-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NqPR4TT17H9du7BWnF+S+xD7TWyVzYK1az7di6IKQth4YQdaPoOXAxk1T+oM0/wv FYbdgqyn/uhrtP5f4Dgyng== 0000950123-96-004809.txt : 19960903 0000950123-96-004809.hdr.sgml : 19960903 ACCESSION NUMBER: 0000950123-96-004809 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19960830 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL OAK MINES INC CENTRAL INDEX KEY: 0000041304 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-11117 FILM NUMBER: 96623966 BUSINESS ADDRESS: STREET 1: 5501 LAKEVIEW DR CITY: KIRKLAND STATE: WA ZIP: 98033 BUSINESS PHONE: 6046828320 MAIL ADDRESS: STREET 1: 5501 LAKEVIEW DR CITY: KIRKLAND STATE: WA ZIP: 98033 S-4 1 ROYAL OAK MINES INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ FORM S-4 REGISTRATION STATEMENT under THE SECURITIES ACT OF 1933 ------------------------------------ ROYAL OAK MINES INC.* ------------------------------------ ONTARIO, CANADA 1040 NONE (State or other jurisdiction of (Primary standard industrial (I.R.S. employer incorporation or organization) Classification Code Number) identification number)
5501 LAKEVIEW DRIVE KIRKLAND, WASHINGTON 98033 (206) 822-8992 (Address, including zip code, and telephone number, including area code, of the Company's principal executive offices) ------------------------------------ DAVID A. KATZ, ESQ. WACHTELL, LIPTON, ROSEN & KATZ 51 WEST 52ND STREET NEW YORK, NEW YORK 10019 (212) 403-1000 (Name, address and the telephone number of agent for service in the United States) Copies to: JAMES H. WOOD WILLIAM J.V. SHERIDAN, ESQ. CHIEF FINANCIAL OFFICER LANG MICHENER ROYAL OAK MINES INC. BCE PLACE, SUITE 2500 5501 LAKEVIEW DRIVE TORONTO, ONTARIO M5J 2TJ KIRKLAND, WASHINGTON 98033 (416) 360-8600 (206) 822-8992
------------------------------------ Approximate date of commencement of proposed sale to public: Upon consummation of the Exchange Offer referred to herein. ------------------------------------ If the 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TITLE OF EACH CLASS AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE FEE - ------------------------------------------------------------------------------------------------------------ Series B 11% Senior Subordinated Notes due 2006...................... US$175,000,000 100% US$175,000,000 US$60,345 Guarantees for Series B 11% Senior Subordinated Notes due 2006......... $0 0% $0 $0(2)
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Estimated solely for purposes of calculating registration fee pursuant to Rule 457, based upon the book value of the Notes in U.S. dollars as of August 30, 1996. (2) Pursuant to Rule 457(n), no separate registration fee is payable with respect to the guarantees. ------------------------------------ The Registrant hereby amends the Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 *OTHER REGISTRANT
STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INCORPORATION INDUSTRY I.R.S. EMPLOYER NAME, ADDRESS AND TELEPHONE NUMBER OR ORGANIZATION CLASSIFICATION NUMBER IDENTIFICATION NUMBER - ------------------------------------------- ---------------- --------------------- --------------------- Kemess Mines Inc........................... Ontario, Canada 1040 None Unit 9 3167 Tatlow Road P.O. Box 3519 Smithers, British Columbia V0J 2N0 (604) 847-5667
3 CROSS-REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
ITEM NUMBER AND CAPTION LOCATION IN THE PROSPECTUS - ------------------------------------------------- -------------------------------------------- A. Information About the Transaction 1. Forepart of Registration Statement and Outside Front Cover Page of the Prospectus............................ Front Cover Page of the Registration Statement; Outside Front Cover Page of the Prospectus 2. Inside Front and Outside Back Cover Pages of the Prospectus............... Inside Front Cover Page of the Prospectus; Outside Back Cover Page of the Prospectus 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information... Prospectus Summary; Risk Factors; Business; Selected Historical Consolidated Financial and Operating Data 4. Terms of the Transaction.............. Prospectus Summary; Risk Factors; The Exchange Offer; Certain Federal Income Tax Consequences of The Exchange Offer; Description of Exchange Notes; Exchange Offer and Registration Rights 5. Pro Forma Financial Information....... * 6. Material Contracts with the Company Being Acquired........................ * 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters............. * 8. Interest of Named Experts and Counsel............................... Validity of Exchange Notes 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities........................... * B. Information About the Registrant 10. Information with Respect to S-3 Registrants........................... * 11. Incorporation of Certain Information by Reference.......................... * 12. Information With Respect to S-2 or S-3 Registrants........................... * 13. Incorporation of Certain Information by Reference.......................... * 14. Information With Respect to Registrants Other Than S-3 or S-2 Registrants........................... Prospectus Summary; Risk Factors; Capitalization; Selected Historical Consolidated Financial and Operating Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Relationships and Related Transactions; Security Ownership; Financial Statements
4
ITEM NUMBER AND CAPTION LOCATION IN THE PROSPECTUS - ------------------------------------------------- -------------------------------------------- C. Information About the Company Being Acquired 15. Information With Respect to S-3 Companies............................. * 16. Information with Respect to S-2 or S-3 Companies............................. * 17. Information With Respect to Companies Other Than S-3 or S-2 Companies....... * D. Voting and Management Information 18. Information if Proxies, Consents or Authorizations are to be Solicited.... * 19. Information if Proxies, Consents or Authorizations are not to be Solicited, or in an Exchange Offer.... Management; The Exchange Offer; Certain Relationships and Related Transactions
- --------------- *Item is omitted because response is negative or item is inapplicable. 5 SUBJECT TO COMPLETION, DATED AUGUST 30, 1996 OFFER TO EXCHANGE ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2006 (US$175,000,000 PRINCIPAL AMOUNT OUTSTANDING) FOR SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2006 (US$175,000,000 PRINCIPAL AMOUNT) OF ROYAL OAK MINES INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996, UNLESS EXTENDED. Royal Oak Mines Inc., an Ontario, Canada corporation (the "Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange up to an aggregate principal amount of US$175,000,000 of its Series B 11% Senior Subordinated Notes due 2006 (the "Exchange Notes") for an equal principal amount of its outstanding 11% Senior Subordinated Notes due 2006 (the "Notes"), in integral multiples of US$1,000. The Exchange Notes will be fully and unconditionally guaranteed on a senior subordinated basis by Kemess Mines Inc., an Ontario, Canada corporation which is a wholly owned subsidiary of the Company (the "Guarantor"). The Exchange Notes will be senior subordinated unsecured obligations of the Company and are substantially identical (including principal amount, interest rate, maturity and redemption rights) to the Notes for which they may be exchanged pursuant to this offer, except that (i) the offering and sale of the Exchange Notes will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) holders of Exchange Notes will not be entitled to certain rights of holders under a Registration Rights Agreement of the Company dated as of August 12, 1996 (the "Registration Rights Agreement"). The Notes have been, and the Exchange Notes will be, issued under the indenture (the "Indenture") dated as of August 12, 1996, among the Company, the Guarantor and Mellon Bank, F.S.B., as trustee (the "Trustee"). See "Description of Exchange Notes." There will be no proceeds to the Company from this offering; however, pursuant to the Registration Rights Agreement, the Company will bear certain offering expenses. The Exchange Notes will be general, unsecured obligations of the Company, will be subordinated to all Senior Indebtedness of the Company, will rank pari passu with all senior subordinated indebtedness of the Company and will be senior in right of payment to all future subordinated indebtedness, if any, of the Company. The claims of holders of the Exchange Notes will be effectively subordinated to the Senior Indebtedness of the Company which, as of June 30, 1996, was $1,991,000, consisting of capitalized lease obligations, and as of August 27, 1996 also included $1,940,000 in outstanding letters of credit issued under the Credit Facility (as defined herein), and such claims will be effectively subordinated to all indebtedness and other liabilities (including trade payables and capital lease obligations) of the subsidiaries of the Company that are not Guarantors. Such indebtedness and other liabilities of such subsidiaries on an adjusted basis (giving effect to the issuance of the Notes) aggregated approximately $675,000 as of June 30, 1996. The Company's pro forma ratio of debt to total capitalization at June 30, 1996 was approximately 34.4%. See "Capitalization." The Notes are not currently, and the Exchange Notes upon issuance are not expected to be, senior in priority to any outstanding indebtedness of the Company or its subsidiaries. The Company has no current plan or intention to incur any indebtedness to which the Notes or the Exchange Notes would be senior in priority. The Notes and the Exchange Notes rank pari passu with one another. (Cover text continued on next page) ------------------------ SEE "RISK FACTORS," COMMENCING ON PAGE 16, FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE OFFER. ------------------------ THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES LAWS MAY BE ADVERSELY AFFECTED BY THE FACT THAT THE COMPANY AND THE GUARANTOR ARE INCORPORATED OR ORGANIZED UNDER THE LAWS OF A FOREIGN COUNTRY, THAT SOME OR ALL OF THE EXPERTS NAMED IN THIS PROSPECTUS MAY BE RESIDENTS OF A FOREIGN COUNTRY AND THAT ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF THE COMPANY AND THE GUARANTOR AND SAID PERSONS MAY BE LOCATED OUTSIDE THE UNITED STATES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1996. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE OR OTHER JURISDICTION. 