the party of the first part, and
DAKOTA MINING CORPORATION, a Canadian corporation, whose address is 410
Seventeenth Street, Suite 2450, Denver, Colorado 80202, or its assigns, the
party of the second part.
WITNESSETH:
That the said party of the first part, for and in consideration of a
loan in the principal amount of the sum of Three Million Dollars ($3,000,000.00)
of the United States of America, the receipt whereof is hereby acknowledged, has
granted, bargained, sold and conveyed, and by these presents does grant,
bargain, sell and convey, unto the said party of the second part, and to its
successors and assigns forever, all of its rights, titles and interests in and
to that certain Exploration and Option to Purchase Agreement, more particularly
described in Schedule 1 hereto, covering those certain lands in Valley County,
Idaho, more particularly described in Section 2 hereto, together with all and
singular the tenements, hereditaments, and appurtenances thereto belonging or in
any wise appertaining.
This grant is intended as a mortgage to secure the payment of a certain
promissory note of even date herewith, executed and delivered by the said party
of the first part and by USMX of Alaska, Inc., to the said party of the second
part, which note in words and figures following, to wit: A note in the principal
sum of U.S. Three Million Dollars (U.S. $3,000,000.00), with the unpaid
principal amounts, plus accrued interest (at a rate of one percentage point
above the floating Prime Rate, as provided in said notes), due on the Maturity
Date (as defined in the Loan Agreement dated March ___, 1997 ("Loan Agreement"),
between party of the first part, USMX of Alaska, Inc., and party of the second
part.
<PAGE>
And these presents shall be void if such payments be made; but in case
default shall be made in the payment of said principal sums of money or any part
thereof as provided in said note or if the interest be not paid as therein
specified, then and from thenceforth, it shall be optional with the said party
of the second part, its successors or assigns to consider the whole or said
principal sums expressed in said note as immediately due and payable, although
the time expressed in said note for the payment thereof shall not have arrived
and immediately to enter into and upon all and singular the above described
premises, and to sell and dispose of the same according to law, and out of the
money arising from such sale, to retain the principal and interest which shall
then be due on said note together with the costs and charges of foreclosure
suit, including reasonable counsel fees, and also the amounts of all such
payments of taxes, assessments, incumbrances, or insurance as may have been made
by said party of the second part, its successors or assigns by reason of the
permission hereinafter given, with the interest on the same hereinafter allowed,
rendering the overplus of the purchase money (if any there shall be), unto the
said party of the first part, its successors or assigns. And the said party of
the first part does hereby further covenant, promise and agree, to and with the
said party of the second part to pay and discharge at maturity and when due, all
such taxes or assessments, advance and minimum royalties, claim maintenance
fees, liens or other incumbrances, now subsisting or hereafter to be laid or
imposed upon said premises, or which may be in effect a prior charge thereon to
these presents during the continuance hereof and in default thereof the said
party of the second part may pay and discharge the same, and may, at its option,
keep fully insured against all risks by fire the buildings which now or may be
hereafter erected thereon, at the expense of the said party of the first part,
and the sums so paid shall bear interest at the rate specified in said note,
until paid, and shall be considered as secured by these presents and be a lien
upon said from the proceeds of the sale thereof, above mentioned, with interest
as herein provided.
Party of the first part hereby covenants and agrees to execute such
further instruments as reasonably may be requested by party of the second part,
in order to further perfect the security interests of party of the second part
in the properties and interests described in Schedules 1 and 2, including but
not limited to security agreements and financing statements under the Idaho
Uniform Commercial Code.
This Mortgage is subject to the terms and conditions of that certain
Intercreditor Agreement between the party of the second part and N Rothschild &
Sons Limited
IN WITNESS WHEREOF, the said party of the first part has hereunto set
its hand and seal the day and year first above written.
USMX, INC.
By:________________________________
Donald P. Bellum
Title: President
[CORPORATE SEAL]
ATTEST:
- --------------------------------
_____________________, Secretary
STATE OF COLORADO }
} ss.
COUNTY OF }
The foregoing instrument was acknowledged before me this _____ day of
__________________, 1997, by Donald P. Bellum, President of USMX, Inc., a
Delaware corporation, on behalf of the Corporation.
(seal)
-----------------------------------
NOTARY PUBLIC
My Commission expires: ____________
STATE OF COLORADO }
} ss.
COUNTY OF }
The foregoing instrument was acknowledged before me this _____ day of
__________________, 1997, by ______________________________, Secretary of USMX,
Inc., a Delaware corporation, on behalf of the Corporation.