6 The Company will accept for exchange any and all validly tendered Notes on or prior to 5:00 p.m. New York City time, on , 1996, unless the Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date; otherwise such tenders are irrevocable. Mellon Bank, F.S.B. will act as Exchange Agent (in such capacity, the "Exchange Agent") in connection with the Exchange Offer. The Exchange Offer is not conditioned upon any minimum principal amount of Notes being tendered for exchange, but is otherwise subject to certain customary conditions. The Notes were sold by the Company on August 12, 1996 (the "Offering") in transactions not registered under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act. The Notes were subsequently resold to qualified institutional buyers in reliance upon Rule 144A under the Securities Act and to a limited number of institutional accredited investors in a manner exempt from registration under the Securities Act. Accordingly, the Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereunder in order to satisfy certain obligations of the Company under the Registration Rights Agreement. See "The Exchange Offer." The Exchange Notes will bear interest from August 12, 1996, the date of issuance of the Notes that are tendered in exchange for the Exchange Notes (or the most recent Interest Payment Date (as defined herein) to which interest on such Notes has been paid), at a rate equal to 11% per annum. Interest on the Exchange Notes will be payable semi-annually on February 15 and August 15 of each year, commencing February 15, 1997. The Exchange Notes are redeemable at the option of the Company (i) in whole or in part at any time on or after March 15, 2001, (ii) on or prior to August 15, 1999 in an amount of up to 35% of the aggregate principal amount of the Notes originally issued with the net cash proceeds of certain public equity offerings and (iii) in whole but not in part in the event of certain changes affecting Canadian withholding taxes, in each case at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. See "Prospectus Summary -- Summary of Terms of Exchange Notes." Upon the occurrence of a Change of Control (as defined herein), each holder of Exchange Notes may require the Company to repurchase all or a portion of such holder's Exchange Notes at 101% of the aggregate principal amount of the Exchange Notes, together with accrued and unpaid interest, if any, to the date of repurchase. In addition, subject to certain conditions, the Company will be obligated to make an offer to repurchase the Exchange Notes at 100% of their principal amount, plus accrued and unpaid interest to the date of repurchase, with the net cash proceeds of certain sales or other dispositions of assets. See "Risk Factors -- Change of Control" and "Description of Exchange Notes." The Exchange Offer is being made in reliance on certain no-action positions that have been published by the staff of the United States Securities and Exchange Commission (the "Commission") which require each tendering noteholder to represent that it is acquiring the Exchange Notes in the ordinary course of its business and that such holder does not intend to participate and has no arrangement or understanding with any person to participate in a distribution of the Exchange Notes. In some cases, certain broker-dealers may be required to deliver a prospectus in connection with the resale of the Exchange Notes that they receive in the Exchange Offer. See "Prospectus Summary -- The Exchange Offer." There has not previously been any public market for the Exchange Notes. The Company does not intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Exchange Notes will develop. To the extent that an active market for the Exchange Notes does develop, the market value of the Exchange Notes will depend on market conditions (such as yields on alternative investments), general economic conditions, the Company's financial condition, and other factors. Such conditions might cause the Exchange Notes, to the extent that they are actively traded, to trade at a significant discount from face value. See "Risk Factors -- Lack of Public Market for the Exchange Notes." ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE 7 ADVERSELY AFFECTED. FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF AND THE COMPANY WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES GENERALLY WILL NOT HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR OTHERWISE. SEE "THE EXCHANGE OFFER -- CONSEQUENCES OF FAILURE TO EXCHANGE." The Exchange Notes issued pursuant to this Exchange Offer generally will be issued in the form of Global Exchange Notes (as defined herein), which will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Exchange Notes representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by DTC and its participants. Notwithstanding the foregoing, Notes held in certificated form will be exchanged solely for the Exchange Notes in certificated form. After the initial issuance of the Global Exchange Notes, Exchange Notes in certificated form will be issued in exchange for the Global Exchange Notes only on the terms set forth in the Indenture. See "Book-Entry; Delivery and Form." ------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. UNTIL , 199 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. 8 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in accordance therewith files reports, proxy statements and other information with the Commission. The Company has filed with the Commission a Registration Statement on Form S-4 under the Securities Act for the registration of the Exchange Notes offered hereby (the "Registration Statement"). This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in exhibits and schedules to the Registration Statement as permitted by the rules and regulations of the Commission. For further information with respect to the Company or the Exchange Notes offered hereby, reference is made to the Registration Statement, including the exhibits and financial statement schedules thereto, which may be inspected without charge at the public reference facility maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of which may be obtained from the Commission at prescribed rates. Statements made in this Prospectus concerning the contents of any document referred to herein are not necessarily complete. With respect to each such document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Such documents and other information filed by the Company can be inspected and copied at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such materials may be obtained from the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its public reference facilities in New York, New York and Chicago, Illinois at prescribed rates. The Company makes its filings with the Commission electronically. The Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically, which information can be accessed at http://www.sec.gov. The Guarantor is not currently subject to the informational requirements of the Exchange Act. As a result of the offering of the Exchange Notes, the Guarantor will become subject to the informational requirements of the Exchange Act. The Company will fulfill its obligations with respect to such requirements by including information regarding the Guarantor in the Company's periodic reports. In addition, the Company will send to each holder of Exchange Notes copies of annual reports and quarterly or financial reports containing the information required to be filed under the Exchange Act if furnished by it to stockholders generally. So long as the Company is subject to the periodic reporting requirements of the Exchange Act, it is required to furnish the information required to be filed with the Commission to the Trustees and the holders of the Notes and the Exchange Notes. The Company has agreed that, even if it is not required under the Exchange Act to furnish such information to the Commission, it will nonetheless continue to furnish information that would be required to be furnished by the Company by Section 13 of the Exchange Act to the Trustees and the holders of the Notes or Exchange Notes as if it were subject to such periodic reporting requirements. In addition, the Company has agreed that, for so long as any of the Notes remain outstanding, it will make available, upon request, to any seller of such Notes the information specified in Rule 144(d)(4) under the Securities Act, unless the Company and the Guarantor are then subject to Section 13 or 15(d) of the Exchange Act. ------------------------ THIS PROSPECTUS INCLUDES REFERENCES TO THE FUTURE PERFORMANCE, PLANS AND EXPECTATIONS OF THE COMPANY WHICH ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A(I)(1) OF THE SECURITIES ACT, INCLUDING WITHOUT LIMITATION STATEMENTS MADE UNDER THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 2 9 RESULTS OF OPERATIONS" AND "BUSINESS." SUCH STATEMENTS ARE BASED ON NUMEROUS VARIABLES AND ASSUMPTIONS THAT ARE INHERENTLY UNCERTAIN, INCLUDING WITHOUT LIMITATION FACTORS RELATED TO THE COMPANY'S ABILITY TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS WITHIN PROJECTED CAPITAL BUDGETS OR TO CARRY ON MINING OPERATIONS WITHIN PROJECTED OPERATING BUDGETS, VOLATILITY IN THE PRICE OF GOLD, COPPER AND OTHER COMMODITIES, INTEREST AND FOREIGN EXCHANGE RATES, GOVERNMENT REGULATION AND AGENCY ACTION, COMPETING LAND CLAIMS, THE ACCURACY OF ESTIMATES OF ORE RESERVES AND MINERAL INVENTORY AND GENERAL ECONOMIC AND COMPETITIVE CONDITIONS. ACCORDINGLY, ACTUAL FUTURE RESULTS OR VALUES MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN PROVIDED BY SUCH REFERENCES. INFORMATION INCORPORATED BY REFERENCE All documents filed with the Commission by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the Expiration Date are incorporated herein by reference and such documents shall be deemed to be a part hereof from the date of filing of such documents. Any statement contained in this Prospectus or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. EXCHANGE RATE DATA The Company publishes its consolidated financial statements in Canadian dollars. All dollar amounts set forth in this Prospectus are expressed in Canadian dollars unless otherwise specifically indicated. The following table sets forth, for the periods indicated, the high and low exchange rates (i.e., the highest and lowest rates at which Canadian dollars were sold), the average exchange rate (i.e., the average of the exchange rates on the last business day of each month during the applicable period) and the period end exchange rate of the Canadian dollar in exchange for the United States dollar, as calculated from the inverse of the exchange rate reported by the Federal Reserve Bank of New York for cable transfers payable in Canadian dollars as certified for customs purposes (the "Noon Buying Rate"). On August 27, 1996, the inverse of the Noon Buying Rate was Cdn $1.00 equals US$0.7312.
SIX MONTHS YEAR ENDED DECEMBER 31 ENDED JUNE 30 ------------------------------------------ ------------- 1991 1992 1993 1994 1995 1996 ------ ------ ------ ------ ------ ------------- Exchange rate at period end............... 0.8652 0.7867 0.7544 0.7129 0.7323 0.7322 Average exchange rate during the period... 0.8726 0.8276 0.7751 0.7321 0.7305 0.7310 Highest exchange rate during the period... 0.8941 0.8760 0.8046 0.7632 0.7527 0.7381 Lowest exchange rate during the period.... 0.8573 0.7760 0.7439 0.7105 0.7023 0.7265
3 10 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and the notes thereto appearing elsewhere in this Prospectus. References to the "Company" or "Royal Oak" mean Royal Oak Mines Inc., an Ontario, Canada corporation and its subsidiaries, unless the context otherwise requires. The consolidated financial statements of Royal Oak included herein have been prepared in accordance with Canadian generally accepted accounting principles and are subject to Canadian auditing and independent auditor standards and thus may not be comparable to financial statements of United States companies. Certain terms relating to the mining industry as used herein are defined in the "Glossary of Certain Mining Terms" beginning on page 106. Reserve data in this Prospectus dated as of December 31, 1995, includes data for the Kemess, Duport and Cape Ray properties acquired by the Company in 1996. IN THIS PROSPECTUS, UNLESS OTHERWISE SPECIFIED OR THE CONTEXT OTHERWISE REQUIRES, ALL DOLLAR AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS. See "Exchange Rate Data." The financial information presented below includes operating results expressed in terms of EBITDA, which represents net income before net interest expense, income taxes, depreciation and amortization, and other net income or net expenses. EBITDA information is included as supplemental information herein because the Company understands that such information is used by certain investors as one measure of an issuer's historical ability to service debt. EBITDA is not intended to represent, and should not be considered more meaningful than, or an alternative to measures of, performance determined in accordance with generally accepted accounting principles. THE COMPANY Royal Oak is a major North American gold mining company which, together with its predecessors, has produced in excess of 50 million ounces of gold over a 60-year period. The Company, which owns and operates five producing gold mines, is in the process of expanding one producing mine and is developing four major new projects. The Company has extensive land positions in Canada covering approximately 704,000 acres, as well as over 7,000 acres in the United States, which provide it with the opportunity to expand its reserves through focused exploration and development. As of and for the fiscal year ending December 31, 1995, Royal Oak had approximately 9.8 million ounces of mineable gold reserves and had produced 371,151 ounces of gold. The Company's five producing gold mines consist of the Colomac and Giant Mines in the Northwest Territories, the Pamour and Nighthawk Mines in Ontario and the Hope Brook Mine in Newfoundland. Through acquisitions, exploration and the implementation of more advanced and efficient mining methods, the Company has increased its annual production by a compounded annual growth rate of 17.5% since 1991. The Company conducts a focused exploration program to develop additional mineable gold reserves in close proximity to its existing mines in order to maximize the utilization of its processing facilities and to increase processing efficiencies. In 1995, the Company's exploration efforts resulted in the addition of approximately 2.2 million ounces of mineable gold reserves to its existing reserve base at a cost of approximately $6.95 per ounce. A significant part of this exploration program was focused on the Pamour Mine open pit expansion which is expected to contribute approximately 60,000 ounces of gold annually when production commences in the first half of 1998. DEVELOPMENT PROJECTS Royal Oak's four major development projects consist of the Kemess South, Matachewan, Red Mountain and Duport gold properties. (These properties are collectively referred to herein as the "Development Projects.") The addition of these four projects has contributed approximately 6.1 million ounces of gold to the Company's mineable ore reserves. The Company believes that the development of these properties will extend the Company's overall reserve life, dramatically increase production and decrease overall cash costs per ounce of gold produced. 4 11 - - Kemess -- In January 1996, the Company completed a series of transactions which resulted in the acquisition of the Kemess gold-copper ore body comprised of Kemess South and Kemess North located in British Columbia. The aggregate consideration for the Kemess acquisition was approximately $202 million in cash and common shares. Construction of the Kemess South open pit mine and processing facility (the "Kemess South Project") began in July 1996 and is expected to be completed in the first half of 1998. The Company estimates that the aggregate development costs of the Kemess South Project will be approximately $390 million, of which up to $166 million will be provided in the form of economic assistance, compensation and investment by the British Columbia provincial government ($14.5 million of which has been received) with the remainder to be provided from proceeds of the Offering, vendor financing, borrowings under the Credit Facility and cash flow from operations. The Kemess South Project contains approximately 4.1 million ounces of mineable gold reserves and approximately 1.0 billion pounds of copper. The Company estimates that the average annual production of Kemess South will be approximately 250,000 ounces of gold with an estimated average cash cost of US$189 per ounce and approximately 60 million pounds of copper with an estimated average cash cost of US$0.48 per pound over the life of the mine. - - Matachewan -- The Company expects to complete the construction of the open pit mine and concentrator at the Matachewan property located in Ontario in the second half of 1998 with an underground mine to follow. Concentrate from Matachewan will be transported to the Pamour Mill for cyanidation. Total capital costs to develop the property are expected to be approximately $115 million. The property was previously an active producing mine which presently contains approximately 884,000 ounces of mineable gold reserves. Annual production is targeted at approximately 100,000 ounces of gold with an estimated average cash cost of US$227 per ounce. - - Red Mountain -- Following the commencement of construction in 1998, the Company expects to complete construction of the underground mine and processing operation at the Red Mountain property located in British Columbia in 1999. Total capital costs to develop the property are expected to be approximately $113 million. The property contains approximately 800,000 ounces of mineable gold reserves with annual production targeted at approximately 150,000 ounces of gold with an estimated average cash cost of US$162 per ounce. - - Duport -- Following the commencement of construction in 1999, the Company expects to complete construction of the underground mine and processing operation at the Duport property located in Ontario in 2000. Total capital costs to develop the property are expected to be approximately $70 million. The property contains approximately 383,000 ounces of mineable gold reserves with annual production targeted at approximately 47,250 ounces of gold per year with an estimated average cash cost of US$224 per ounce. While the Company intends to proceed with the Development Projects on the schedule outlined above, the Company's initial priority is completion of the development of the Kemess South Project. The timing of the other Development Projects will be dependent in part upon completion of the Kemess South Project and other factors such as available financing and receipt of required government approvals and permits. BUSINESS STRENGTHS Royal Oak believes it has certain strengths that provide the Company with advantages in successfully pursuing its operating strategy, including the following: - - Long Reserve Life -- Royal Oak's properties contain approximately 9.8 million ounces of mineable gold ore reserves with an estimated reserve life, based on estimated future production, of over 15 years. - - Attractive Development Projects -- The Company's Development Projects will, upon completion, increase the Company's annual gold production, extend overall mine operating life and significantly reduce the Company's average cash costs. 5 12 - - Extensive Exploration Property Portfolio -- The Company owns an extensive portfolio of mineral properties covering 711,000 acres of prospective mining rights in Canada and the United States. Royal Oak's exploration program is primarily focused on those properties that are adjacent to its producing mines in order to maximize the utilization of the Company's existing processing facilities and to increase processing efficiencies. - - Management Expertise -- Royal Oak's senior management team has extensive operating and exploration experience in the mining industry. Management's significant experience has been instrumental in helping the Company achieve its historical growth and provides a significant base upon which to expand the Company's future operations. In addition, the Company has recently formed a 21-member project development team to construct, develop and manage the Kemess South Project as well as a separate team to focus on the other Development Projects. OPERATING STRATEGY In order to capitalize on its business strengths, the Company has developed the following operating strategy to continue its growth: - - Increase Production and Reduce Average Cash Costs -- As a result of increased production at the Colomac Mine and the first full year of production at the Nighthawk Mine, the Company expects to increase its gold production in 1996 to approximately 415,000 ounces from 371,151 ounces in 1995. In addition, through the successful implementation of advanced mining technologies accompanied by cost reduction programs, the Company believes that its average cash costs will decrease from US$358 per ounce of gold in 1995 to approximately US$315 per ounce of gold in 1996. The Company's cash costs for the six months ended June 30, 1996 were US$331 per ounce of gold compared to US$351 in the same period in 1995. - - Complete Development of Major Projects -- The Company's primary objective with respect to the Development Projects is to efficiently complete the development of the Kemess South Project. The Company estimates that, upon completion, the Development Projects will generate additional annual production of approximately 547,000 ounces of gold and 60 million pounds of copper with an average estimated cash cost of US$192 per ounce of gold and US$0.48 per pound of copper over the life of the properties. - - Expand Reserve Base Through Focused Exploration -- The Company's exploration program focuses on identifying additional mineable ore reserves in close proximity to its existing mines. This strategy allows the Company to maximize utilization of existing processing facilities, to increase processing efficiencies and to capitalize on its extensive land position in Canada. In 1995, the Company's $15.3 million exploration program delineated approximately 2.2 million ounces of mineable gold reserves. The Company has budgeted $12 million for its 1996 exploration program. Management believes that the gold mining industry will continue to consolidate over the next several years and that numerous acquisition opportunities will become available to the Company. In 1996, the Company acquired the Kemess, Duport and Cape Ray properties. In addition to the operating strategy described above, the Company intends to review acquisition opportunities as they become available and will pursue selective acquisitions of gold properties that will increase production, mineable ore reserves and cash flow from operations while reducing average cash costs. These acquisitions could be an important component of the Company's future growth. 6 13 THE NOTE OFFERING THE NOTES.................. The Notes were sold by the Company in the Offering on August 12, 1996, and were subsequently resold to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to institutional investors that are accredited investors in a manner exempt from registration under the Securities Act. REGISTRATION RIGHTS AGREEMENT.................. In connection with the Offering, the Company entered into the Registration Rights Agreement, which grants holders ("Holders") of the Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange and registration rights, which generally terminate upon the consummation of the Exchange Offer. THE EXCHANGE OFFER SECURITIES OFFERED......... US$175,000,000 aggregate principal amount of Series B 11% Senior Subordinated Notes due August 15, 2006. THE EXCHANGE OFFER......... US$1,000 principal amount of the Exchange Notes in exchange for each US$1,000 principal amount of Notes. As of the date hereof, US$175,000,000 aggregate principal amount of Notes are outstanding. The Company will issue the Exchange Notes to Holders on or promptly after the Expiration Date. Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and that such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. Any Holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes could not rely on the position of the staff of the SEC enunciated in Exxon Capital Holdings Corporation (available April 13, 7 14 1989), Morgan Stanley & Co., Inc. (available June 5, 1991) or similar no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the Exchange Notes. Failure to comply with such requirements in such instance may result in such Holder incurring liability under the Securities Act for which the Holder is not indemnified by the Company. In any State where the Exchange Offer does not fall under a statutory exemption to such State's Blue Sky laws, the Company has filed the appropriate registrations and notices, and has made the appropriate requests, to permit the Exchange Offer to be made in such State. EXPIRATION DATE............ 5:00 p.m., New York City time, on , 1996, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. INTEREST ON THE EXCHANGE NOTES AND THE NOTES............ The Exchange Notes will bear interest from August 12, 1996, the date of issuance of the Notes that are tendered in exchange for the Exchange Notes (or the most recent Interest Payment Date (as defined below in the Summary of Terms of Exchange Notes) to which interest on such Notes has been paid). Accordingly, Holders of Notes that are accepted for exchange will not receive interest on the Notes that is accrued but unpaid at the time of tender, but such interest will be payable on the first Interest Payment Date after the Expiration Date. CONDITIONS TO THE EXCHANGE OFFER........... The Exchange Offer is subject to certain customary conditions, which may be waived by the Company. See "The Exchange Offer -- Conditions." PROCEDURES FOR TENDERING NOTES.......... Each Holder of Notes wishing to accept the Exchange Offer must complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver the Letter of Transmittal, or such facsimile, together with the Notes and any other required documentation to the Exchange Agent at the address set forth in the Letter of Transmittal. By executing the Letter of Transmittal, each Holder will represent to the Company that, among other things, the Holder or the person receiving such Exchange Notes, whether or not such person is the Holder, is acquiring the Exchange Notes in the ordinary course of business and that neither the Holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes. In lieu of physical delivery of the certificates representing Notes, tendering Holders may transfer Notes pursuant to the procedure for book-entry transfer as set forth under "The Exchange Offer -- Procedures for Tendering." SPECIAL PROCEDURES FOR BENEFICIAL OWNERS........ Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered Holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own 8 15 behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Notes, either make appropriate arrangements to register ownership of the Notes in such owner's name or obtain a properly completed bond power from the registered Holder. The transfer of registered ownership may take considerable time. GUARANTEED DELIVERY PROCEDURES............... Holders of Notes who wish to tender their Notes and whose Notes are not immediately available or who cannot deliver their Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date pursuant to the procedures described under "The Exchange Offer -- Withdrawals of Tenders." ACCEPTANCE OF NOTES AND DELIVERY OF EXCHANGE NOTES.................... The Company will accept for exchange any and all Notes that are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." FEDERAL INCOME TAX CONSEQUENCES............. The issuance of the Exchange Notes to Holders of the Notes pursuant to the terms set forth in this Prospectus will not constitute an exchange for federal income tax purposes. Consequently, no gain or loss would be recognized by Holders of the Notes upon receipt of the Exchange Notes. See "Certain Federal Income Tax Consequences of the Exchange Offer." EFFECT ON HOLDERS OF NOTES...................... As a result of the making of this Exchange Offer, the Company will have fulfilled certain of its obligations under the Registration Rights Agreement, and Holders of Notes who do not tender their Notes will generally not have any further registration rights under the Registration Rights Agreement or otherwise. Such Holders will continue to hold the untendered Notes and will be entitled to all the rights and subject to all the limitations applicable thereto under the Indenture, except to the extent such rights or limitations, by their terms, terminate or cease to have further effectiveness as a result of the Exchange Offer. All untendered Notes will continue to be subject to certain restrictions on transfer. Accordingly, if any Notes are tendered and accepted in the Exchange Offer, the trading market for the untendered Notes could be adversely affected. EXCHANGE AGENT............. Mellon Bank, F.S.B. 9 16 SUMMARY OF TERMS OF EXCHANGE NOTES The form and terms of the Exchange Notes are the same as the form and terms of the Notes (which they replace) except that (i) the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and (ii) the holders of Exchange Notes generally will not be entitled to further registration rights under the Registration Rights Agreement, which rights generally will be satisfied when the Exchange Offer is consummated. The Exchange Notes will evidence the same debt as the Notes and will be entitled to the benefits of the Indenture. See "Description of Exchange Notes." SECURITIES OFFERED......... US$175,000,000 aggregate principal amount of Series B 11% Senior Subordinated Notes due 2006 (equal to Cdn $239,332,604 based upon the exchange rate on August 27, 1996). ISSUER..................... Royal Oak Mines Inc. MATURITY DATE.............. August 15, 2006. INTEREST PAYMENT DATES..... Interest on the Exchange Notes will accrue from August 12, 1996 (the "Issue Date") and is payable semi-annually on each of February 15 and August 15 of each year, commencing February 15, 1997. RANKING.................... The Exchange Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to all existing and future Senior Indebtedness (as defined) of the Company (which includes the Credit Facility). The Exchange Notes will rank pari passu with all future senior subordinated indebtedness of the Company and will rank senior to all other subordinated indebtedness, if any, of the Company. As of June 30, 1996, there was no Guarantor Senior Indebtedness and $1,991,000 of Senior Indebtedness consisting of capitalized lease obligations. In addition, as of August 27, 1996, the Company had outstanding under its Credit Facility letters of credit in the aggregate amount of $1,940,000. OPTIONAL REDEMPTION........ The Exchange Notes are redeemable, in whole or in part, at the option of the Company, on or after August 15, 2001, at the redemption prices set forth herein, plus accrued interest to the date of redemption. In addition, on or prior to August 15, 1999, the Company, at its option, may redeem an amount of Exchange Notes equal to up to 35% of the aggregate principal amount of the Notes originally issued in the Offering with the net cash proceeds of one or more Public Equity Offerings (as defined), at the redemption prices set forth herein plus accrued interest to the date of redemption. The Exchange Notes are also redeemable at the option of the Company, in whole but not in part, at a redemption price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon to the date of the redemption, in the event of certain changes affecting Canadian withholding taxes. See "Description of Exchange Notes -- Optional Redemption." SUBSIDIARY GUARANTEE....... The Exchange Notes will be guaranteed on a senior subordinated basis by the Guarantor. CHANGE OF CONTROL.......... Upon a Change of Control Triggering Event (as defined), each holder will have the right to require the Company to offer to repurchase such holder's Exchange Notes at a price equal to 101% of the principal amount thereof plus accrued interest to the date of repurchase. CERTAIN COVENANTS.......... The Indenture contains certain covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things, incur 10 17 additional indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, incur indebtedness that is subordinated in right of payment to any Senior Indebtedness and senior in right of payment to the Exchange Notes, incur liens, in the case of a subsidiary, to pay dividends or make certain payments to the Company and its Restricted Subsidiaries, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company or its Restricted Subsidiaries. EXCHANGE OFFER; REGISTRATION RIGHTS........ In the event that applicable law or interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer, or if certain holders of the Notes are not permitted to participate in, or do not receive the benefit of, the Exchange Offer, the Registration Rights Agreement provides that the Company and the Guarantor will use all reasonable efforts to cause to become effective a shelf registration statement with respect to the resale of the Notes and to keep such shelf registration statement effective until three years after the Issue Date or such shorter period ending when all the Notes have been sold thereunder. The interest rate on the Notes is subject to increase under certain circumstances if the Company and the Guarantor are not in compliance with their obligations under the Registration Rights Agreement. See "Exchange Offer and Registration Rights." For additional information regarding the Exchange Notes, see "Description of Exchange Notes." RISK FACTORS See "Risk Factors," which begins on page 16, for a discussion of certain factors that should be considered by prospective investors in evaluating an investment in the Exchange Notes. 11 18 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA The following table sets forth historical consolidated financial data for the Company as of and for the periods noted. The consolidated balance sheet and income statement data as of and for the years ended December 31, 1991 through 1995 has been derived from the audited consolidated financial statements of Royal Oak. The consolidated balance sheet and income statement data as of and for the six months ended June 30, 1995 and 1996 has been derived from the unaudited financial statements of Royal Oak which, in the opinion of management of the Company, contain all adjustments necessary for a fair presentation of this information. The historical data with respect to the results of operations for the six months ended June 30, 1996 should not be regarded as necessarily indicative of the results that may be expected for the entire year. The Operating Data presented below has been derived from the Company's accounting and other records. The consolidated financial statements of Royal Oak and the notes thereto have been prepared in accordance with accounting principles generally accepted in Canada ("Cdn GAAP"). These principles are also in conformity, in all material respects, with accounting principles generally accepted in the United States ("US GAAP") except as described in Note 13 of the notes to the audited consolidated financial statements of Royal Oak and the notes thereto as of December 31, 1994 and 1995 and for each fiscal year in the three-year period ended December 31, 1995 (the "Annual Consolidated Financial Statements"). All dollar amounts are expressed in Canadian dollars except as noted below. The following table should be read together with the Annual Consolidated Financial Statements and the unaudited consolidated financial statements of Royal Oak and the notes thereto as of and for the six months ended June 30, 1995 and 1996 (the "Unaudited Consolidated Financial Statements" and, together with the Annual Consolidated Financial Statements, the "Consolidated Financial Statements") appearing elsewhere in this Prospectus. See "Index to Consolidated Financial Statements."
SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30 ------------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 ------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO) INCOME STATEMENT DATA: CDN GAAP Revenue.................................... $96,433 $113,673 $135,326 $162,111 $208,311 $100,839 $105,846 Operating expenses......................... 72,581 89,874 110,258 117,790 182,214 89,714 81,383 Royalties and marketing expenses........... 830 881 1,248 2,490 2,535 1,108 1,408 Administrative and corporate expenses...... 3,500 4,082 3,411 5,271 8,549 4,945 4,861 Depreciation and amortization.............. 4,966 4,275 4,998 8,525 14,895 6,270 11,366 Exploration expenses(1).................... -- -- -- -- -- 254 2,409 Provision for (recovery of) loss on foreign currency contracts....................... -- -- -- 15,267 (5,244) (3,772) (976) -------- -------- -------- -------- -------- -------- -------- Operating income........................... 14,556 14,561 15,411 12,768 5,362 2,320 5,395 Interest and other income, net(2).......... 1,314 638 2,289 7,074 20,902 12,135 2,462 Other(1)................................... (7,124) (3,654) (1,862) 2,960 (1,553) (235) (23) Provision for income taxes................. (105) (108) (215) (636) (1,542) (969) (2,729) -------- -------- -------- -------- -------- -------- -------- Net income................................. $ 8,641 $ 11,437 $ 15,623 $ 22,166 $ 23,169 $ 13,251 $ 5,105 ======== ======== ======== ======== ======== ======== ======== US GAAP(3) Net income................................. $ 8,226 $ 9,562 $ 13,940 $ 19,978 $ 17,177 $ 9,762 $ 3,654 OPERATING DATA: Recovered gold ounces...................... 194,952 245,469 276,320 318,171 371,151 184,206 179,643 Average spot gold price per ounce (US$).... 362 344 360 384 384 383 395 Average realized gold price per ounce (US$).................................... 432 383 380 428 409 394 431 Cash cost per ounce (US$).................. 327 304 311 311 358 351 331 Total cost per ounce (US$)(4).............. 367 346 340 353 410 400 413 Total cost excluding depreciation and amortization (US$)....................... 345 332 326 333 381 375 367 OTHER DATA: EBITDA(5).................................. $19,522 $ 18,836 $ 20,409 $ 21,293 $ 20,257 $ 8,590 $ 16,761 Net additions to property, plant and equipment(6)............................. 6,513 19,889 26,803 52,461 66,018 22,943 255,728 Ratio of earnings to fixed charges......... 4.43 N.A. 163.93 376.02 84.85 150.32 92.57
12 19
SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO) BALANCE SHEET DATA (AT PERIOD END) CDN GAAP Cash and cash equivalents.................. $ 4,935 $ 12,719 $ 79,644 $148,524 $139,410 $164,294 $ 14,797 Property, plant and equipment.............. 58,200 77,547 99,218 137,954 191,381 154,824 435,690 Total assets............................... 74,484 111,670 217,226 384,074 428,963 421,312 580,118 Long-term debt(2)(7)....................... -- -- -- -- -- -- -- Shareholders' equity....................... 49,273 81,935 185,362 302,731 340,495 330,556 459,959 US GAAP(3) Total assets............................... $73,319 $108,630 $213,253 $377,913 $416,810 $411,662 $646,636 Shareholders' equity....................... 48,533 79,320 181,389 296,570 328,342 320,906 446,355