(seal)
-----------------------------------
NOTARY PUBLIC
<PAGE>
- 5 -
My Commission expires: ____________
Intercreditor Agreement
This Intercreditor Agreement (this "Agreement") is made as of the 11th
day of March, 1997 by and between DAKOTA MINING CORPORATION, a corporation
continued under the Canada Business Corporation Act ("Dakota") and N M
ROTHSCHILD & SONS LIMITED, a company organized under the laws of England
("Rothschild").
Recitals
A. Pursuant to an Agreement and Plan of Merger dated February 5, 1997
(the "Merger Agreement") among Dakota, Dakota Merger Corporation and USMX, Inc.,
a Delaware corporation ("USMX"), Dakota Merger Corporation will merge with USMX,
which will be the surviving corporation and which will become a wholly-owned
subsidiary of Dakota (the "Merger"). Dakota has agreed to extend up to
$5,000,000 in loans to USMX pursuant to a Loan Agreement dated as of March 11,
1997 (as such agreement may be amended in accordance with its terms, the "Dakota
Loan Agreement"). Obligations of USMX to Dakota under the Dakota Loan Agreement
(the "USMX/Dakota Obligations") to the extent of $3,000,000 thereof (the
"Subsequent Advances") are secured by a mortgage and assignment of contract
rights relating to the Thunder Mountain project located in Valley County, Idaho
(the "Thunder Mountain Assignment") and a pledge of 10,000 shares of stock in
MXUS, S.A. de C.V., a corporation organized under the laws of Mexico ("MXUS,"
with such shares referred to as the "MXUS Shares," and with such pledge
agreement referred to as the "USMX Pledge Agreement"). The real and personal
property rights comprising the Thunder Mountain project and the pledged MXUS
Shares are referred to the "Dakota Direct Collateral." The USMX/Dakota
Obligations will, to the extent of $2,000,000 thereof (the "Initial Advance") be
secured by a pledge by USMX to Dakota of all shares of USMX in USMX of Alaska,
Inc., an Alaska corporation ("USMXAK," with the shares so pledged referred to as
the "USMXAK Shares"), which pledge is junior and subordinate to the previous
pledge by USMX of the USMXAK Shares to Rothschild, with the terms of such
subordination and the rights of Dakota to the USMXAK Shares to be more
particularly provided for in this Agreement.
B. Rothschild has extended a loan in the principal amount of $2,500,000
to USMX pursuant to a Credit Agreement between Rothschild and USMX dated as of
July 11, 1996 (as such Credit Agreement may be amended in accordance with its
terms, the "USMX Credit Agreement"). Rothschild has also extended or agreed to
extend to USMXAK, pursuant to a Credit Agreement dated as of July 11, 1996 (as
such Credit Agreement may be amended in accordance with its terms, the "USMXAK
Credit
DGS-35545.4
March 11, 1997 5:16 pm
- 1 -
<PAGE>
Agreement"), loans in the maximum principal amount of $19,500,000. Amounts due
Rothschild under the USMX Credit Agreement and under the USMXAK Credit
Agreement, and under the documents associated with the USMX/Rothschild
Collateral (defined below) are referred to as the "USMX/Rothschild Obligations."
Amounts due Rothschild under the USMX Credit Agreement are secured by (i) USMX'
pledge to Rothschild of all shares in USMXAK and of two secured promissory notes
from USMXAK to USMX in the principal amounts of $2,500,000 and $3,400,000,
respectively, each dated July 11, 1996 and each secured by junior liens on the
Illinois Creek Project Assets (as defined in the USMXAK Credit Agreement), and
(ii) by all rights and interests of USMX in the Project Assets. Amounts due
Rothschild under the USMXAK Credit Agreement are secured by first and prior
liens on the Project Assets and other collateral as provided in such agreement.
All such collateral security associated with the USMX Credit Agreement and with
the USMXAK Credit Agreement is referred to collectively as the "USMX/Rothschild
Collateral."
C. Rothschild has consented to the merger contemplated by the Merger
Agreement, subject, among other things, to the agreement of Dakota, upon
consummation of such merger, to guarantee the USMX/Rothschild Obligations
pursuant to a Guaranty dated as of March 11, 1997 (as it may be amended in
accordance with its terms, the "Dakota Guaranty") and to secure such guarantee
by a pledge to Rothschild of all shares of USMX (the "Dakota/Rothschild
Collateral") pursuant to a Pledge and Security Agreement dated as of March 11,
1997 (as it may be amended in accordance with its terms, the "Dakota Pledge
Agreement"). The obligations of Dakota to Rothschild under the Dakota Guaranty
and under the Dakota Pledge Agreement are referred to collectively as the
"Dakota/Rothschild Obligations." Consent by Rothschild to the Merger is also
subject to the undertaking of Dakota to cause USMX to grant to Rothschild liens
and security interests in the Dakota Direct Collateral which are junior and
subordinate to the Dakota liens and security interests therein, which liens and
security interests in favor of Rothschild will secure the USMX/Rothschild
Obligations.