- --------------- (1) Prior to January 1, 1996, the Company's exploration expenses were not material and were classified under "Other." (2) The Company historically has had no material long-term debt and, accordingly, has had no material interest expense. As a result of the Offering, the Company would have had as of June 30, 1996 annual interest expense of approximately US$19.25 million (or approximately Cdn $26.3 million based upon the exchange rate as of June 30, 1996) associated with the Notes. (3) Under US GAAP (i) depreciation and amortization are calculated on the unit-of-production method based upon proven and probable reserves, whereas under Cdn GAAP, total mineral inventory may be used in the calculations; and (ii) for defined benefit pension plans, the projected benefit obligation should be discounted using interest rates at which the obligation could be effectively settled whereas under Cdn GAAP, the projected benefit obligation may be discounted using interest rates which are consistent with long-term assumptions. See Note 13 to the Annual Consolidated Financial Statements. (4) Total cost per ounce includes depreciation and amortization. (5) "EBITDA," as used in this Prospectus, means operating income plus depreciation and amortization. EBITDA differs from the definition of Consolidated EBITDA under the Indenture. See "Description of Notes." EBITDA is not a measure of financial performance under US GAAP. Accordingly, it does not represent net income or cash flows from operations as defined by US GAAP and does not necessarily indicate that cash flows will be sufficient to fund cash needs. As a result, EBITDA should not be considered as an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. (6) Net additions to property, plant and equipment for the six months ended June 30, 1996 include investments in Kemess capital assets of $202 million through the acquisitions of Geddes Resources Limited, El Condor Resources Ltd. and St. Philips Resources Inc. and Duport capital assets through the acquisition of Consolidated Professor Mines Limited. (7) As of June 30, 1996, the Company had capital lease obligations in the amount of $1,991,000. 13 20 SUMMARY RESERVE DATA(1) The following table lists the Company's mineable ore reserves for the years noted:
YEAR ENDED DECEMBER 31 -------------------------------------------------- 1991 1992 1993 1994 1995(2) ----- ------ ------ ------ ------- GOLD RESERVES (AT END OF PERIOD): Northwest Territories Division Giant Mine(3) Mineable ore (000s tons)......................................... 2,339 2,821 2,617 2,395 2,466 Average grade (ounces per ton)................................... 0.311 0.319 0.321 0.319 0.335 Contained ounces (000s).......................................... 727 899 840 763 826 Colomac Mine(4) Mineable ore (000s tons)......................................... -- -- 13,618 13,054 12,255 Average grade (ounces per ton)................................... -- -- 0.052 0.053 0.058 Contained ounces (000s).......................................... -- -- 709 694 711 Ontario Division Pamour and Nighthawk Mines Mineable ore (000s tons)......................................... 3,812 3,825 3,993 9,398 38,471 Average grade (ounces per ton)................................... 0.099 0.099 0.097 0.067 0.046 Contained ounces (000s).......................................... 379 378 386 629 1,771 Matachewan Mineable ore (000s tons)......................................... -- -- -- 1,400 13,253 Average grade (ounces per ton)................................... -- -- -- 0.062 0.067 Contained ounces (000s).......................................... -- -- -- 87 884 Duport Mineable ore (000s tons)......................................... -- -- -- -- 1,008 Average grade (ounces per ton)................................... -- -- -- -- 0.380 Contained ounces (000s).......................................... -- -- -- -- 383 Newfoundland Division Hope Brook Mine Mineable ore (000s tons)......................................... -- 8,255 7,300 3,936 2,448 Average grade (ounces per ton)................................... -- 0.104 0.102 0.087 0.087 Contained ounces (000s).......................................... -- 856 746 343 215 Cape Ray Mineable ore (000s tons)......................................... -- -- -- -- 502 Average grade (ounces per ton)................................... -- -- -- -- 0.294 Contained ounces (000s).......................................... -- -- -- -- 147 British Columbia Division Kemess South Mineable ore (000s tons)......................................... -- -- -- -- 220,947 Average grade (ounces per ton)................................... -- -- -- -- 0.018 Contained ounces (000s).......................................... -- -- -- -- 4,056 Red Mountain Mineable ore (000s tons)......................................... -- -- -- -- 3,053 Average grade (ounces per ton)................................... -- -- -- -- 0.262 Contained ounces (000s).......................................... -- -- -- -- 800 Royal Oak Consolidated Total mineable ore (000s tons)................................... 6,151 14,901 27,527 30,183 294,402 Average grade (ounces per ton)................................... 0.180 0.143 0.097 0.083 0.033 Total Company contained ounces (000s)............................ 1,106 2,133 2,682 2,517 9,793 COPPER RESERVES (AT END OF PERIOD): British Columbia Division Kemess South Mineable ore (000s tons)......................................... -- -- -- -- 220,947 Average grade (%)................................................ -- -- -- -- 0.224 Content (000s pounds)............................................ -- -- -- -- 989,843
- --------------- See footnotes on following page. 14 21 (1) "Mineable ore reserves" include both proven and probable reserves. The term "reserves" means that part of a mineral deposit which can be reasonably assumed to be economically extracted or produced at the time of the reserves determination. The term "economically," as used in the definition of reserves, implies that profitable extraction or production under defined investment assumptions has been established or analytically demonstrated. The assumptions made must be reasonable, including assumptions concerning the prices and costs that will prevail during the life of the project. The term "proven reserves" means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings and drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. The term "probable reserves" means reserves for which quantity and grade and/or quality are computed from information similar to that used for reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. The term "contained ounces" means that the reserves are estimated to encompass a stated number of ounces of gold in place. The number of ounces ultimately recovered and available for sale depends upon mining efficiency and processing efficiency. See "Risk Factors -- Reserve Estimates; Mineral Inventory." (2) Reserve data dated as of December 31, 1995 includes data for the Kemess, Duport and Cape Ray properties acquired by the Company in 1996. (3) Reserve data includes data for the Nicholas Lake property. See "Business -- Operating Properties -- Giant." (4) Reserve data includes data for the Kim-Cass property on a 100% ownership basis. See "Business -- Operating Properties -- Colomac." As of June 30, 1996, the mine plan at the Colomac Mine was under review by the Company's management which could affect the reserves at such property; however, based upon information currently available to the Company, any adjustment to such reserves is not anticipated to be material to the Company's total mineable inventory in the Indin Lake area that would be processed by the Colomac Mill. 15 22 RISK FACTORS Prospective participants should consider carefully the risk factors set forth below as well as the other information contained in this Prospectus before participating in the Exchange Offer. ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE Following the sale of the Notes, the Company increased its level of indebtedness and debt service obligations. As of June 30, 1996, after giving effect to the sale of the Notes, the Company would have had approximately US$176.5 million (Cdn $241 million based upon the exchange rate in effect on such date) aggregate amount of indebtedness outstanding, representing 34.4% of total capitalization. See "Capitalization." The Company's average annual interest expense in respect of the Notes is approximately US$19.25 million (approximately Cdn $26.3 million based upon the exchange rate as of June 30, 1996). The degree of the Company's leverage could have important consequences to holders of the Exchange Notes including: (i) limiting the Company's ability to obtain additional financing to fund future working capital requirements, capital expenditures, acquisitions or other general corporate requirements; (ii) requiring a portion of the Company's cash flow from operations to be dedicated to debt service requirements, thereby reducing the funds available for operations and future business opportunities; and (iii) increasing the Company's vulnerability to adverse economic and industry conditions. The Company may incur additional indebtedness in the future, including Senior Indebtedness. See " -- Subordination." The ability of the Company to make scheduled payments under its present and future indebtedness will depend on, among other things, the future operating performance of the Company and the Company's ability to refinance its indebtedness when necessary. Each of these factors is to a large extent subject to economic, financial, competitive and other factors beyond the Company's control. SUBORDINATION The Exchange Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to all existing and future Senior Indebtedness. Subject to certain limitations, the Indenture permits the Company to incur additional Senior Indebtedness. See "Description of Exchange Notes -- Certain Covenants -- Limitation on Indebtedness." As a result of the subordination provisions contained in the Indenture, in the event of a liquidation or insolvency, holders of Senior Indebtedness and trade creditors of the Company and the Guarantor may recover more, ratably, than the holders of the Exchange Notes. The holders of any indebtedness of the Company's subsidiaries (other than the Guarantor) will be entitled to payment of their indebtedness from the assets of such subsidiaries prior to the holders of any general unsecured obligations of the Company, including the Exchange Notes. In addition, substantially all of the assets of the Company and its subsidiaries may in the future be pledged to secure other indebtedness of the Company. See "Description of Exchange Notes." DEVELOPMENT PROJECTS General -- The Company from time to time engages in the development of new ore bodies, both at newly acquired properties and currently existing mining operations. The Company's ability to sustain or increase its present level of gold production is dependent in part on the successful development of such new ore bodies and/or expansion of existing mining operations. The economic feasibility of any individual development project and all such projects collectively is based upon, among other things, estimates of ore reserves, metallurgical recoveries, production rates and capital and operating costs of such development projects, and future metal prices. Development projects are also subject to the completion of favorable feasibility studies, the issuance of necessary permits and the receipt of adequate financing. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Development projects may have no operating history upon which to base estimates of future operating costs and capital requirements. Particularly for development projects, estimates of ore reserves, metal recoveries and cash operating costs are to a large extent based upon the interpretation of geological data obtained from drill holes and other sampling techniques and feasibility studies which derive estimates of cash operating costs based 16 23 upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climate changes and other factors. As a result, actual cash operating costs and economic returns of any and all development projects may materially differ from the costs and returns currently estimated. Pending Projects -- The development and construction cost requirements for the Development Projects and the Pamour open pit expansion are significant. For the development of the Kemess South Project, the Company is relying on the updated cost estimates developed by the Company in 1996 and completion of the development is subject to receipt of adequate financing and receipt of all remaining governmental approvals and permits. See "Business -- Development Projects -- Kemess South." The Company's other pending Development Projects are subject to the completion of favorable feasibility studies on each of such properties and the receipt of adequate financing and all required governmental approvals and permits. GOLD AND METAL PRICE VOLATILITY The Company's profitability is significantly affected by changes in the market price of gold, and upon completion of the Kemess South Project, may be significantly affected by changes in the market price of copper. Gold prices may fluctuate dramatically and are affected by numerous industry factors, such as demand for precious metals, forward selling by producers, central bank sales and purchases of gold, and production and cost levels in major gold-producing regions such as North America, South Africa and the former Soviet Union. Moreover, gold prices are also affected by macro-economic factors such as expectations for inflation, interest rates, currency exchange rates, and global or regional political and economic situations. The current demand for, and supply of, gold affects gold prices, but not necessarily in the same manner as current demand and supply affect the prices of other commodities. The potential supply of gold consists of new gold mine production plus existing stocks of bullion and fabricated gold held by governments, financial institutions, industrial organizations and individuals. Since mine production in any single year constitutes a very small portion of the total potential supply of gold, normal variations in current production do not necessarily have a significant effect on the supply of gold or on its price. If gold prices should decline below the Company's cash costs and remain at such levels for any sustained period, the Company could determine that it is not economically feasible to continue commercial production at any or all of its mines. Although the Company has hedging programs in place to reduce certain of the risks associated with gold price volatility, there can be no assurance that such hedging strategies will be successful. See " -- Hedging Activities." The aggregate effect of these factors, all of which are beyond the Company's control, is impossible to predict. Copper prices may also fluctuate dramatically and are affected by numerous factors beyond the Company's control, including expectations of inflation, speculative activities, the relative exchange rate of the United States dollar, global and regional demand, production and production costs in major producing regions. For example, between January 1, 1996 and July 31, 1996, the price per pound of copper fluctuated between a high of US$1.288 and a low of US$0.829. The aggregate effect of these factors, all of which are beyond the Company's control, is impossible to predict. The volatility of gold and copper prices is illustrated in the following table which sets forth the average of the daily closing prices in United States dollars of gold and copper for 1980, 1985, 1990 and each year thereafter until 1996:
1980 1985 1990 1991 1992 1993 1994 1995 1996(3) ------- ------- ------- ------- ------- ------- ------- ------- ------- Gold(1) (per ounce)......... $614.32 $317.22 $383.64 $362.23 $343.94 $359.86 $384.15 $384.08 $392.97 Copper(2) (per pound)....... $ 0.990 $ 0.643 $ 1.208 $ 1.059 $ 1.035 $ 0.866 $ 1.049 $ 1.331 $1.095
- --------------- (1) London Bullion Market (2) London Metal Exchange (3) Through August 15, 1996 As of August 27, the closing price for gold was US$388.80 per ounce and the closing price for copper was US$0.899 per pound. 17 24 HEDGING ACTIVITIES In the normal course of its business, the Company uses gold spot deferred contracts, gold forward sales commitments and gold call option contracts to manage its exposure to fluctuations in the price of gold. Contracted prices on spot deferred and forward sales contracts are recognized in revenue when production is delivered against the commitment. If actual delivery is not made against a particular spot deferred contract at the time of maturity, gains and losses, if any, are recognized at that time. In addition, the Company uses oil swap agreements and foreign exchange contracts to minimize the impact of fluctuations in oil and foreign currency prices, respectively. Contract positions are designed to ensure that the Company will receive a defined minimum price for certain quantities of its production. The related costs paid or premiums received for option contracts which hedge the sales prices of commodities are deferred and included in income as part of the hedged transaction. Revenues from the aforementioned contracts are recognized at the time contracts expire or are closed out by either delivery of the underlying commodity or settlement of the net position in cash. The Company is exposed to certain losses on forward sales contracts, generally the amount by which the contract price exceeds the spot price of the commodity, in the event of non-performance by the counterparties to these agreements. The Company believes that it has minimized credit risk relating to its hedging activities by dealing with large credit-worthy institutions and by limiting its credit exposure to such institutions. As of December 31, 1995, the Company had contractual arrangements, in both United States and Canadian dollars (i) to deliver an aggregate of 459,028 ounces of gold between 1996 and 1999 at prices of US$385 to $654 per ounce, (ii) for 892,792 ounces of gold call options written with expiry dates between 1996 and 1999 at strike prices of US$410 to $664, (iii) to sell an aggregate of approximately US$115.9 million at an exchange rate of Cdn$1.28/US$1.00, and (iv) to purchase an aggregate of 400,000 barrels of crude oil between 1996 and 1997 at a price per barrel of US$16.85 to US$17.40. See Note 11 to the Annual Consolidated Financial Statements. In 1996, the Company closed out the contracts referred to in clause (i) above, resulting in the generation of cash and deferred revenue of $20,131,000, exchanged the gold call options expiring between 1997 and 1999 referred to in clause (ii) above for call options with strike prices of $549 to $561, resulting in the generation of cash and deferred revenue of $11,235,000, and settled contracts for 200,000 barrels of crude oil which matured in 1996 referred to in clause (iv) above, resulting in the generation of cash of $537,000 which was used to reduce fuel costs. FOREIGN EXCHANGE Currency fluctuations may affect the cash flow which the Company will realize from its operations as gold and copper are sold in world markets in United States dollars and the Company's costs are incurred primarily in Canadian dollars. Although the Company has hedging programs in place to reduce certain risks associated with foreign exchange exposure, there can be no assurance that such hedging strategies will be successful. See Note 6 to the Annual Consolidated Financial Statements for a further discussion of such activities as of December 31, 1995. RESERVE ESTIMATES; MINERAL INVENTORY The reserves presented in this Prospectus are estimates and no assurance can be given that the indicated amount of gold or other minerals may be economically recovered. Reserve estimates may require revisions based on actual production experience. The ore grade actually recovered by the Company may differ from the estimated grade of the reserves. The Company's reserve estimates are revised annually based on the previous year's operating history. Many factors relating to each mine, such as the design of the mine plan, unexpected operating and processing problems, increases in the stripping ratio in open pit mines, unforeseen geotechnical conditions which may result in increased ground support or dilution in underground operations, and the complexity of the metallurgy of an ore body, may adversely affect cash costs. Moreover, fluctuations in the market price of gold or other minerals, 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. References in this Prospectus to "mineral inventory" refer to the combination of mineable ore reserves and the Company's estimates of mineralized material which is either not sufficiently delineated as to size, tonnage and grade or, even if delineated, cannot be economically extracted at the time of the reserve 18 25 determination and accordingly, cannot be classified as mineable ore reserves. Information described in this Prospectus as "mineral inventory" and "mineralized material" is provided for informational purposes only as the Commission generally permits disclosure of only proven ore reserves, probable ore reserves and mineable ore reserves. There can be no assurance that any mineralized material will ever become mineable ore reserves. GOVERNMENT PERMITS AND PAYMENTS In the ordinary course of business, mining companies are required to seek governmental permits for expansion of existing operations or for the commencement of new operations. Obtaining the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often involving public hearings and costly undertakings on the part of the Company. The duration and success of permitting efforts are contingent upon many variables not within the Company's control. Environmental protection permitting, including the approval of reclamation plans, may increase costs and cause delays depending on the nature of the activity to be permitted and the interpretation of applicable requirements implemented by the permitting authority. There can be no assurance that all necessary permits will be obtained and, if obtained, that the costs involved will not exceed those previously estimated by the Company. It is possible that the costs and delays associated with the compliance with such standards and regulations could become such that the Company would not proceed with the development or operation of a mine or mines. The Company, through an agreement with the British Columbia provincial government which settled the issue of compensation pertaining to the Windy Craggy property and provided grants and investment for the development of the Kemess South Project and other properties in British Columbia, is expected to bring the Kemess South Project into production in the second quarter of 1998. The development of the Kemess South Project will be facilitated by up to $166 million of compensation, economic assistance and investment from the British Columbia provincial government, subject to the satisfaction of certain conditions which the Company expects to meet. Section 25 of the Financial Administration Act (British Columbia) provides that, notwithstanding the commitment to pay, any payment of money by the British Columbia provincial government pursuant to an agreement is subject to (i) an appropriation being available for that agreement in the year in which the payment falls due and (ii) the Treasury Board (as defined in the Financial Administration Act) not having controlled or limited expenditure under any such appropriation. Although the Company fully expects that adequate appropriations will be made for all amounts to be paid by the British Columbia provincial government and that the Treasury Board will not control or limit such appropriations, there can be no assurance that this will be the case. To the Company's knowledge, the British Columbia provincial government has never failed to make an appropriation for a payment of money pursuant to an agreement in the year in which a payment was due and the Treasury Board has not controlled or limited any such appropriation. See "Business -- Development Projects -- Kemess South." REGULATIONS AND MINING LAW The Company's mining operations and exploration activities are subject to extensive federal, provincial, state and local laws and regulations governing exploration, development, production, exports, taxes, labour standards, occupational health and safety, waste disposal, monitoring, protection and remediation of the environment, reclamation, mine safety, toxic substances and other matters. Compliance with such laws and regulations increases the costs of planning, designing, drilling, developing, constructing, operating and closing mines and other facilities. It is possible that the costs and delays associated with compliance with such laws and regulations could become such that the Company would not proceed with the development or continue the operation of a mine or mines. The Company has expended significant resources, both financial and managerial, to comply with environmental protection laws, regulations and permitting requirements and the Company anticipates that it will continue to do so in the future. Although the Company believes that its operations and facilities comply in all material respects with applicable environmental protection requirements, there can be no assurance that additional significant costs and liabilities will not be incurred to comply with current and future requirements. Moreover, it is possible that future developments, such as increasingly strict environmental protection laws, regulations and enforcement policies thereunder, and claims for damages to natural resources, property and 19 26 persons resulting from or alleged to result from the Company's operations, could result in substantial costs and liabilities in the future. MINING RISKS AND INSURANCE The business of mining for gold and other metals is generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, labour disputes, encountering unusual or unexpected geological conditions, stope failures, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods, blizzards and earthquakes. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. The Company maintains insurance against risks that are typical in the mining industry, but which may not provide adequate coverage in certain unforeseen circumstances. Moreover, 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 companies within the industry. Without such insurance, if the Company becomes subject to environmental liabilities, the payment of such liabilities would reduce its available funds. EXPLORATION AND RESERVE GROWTH Exploration for gold and other precious metals is highly speculative in nature, involves many risks and is frequently unsuccessful. There can be no assurance that exploration efforts will result in the discovery of gold mineralization or that any mineralization discovered will result in an increase of reserves. If reserves are developed, it may take a number of years and substantial expenditures from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. No assurance can be given that the exploration programs will result in the replacement of current production with new reserves or that the development programs will be able to extend the life of existing mines or locate new mines. In the event that new reserves are not developed, the Company may not be able to sustain its current level of gold production. COMPETITION Because mines have limited lives based on proven and probable ore reserves, the Company is continually seeking to replace and expand its reserves. The Company encounters competition from other mining companies in connection with the acquisition of properties producing or capable of producing gold and in the recruitment and retention of qualified employees. As a result of this competition, some of which is with companies having significantly greater financial resources, the Company may be unable to acquire attractive mining properties on terms it considers acceptable. In addition, there are a number of uncertainties inherent in any program relating to the location of economic ore reserves, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities and the appropriate financing thereof. Accordingly, there can be no assurance that the Company's programs will yield new reserves to replace mined reserves and expand current reserves. The Indenture contains limitations on the ability of the Company to acquire additional properties. See "Description of Exchange Notes -- Certain Covenants -- Limitation on Indebtedness," and "-- Limitation on Restricted Payments." ABORIGINAL LAND CLAIMS Aboriginal groups have made claims in Canada asserting aboriginal rights to land located within their "traditional territory" or resource tenure. In order to pursue a claim, an aboriginal group must notify the responsible federal, provincial or territorial government where the land is located. Each jurisdiction has one or more procedures in place to review and resolve any such claim, failing which judicial consideration may prevail. No government has advised the Company to date of any formal title claim or award that would include the Company's properties. There is, however, no assurance that future claims negotiations or judgments will not affect the Company's properties. If the Company's properties are included in any future negotiated settlements or awards, there can be no assurance that the Company would receive adequate compensation. 