D. Dakota and Rothschild desire hereby to set forth their agreements
concerning their respective rights to declare and act upon events of default
under their respective credit agreements with USMX and USMXAK prior to the
effective date of the merger contemplated by the Merger Agreement, and to set
forth their agreements concerning their respective collateral security rights in
certain personal property of USMX.
- 2 -
<PAGE>
Agreement
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, Dakota and Rothschild agree as follows:
1. Agreements Regarding Collateral Security.
a. Rothschild hereby consents to the creation of the
USMX/Dakota Obligations; to the grant by USMX to Dakota of first and prior liens
and security interests in the Dakota Direct Collateral to secure the Subsequent
Advances portion of the USMX/Dakota Obligations; and to the grant by USMX to
Dakota of junior and subordinate security interests in the USMXAK Shares to
secure the Initial Advance portion of the USMX/Dakota Obligations, subject to
the terms and conditions hereof.
b. Dakota hereby consents to the grant by USMX to Rothschild
of liens and security interests in the Direct Dakota Collateral which are junior
and subordinate to the liens and security interests therein granted to Dakota to
secure the USMX/Rothschild Obligations and the obligations of USMX to Rothschild
under the Guaranty of July 11, 1996 pertaining to the USMXAK Credit Agreement
(the "USMX Guaranty").
c. Dakota hereby agrees not to accelerate the due date of the
USMX/Dakota Obligations or to exercise any rights it may have with respect to
the Direct Dakota Collateral based upon any failure to perform or other default
by USMX prior to the first to occur of (i) the date on which the Merger is
consummated, or (ii) the date on which the Merger Agreement terminates in
accordance with its terms, or (iii) June 30, 1997 (or an extension of such date
for not more than 30 days pending governmental approvals as permitted by the
Merger Agreement), except based upon (x) a failure of USMX to pay principal,
interest or other amounts due under the Dakota Loan Agreement, or (y) any act of
voluntary or involuntary bankruptcy or other action by or with respect to USMX
or USMXAK as described in Section 10.1(e) of the USMX Credit Agreement and
Section 10.1(f) of the USMXAK Credit Agreement, or (z) acceleration of the
USMX/Rothschild Obligations by Rothschild based on a Rothschild Identified Event
of Default (defined below) (with all such matters referred to collectively as
"Dakota Identified Events of Default").
d. Rothschild hereby agrees not to accelerate the due
date of the USMX/Rothschild Obligations or to exercise any rights it may have
with respect to the USMX/Rothschild Collateral based upon any failure to perform
or other default by
- 3 -
<PAGE>
USMX under the USMX Credit Agreement or under the USMX Guaranty or by USMXAK
under the USMXAK Credit Agreement prior to the first to occur of (i) the date on
which the Merger is consummated, or (ii) the date on which the Merger Agreement
terminates in accordance with its terms, or (iii) June 30, 1997 (or an extension
of such date for not more than 30 days pending governmental approvals as
permitted by the Merger Agreement), except based upon (x) a failure of USMX to
pay principal, interest or other amounts due under the USMX Credit Agreement or
a failure of USMXAK to pay principal, interest or other amounts due under the
USMXAK Credit Agreement, or (y) any act of voluntary or involuntary bankruptcy
or other action by or with respect to USMX or USMXAK as described in Section
10.1(e) of the USMX Credit Agreement and Section 10.1(f) of the USMXAK Credit
Agreement, or (z) any action or event occurring after February 20, 1997 which
calls into question the ownership and title of USMXAK to any material portion of
the real properties or other assets comprising the Illinois Creek Project (as
defined in the USMXAK Credit Agreement) (with all such matters referred to as
"Rothschild Identified Events of Default").
e. Rothschild and Dakota agree that the security interest of
Dakota in the USMXAK Shares which arises from the pledge thereof by USMX to
Dakota is junior and subordinate to the security interest of Rothschild therein;
that notwithstanding any such security interest which Dakota may have perfected
in the USMXAK Shares, Dakota will not exercise any rights with respect to the
USMXAK Shares or with respect to the timing or manner in which any security
interests of Rothschild or Dakota in the USMXAK Shares is managed or exercised,
unless and until all of the Rothschild Obligations have been satisfied in full;
and that prior to the time the Rothschild Obligations have been satisfied in
full, the sole right which Dakota will have with respect to the USMXAK Shares
will be to share in the net proceeds of any foreclosure or other realization by
Rothschild pro rata and pari passu with Rothschild in the ratio of (y) the
outstanding principal balance of the Initial Advance to (z) $22,000,000. The
foregoing right will terminate as provided in Section 1(g) below.
f. Rothschild and Dakota acknowledge that the USMX Pledge
Agreement and the Thunder Mountain Assignment grant to Dakota first and prior
liens on and security interests in the Dakota Direct Collateral to secure
repayment of the Subsequent Advances. Dakota agrees to cause USMX promptly to
grant to Rothschild liens on and security interests in the Dakota Direct
Collateral (subject and subordinate to the liens and security interests of
Dakota therein) pursuant to instruments substantially in the form of the USMX
Pledge Agreement and the Thunder Mountain Assignment.
- 4 -
<PAGE>
g. Rothschild and Dakota agree that upon consummation of the
Merger, (i) all rights of Dakota to participate in any proceeds of foreclosure
or other realization by Rothschild on the USMXAK Shares will automatically
terminate; and (ii) Rothschild's liens and security interests in the Dakota
Direct Collateral will automatically terminate, and Rothschild will promptly
release its liens and security interests in the Dakota Direct Collateral. In the
event the Merger is not consummated by July 30, 1997 but the USMX/Dakota
Obligations are paid in full, Dakota's rights to participate in the proceeds of
any foreclosure by Rothschild on the USMXAK shares and Dakota's liens and
security interests in the Dakota Direct Collateral will terminate and Dakota
will promptly execute and file such instruments as may be necessary to evidence
such termination. Rothschild and Dakota further agree that if the Merger is not
consummated by July 30, 1997, and if any of the USMX/Rothschild Obligations
remain outstanding. the liens and security interests of Rothschild in the Dakota
Direct Collateral will terminate unless there exists an Event of Default with
respect to the USMX/Rothschild Obligations, in which case the liens and security
interests of Rothschild in the Rothschild Direct Collateral will remain in
effect and available for exercise by Rothschild until the USMX/Rothschild
Obligations are satisfied.
h. Rothschild agrees to modify the USMX Credit Agreement and
the USMXAK Credit Agreement, effective as of the effective date of the merger
contemplated by the Merger Agreement, in the manner contemplated by the
Indicative Term Sheet dated February 21, 1997 delivered by Rothschild to Dakota.
2. General Provisions.
a. This Agreement is binding upon and inures to the
benefit of Dakota and Rothschild, and their successors and assigns.
b. This Agreement shall be governed by the laws of the
State of Colorado.
c. This Agreement may be signed in any number of counterparts,
each of which shall constitute an original but all of which taken together shall
constitute but one contract, and shall become effective when copies hereof,
taken together, bear the signatures of Dakota and Rothschild. This Agreement may
be signed by a party and transmitted to the other party by facsimile, and a
signature so transmitted shall be binding as evidence of such party's signature
hereof.
- 5 -
<PAGE>
d. Nothing in this Agreement, whether express or implied, is
intended to confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DAKOTA MINING CORPORATION
By:
Robert R. Gilmore
Vice President, Finance
Per Pro
N M ROTHSCHILD & SONS LIMITED
- 6 -
<TABLE>
DAKOTA MINING CORPORATION
Exhibit 11 - COMPUTATION OF EARNING PER SHARE
Years ended December 31, 1996, 1995, 1994
<CAPTION>
For the years ended December 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning shares 26,534,742 21,360,108 13,973,068
outstanding
Special warrants 4,682,787 3,937,252 3,055,325
exercised
Average shares issued 187,840 - -
for options exercised
Common share purchase - 98,950 377,957
warrants exercised
------------ ------------ -----------
Weighted average
shares outstanding 31,405,369 25,396,310 17,406,350
============= ============ ============
Net loss $(23,069,639) $(8,989,718) $(5,738,926)
============= ============ ============
Loss per common share $(0.73) $(0.35) $(0.33)
============= ============ ============
<FN>
NOTE: All other issued and outstanding options and
warrants are antidilutive. Fully diluted loss per
share calculation is not different from the calculation
above and therefore is not applicable.