20 27 LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES The Notes are currently owned by a relatively small number of beneficial owners. The Notes have not been registered under the Securities Act or any state securities laws and, unless so registered and to the extent not exchanged for the Exchange Notes, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Exchange Notes will constitute a new class of securities with no established trading market. Although the Exchange Notes will generally be permitted to be resold or otherwise transferred by nonaffiliates of the Company without compliance with the registration requirements under the Securities Act, the Company does not intend to list the Exchange Notes on any national securities exchange or to seek admission thereof to trading in the Nasdaq National Market. BT Securities Corporation and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers") have advised the Company that they currently intend to make a market in the Exchange Notes. The Initial Purchasers are not obligated to do so, however, and any market-making with respect to Exchange Notes may be interrupted or discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Exchange Act. See "Exchange Offer and Registration Rights." Accordingly, no assurance can be given that an active public or other market will develop for the Exchange Notes or as to the liquidity of the trading market for the Exchange Notes. If a trading market does not develop or is not maintained, holders of the Exchange Notes may experience difficulty in reselling the Exchange Notes or may be unable to sell them at all. If a market for the Exchange Notes develops, any such market may be discontinued at any time. If a public trading market develops for the Exchange Notes future trading prices of such Exchange Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's financial condition and results of operations, and the market for similar notes. Depending on these and other factors, the Exchange Notes may trade at a discount from their principal amount. CHANGE OF CONTROL The Indenture provides that, upon the occurrence of any Change of Control Triggering Event (as defined), which requires both a Change of Control (as defined) and a Rating Event (as defined), the Company will be required to make an offer (a "Change of Control Offer") to purchase all of the Exchange Notes issued and then outstanding under the Indenture at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest thereon and Additional Interest (as defined), if any, to the date of purchase. There can be no assurance that the Company would be able to obtain financing on commercially reasonable terms or at all at such time, and consequently no assurance can be given that the Company would be able to purchase any of the Exchange Notes tendered pursuant to a Change of Control Offer. See "Description of Exchange Notes." Clause (i) of the definition of "Change of Control" under "Description of Exchange Notes" includes a sale, lease, exchange or other transfer of "all or substantially all" of the assets of the Company to a person or group of persons. There is little case law interpreting the phrase "all or substantially all" in the context of an indenture. Because there is no precise established definition of this phrase, the ability of a holder of Exchange Notes to require the Company to repurchase such Notes as a result of a sale, lease, exchange or other transfer of all or substantially all of the Company's assets to a person or group of persons may be uncertain. EXCHANGE OFFER PROCEDURES Issuance of the Exchange Notes in exchange for Notes pursuant to the Exchange Offer will be made only after a timely receipt by the Exchange Agent of such Notes, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, Holders of the Notes desiring to tender such Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. The Company is under no duty to give notification of defects or irregularities with respect to the tenders of Notes for exchange. Notes that are not tendered or are tendered but not accepted will, following the consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof and, upon consummation of the Exchange Offer, the registration rights under the Registration Rights Agreement generally will terminate. In addition, any Holder of Notes who tenders in the Exchange Offer for the purpose of participating in a 21 28 distribution of the Exchange Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale. Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. To the extent that Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Notes could be adversely affected. See "The Exchange Offer." RESTRICTIONS ON TRANSFER The Notes were offered and sold by the Company in a private offering exempt from registration pursuant to the Securities Act and have been resold pursuant to Rule 144A under the Securities Act and to a limited number of other institutional "accredited investors" (as defined in Rule 501(a) (1), (2), (3) or (7) under the Securities Act). As a result, the Notes may not be reoffered or resold by purchasers except pursuant to an effective registration statement under the Securities Act, or pursuant to an applicable exemption from such registration, and the Notes are legended to restrict transfer as aforesaid. Each Holder (other than any Holder who is an affiliate or promoter of the Company) who duly exchanges Notes for Exchange Notes in the Exchange Offer will receive Exchange Notes that are freely transferable under the Securities Act. Holders of Notes who participate in the Exchange Offer should be aware, however, that if they accept the Exchange Offer for the purpose of engaging in a distribution, the Exchange Notes may not be publicly reoffered or resold without complying with the registration and prospectus delivery requirements of the Securities Act. As a result, each Holder of Notes accepting the Exchange Offer will be deemed to have represented, by its acceptance of the Exchange Offer, that it acquired the Exchange Notes in the ordinary course of business and that it is not engaged in, and does not intend to engage in, a distribution of the Exchange Notes. If existing Commission interpretations permitting free transferability of the Exchange Notes following the Exchange Offer are changed prior to consummation of the Exchange Offer, the Company will use its best efforts to register the Notes for resale under the Securities Act. See "Prospectus Summary - -- The Exchange Offer" and "Exchange Offer and Registration Rights." The Notes currently may be sold pursuant to the restrictions set forth in Rule 144A under the Securities Act or pursuant to another available exemption under the Securities Act without registration under the Securities Act. To the extent that Notes are tendered and accepted in the Exchange Offer, the trading market for the untendered and tendered but unaccepted Notes could be adversely affected. 22 29 THE EXCHANGE OFFER The following discussion sets forth or summarizes what the Company believes to be the material terms of the Exchange Offer, including those set forth in the Letter of Transmittal distributed with this Prospectus. This summary is qualified in its entirety by reference to the full text of the documents underlying the Exchange Offer, copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part, and are incorporated herein by reference. PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Notes were sold by the Company on August 12, 1996, and were subsequently resold to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to institutional investors that are accredited investors in a manner exempt from registration under the Securities Act. In connection with the Note Offering, the Company entered into the Registration Rights Agreement, which requires, among other things, that promptly following the Issue Date the Company and the Guarantor (i) file with the Commission a registration statement under the Securities Act with respect to an issue of new notes of the Company identical in all material respects (other than transfer restrictions) to the Notes (which obligation has been satisfied by the filing of the Registration Statement of which this Prospectus is a part), (ii) use their best efforts to cause such registration statement to become effective under the Securities Act and (iii) upon the effectiveness of that registration statement, offer to the Holders of the Notes the opportunity to exchange their Notes for a like principal amount of Exchange Notes, which would be issued without a restrictive legend and may be reoffered and resold by the holder without restrictions or limitations under the Securities Act (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act). A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The term "Holder" with respect to the Exchange Offer means any person in whose name the Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. Any Notes tendered and exchanged in the Exchange Offer will reduce the principal amount of Notes outstanding. Following the consummation of the Exchange Offer, Holders of the Notes who did not tender their Notes generally will not have any further registration rights under the Registration Rights Agreement, and such Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Notes could be adversely affected. The Notes are currently eligible for sale pursuant to Rule 144A through the PORTAL System of the National Association of Securities Dealers, Inc. Because the Company anticipates that most Holders of Notes will elect to exchange such Notes for Exchange Notes due to the absence of restrictions on the resale of Exchange Notes under the Securities Act, the Company anticipates that the liquidity of the market for any Notes remaining after the consummation of the Exchange Offer may be substantially limited. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Notes validly tendered and not withdrawn prior to 5:00 p.m. New York City time on the Expiration Date. The Company will issue US$1,000 principal amount of Exchange Notes in exchange for each US$1,000 principal amount of outstanding Notes accepted in the Exchange Offer. Holders may tender some or all of their Notes pursuant to the Exchange Offer. However, Notes may be tendered only in integral multiples of US$1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Notes except that (i) the Exchange Notes have been registered under the Securities Act and hence will not bear legends restricting the transfer thereof and (ii) the holders of the Exchange Notes generally will not be entitled to certain rights under the Registration Rights Agreement, which rights generally will terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same debt as the Notes and will be entitled to the benefits of the Indenture. Holders of Notes do not have any appraisal or dissenters' rights under the Ontario Business Corporations Act or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange 23 30 Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder, including Rule 14e-1 thereunder. The Exchange Offer will not necessarily be conducted in compliance with the securities laws of the province of Ontario, Canada. The Company shall be deemed to have accepted validly tendered Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Holders for the purpose of receiving the Exchange Notes from the Company. If any tendered Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Notes will be returned, without expense, to the tendering Holder thereof as promptly as practicable after the Expiration Date. Holders who tender Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1996, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. To extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice, followed by a public announcement thereof no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. The Company reserves the right, in its reasonable judgment, (i) to delay accepting any Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "-- Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by a public announcement thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered Holders, and, depending upon the significance of the amendment and the manner of disclosure to the registered Holders, the Company will extend the Exchange Offer for a period of five to ten business days if the Exchange Offer would otherwise expire during such five to ten business day period. If the Company does not consummate the Exchange Offer, or, in lieu thereof, the Company does not file and cause to become effective a resale shelf registration for the Notes within the time periods set forth herein, liquidated damages will accrue and be payable on the Notes either temporarily or permanently. See "Exchange Offer and Registration Rights." Without limiting the manner in which the Company may choose to make public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON EXCHANGE NOTES The Exchange Notes will bear interest from August 12, 1996, the date of issuance of the Notes that are tendered in exchange for the Exchange Notes (or the most recent Interest Payment Date to which interest on such Notes has been paid). Accordingly, holders of Notes that are accepted for exchange will not receive interest that is accrued but unpaid on the Notes at the time of tender, but such interest will be payable on the first Interest Payment Date after the Expiration Date. Interest on the Exchange Notes will be payable semiannually on each February 15 and August 15, commencing on February 15, 1997. 