</FN>
</TABLE>
EXHIBIT 21.1
Jurisdiction of
Corporation Incorporation
- ---------------------------------------- -------------------------------------
MinVen Gold (U.S.A.) Delaware
Corporation
- ---------------------------------------- -------------------------------------
Blackdome Mining Corp. British Columbia
- ---------------------------------------- -------------------------------------
Compass Mining, Inc. Delaware
- ---------------------------------------- -------------------------------------
Brohm Mining Corp. South Dakota
- ---------------------------------------- -------------------------------------
Matrix Financial Inc. Delaware
- ---------------------------------------- -------------------------------------
Helix Mining Inc. Delaware
- ---------------------------------------- -------------------------------------
Stibnite Mine Inc. Delaware
- ---------------------------------------- -------------------------------------
Barrier Reef Inc. Delaware
- ---------------------------------------- -------------------------------------
Dakota Gold Mining Inc. Delaware
- ---------------------------------------- -------------------------------------
Dakota Merger Delaware
Corporation
- ---------------------------------------- -------------------------------------
Exhibit 23.1
Consent of Independent Auditors
To the Shareholders
Dakota Mining Corporation:
We consent to the use of our report dated February 4, 1997, except as to Note
2, which is as of February 6, 1997, and Note 6(c), which is as of February 28,
1997 relating to the consolidated balance sheets of Dakota Mining Corporation
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996 included herein and the reference to
our firm under the heading "Experts" in the Joint Proxy Statement / Prospectus.
KPMG
Chartered Accountants
Toronto, Canada
March 17, 1997
Exhibit 23.2
Consent of Independent Auditors
To the Stockholders and Board of Directors
USMX, INC.:
We consent to the use of our report dated March 11, 1997 relating to the
consolidated statements of financial position of USMX, Inc. and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996 included herein and to the reference
to our firm under the heading "Experts" in the Joint Proxy Statement /
Prospectus.
Our report contains an explanatory paragraph that states that the Company has
incurred cost overruns associated with the construction of the Illinois Creek
Mine, has cash flow deficits from operations and currently has no mines in
operation. At December 31, 1996, the Company has an accumulated deficit of
$3,056,000, a working capital deficiency of approximately $27,132,000 and is
not in compliance with certain covenants of its long term debt agreements. In
addition, significant additional funds will be required to bring the Company's
Illinois Creek Mine into production. These matters raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
Denver, Colorado
March 17, 1997
Exhibit 23.4
Dakota Mining Corporation
Denver, Colorado
Ladies and Gentlemen:
Re: Registration Statement on Form S-4
With respect to the subject registration, we acknowledge our awareness of the
use therein of our compilation report relating to the unaudited pro forma
consolidated balance sheet as of December 31, 1996 and the unaudited pro forma
combined statement of operations for the year ended December 31, 1996 of Dakota
Mining Corporation and our comments for United States readers on differences
between Canadian and United States reporting standards, both dated March 14,
1997.
We are not subject to the liability provisions of Section 11 of the Securities
Act of 1933 for the compilation report and comments because they are not
considered a "report" or a "part" of a registration statement prepared or
certified by an accountant within the meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG
Chartered Accountants
Toronto, Canada
March 17, 1997
Coopers & Lybrand
370 Seventeenth Street Suite 3300
Denver, CO 80202-
Tele: (303) 573-2800
Fax: (303) 573-2902
March 14, 1997
Dakota Mining Corporation
Suite 2450
410 Seventeenth Street
Denver, Colorado 80202
RE: Dakota Mining Corporation Registration Statement on Form S-4
Ladies and Gentlemen:
We hereby consent to the use of our name beneath the caption "United States
Federal Income Tax Considerations of the Merger" in the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement on Form S-4 to
be filed by Dakota Mining Corporation with the Securities and Exchange
Commission on or about March 17, 1997, and to the filing of a copy of our
opinion as an Appendix thereto.
COOPERS & LYBRAND L.L.P.
By: /c/ Randy Stein___________
Randy Stein
Tax Principal
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000848448
<NAME> Dakota Mining Corp.
<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> 5,092
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,644
<CURRENT-ASSETS> 9,361
<PP&E> 36,251
<DEPRECIATION> 15,150
<TOTAL-ASSETS> 31,569
<CURRENT-LIABILITIES> 8,355
<BONDS> 0
0
0
<COMMON> 52,810
<OTHER-SE> (280)
<TOTAL-LIABILITY-AND-EQUITY> 31,569
<SALES> 24,556
<TOTAL-REVENUES> 24,556
<CGS> 26,296
<TOTAL-COSTS> 47,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 442
<INCOME-PRETAX> (23,070)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,070)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000315523
<NAME> USMX, INC.
<MULTIPLIER> 1,000
<S> <C>
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