24 31 PROCEDURES FOR TENDERING Only a Holder of Notes may tender such Notes in the Exchange Offer. To tender in the Exchange Offer, a Holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Notes and any other required documents, to the Exchange Agent so as to be received by the Exchange Agent at the address set forth below prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the Exchange Agent prior to the Expiration Date. By executing the Letter of Transmittal, each Holder will make to the Company the representation set forth below in the second paragraph under the heading "-- Resale of Exchange Notes." The tender by a Holder and the acceptance thereof by the Company will constitute an agreement between such Holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered Holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. Signatures on the Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Notes tendered pursuant thereto are tendered (i) by a registered Holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered Holder of any Notes listed therein, such Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered Holder as such registered Holder's name appears on such Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Company understands that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Notes at the DTC for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the DTC may make book-entry delivery of the Notes by causing the DTC to transfer such Notes into the Exchange Agent's account with respect to the Notes in accordance with the DTC's procedures for such transfer. Although delivery of the Notes may be effected through book-entry transfer into the Exchange Agent's account at the DTC, a Letter of Transmittal properly completed and duly executed with any required 25 32 signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to the DTC does not constitute delivery to the Exchange Agent. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Notes not properly tendered or any Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. Although the Company intends to notify Holders of defects or irregularities with respect to tenders of Notes, none of the Company, the Exchange Agent or any other person shall incur any liability for failure to give such notification. Tenders of Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Notes and (i) whose Notes are not immediately available, (ii) who cannot deliver their Notes, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder, the certificate number(s) of such Notes and the principal amount of Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing the Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the DTC) and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Notes in proper form for transfer (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the DTC) and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Notes according to the guaranteed delivery procedures set forth above. WITHDRAWALS OF TENDERS Except as otherwise provided herein, tenders of Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at the address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Notes to be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn (including the certificate number(s) and principal amount of such Notes, or, in the case of notes transferred 26 33 by book-entry transfer, the name and number of the account at the DTC to be credited), (iii) be signed by the Holder in the same manner as the original signature on the Letter of Transmittal by which such Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee register the transfer of such Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time or receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Notes so withdrawn are validly retendered. Any Notes which have been tendered but which are not accepted for exchange will be returned to the Holder thereof without cost to such Holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or to exchange Exchange Notes for, any Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Notes, if: (a) any law, statute, rule, regulation or interpretation by the staff of the Commission is proposed, adopted or enacted, which, in the reasonable judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (b) any governmental approval has not been obtained, which approval the Company shall, in its reasonable judgment, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its reasonable judgment that any of the conditions are not satisfied, the Company may (i) refuse to accept any Notes and return all tendered Notes to the tendering Holders, (ii) extend the Exchange Offer and retain all Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of Holders to withdraw such Notes (see "-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Notes which have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered Holders, and, depending upon the significance of the waiver and the manner of disclosure to the registered Holders, the Company will extend the Exchange Offer for a period of five to 10 business days if the Exchange Offer would otherwise expire during such five to ten business-day period. EXCHANGE AGENT Mellon Bank, F.S.B. will act as Exchange Agent for the Exchange Offer with respect to the Notes. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal for the Notes and requests for copies of Notice of Guaranteed Delivery should be directed to the Exchange Agent, addressed as follows: By Registered or Certified Mail, Overnight Mail or Courier Service or in Person by Hand: Mellon Bank, F.S.B. c/o Mellon Bank, N.A. Corporate Trust Operations 2 Mellon Bank Center, Room 335 Pittsburgh, PA 15259-0001 By Facsimile: (412) 236-2807 27 34 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telephone, facsimile or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers or other persons soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith and pay other registration expenses, including fees and expenses of the Trustee, filing fees, blue sky fees and printing and distribution expenses. The Company will pay all transfer taxes, if any, applicable to the exchange of the Notes pursuant to the Exchange Offer. If, however, certificates representing the Exchange Notes or the Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered Holder of the Notes tendered, or if tendered Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of the Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered Holder or any other person) will be payable by the tendering Holder. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Notes, which is the aggregate principal amount of the Notes, as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized in connection with the Exchange Offer. A gain or loss, however, may be recognized due to changes in the carrying value of the Notes or the Exchange Notes during an accounting period due to, for example, fluctuations in the exchange rate for United States and Canadian dollars (due to the fact that the Notes and Exchange Notes are denominated in United States dollars and the value thereof is recorded on the Company's books in Canadian dollars). The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. RESALE OF EXCHANGE NOTES Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered for resale, resold and otherwise transferred by any holder of such Exchange Notes (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of such Exchange Notes. Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes may not rely on the position of the staff of the SEC enunciated in Exxon Capital Holdings Corporation (available April 13, 1989) and Morgan Stanley & Co., Incorporated (available June 5, 1991), or similar no-action letters, but rather must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. In addition, any such resale transaction should be covered by an effective registration statement containing the selling security holders information required by Item 507 of Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, may be a statutory underwriter and must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. By tendering in the Exchange Offer, each Holder will represent to the Company that, among other things, (i) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the registered Holder, (ii) neither the Holder nor any such other person has an arrangement or understanding with any person to 28 35 participate in the distribution of such Exchange Notes and (iii) the Holder and such other person acknowledge that if they participate in the Exchange Offer for the purpose of distributing the Exchange Notes (a) they must, in the absence of an exemption therefrom, comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes and cannot rely on the no-action letters referenced above and (b) failure to comply with such requirements in such instance could result in such Holder or such other person incurring liability under the Securities Act for which such Holder or such other person is not indemnified by the Company. Further, by tendering in the Exchange Offer, each Holder and such other person that may be deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the Company will represent to the Company that such Holder and such other person understand and acknowledge that the Exchange Notes may not be offered for resale, resold or otherwise transferred by that Holder or such other person without registration under the Securities Act or an exemption therefrom. CONSEQUENCES OF FAILURE TO EXCHANGE As a result of the making of this Exchange Offer, the Company will have fulfilled one of its obligations under the Registration Rights Agreement, and Holders of Notes who do not tender their Notes generally will not have any further registration rights under the Registration Rights Agreement or otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's Notes for Exchange Notes will continue to hold the untendered Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture, except to the extent that such rights or limitations, by their terms, terminate or cease to have further effectiveness as a result of the Exchange Offer. The Notes that are not exchanged for Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Notes may be resold only (i) to the Company (upon redemption thereof or otherwise), (ii) pursuant to an effective registration statement under the Securities Act, (iii) so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, (iv) outside the United States to a foreign person pursuant to the exemption from the registration requirements of the Securities Act provided by Regulation S thereunder, (v) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) or (vi) to an institutional accredited investor in a transaction exempt from the registration requirements of the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States or other jurisdiction. See "Risk Factors -- Restrictions on Transfer." OTHER Participation in the Exchange Offer is voluntary and holders should carefully consider whether to accept. Holders of the Notes are urged to consult their financial and tax advisors in making their own decision on what action to take. The Company may in the future seek to acquire untendered Notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Company has no present plans to acquire any Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any untendered Notes. In any state where the Exchange Offer does not fall under a statutory exemption to the blue sky rules, the Company has filed the appropriate registrations and notices, and has made the appropriate requests, to permit the Exchange Offer to be made in such State. 29 36 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER The following discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "IRS") will not take a contrary view, and no ruling from the IRS has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to Holders. Certain Holders of the Notes (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. Each Holder of a Note should consult his, her or its own tax advisor as to the particular tax consequences of exchanging such Holder's Notes for Exchange Notes, including the applicability and effect of any state, local or foreign tax laws. The issuance of the Exchange Notes to Holders of the Notes pursuant to the terms set forth in this Prospectus will not constitute an exchange for United States federal income tax purposes. Consequently, no gain or loss would be recognized by Holders of the Notes upon receipt of the Exchange Notes, and ownership of the Exchange Notes will be considered a continuation of ownership of the Notes. For purposes of determining gain or loss upon the subsequent sale or exchange of the Exchange Notes, a Holder's basis in the Exchange Notes should be the same as such Holder's basis in the Notes exchanged therefor. A Holder's holding period for the Exchange Notes should include the Holder's holding period for the Notes exchanged therefor. The issue price, original issue discount inclusion and other tax characteristics of the Exchange Notes should be identical to the issue price, original issue discount inclusion and other tax characteristics of the Notes exchanged therefor. See also "Certain Income Tax Considerations." 30 37 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1996, and as adjusted to give effect to the issuance of the Notes. The information presented below should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Prospectus. See "Index to Consolidated Financial Statements."
AS OF JUNE 30, 1996 --------------------------- ACTUAL AS ADJUSTED(3) -------- -------------- (DOLLARS IN THOUSANDS) CDN GAAP Cash and cash equivalents........................................ $ 14,797 $246,804 ======== ======== Credit Facility(1)............................................... $ -- $ -- Long-term debt (including current portion): 11% Senior Subordinated Notes due 2006(2)...................... $ -- $239,006 Capital leases................................................. 1,991 1,991 -------- -------- Total long-term debt........................................ 1,991 240,997 -------- -------- Shareholders' equity: Common shares.................................................. 376,316 376,316 Retained earnings.............................................. 83,643 83,643 -------- -------- Total shareholders' equity.................................. 459,959 459,959 -------- -------- Total capitalization............................................. $461,950 $700,956 ======== ======== US GAAP Total shareholders' equity....................................... $446,355 $446,355 Total capitalization............................................. 448,346 687,352
- --------------- (1) The Company entered into the Credit Facility on February 15, 1996. As of August 27, 1996, $1,940,000 was outstanding under the Credit Facility in the form of letters of credit issued thereunder. The Credit Facility matures on February 14, 1997 and is renewable annually at the option of the lender. See "Description of Credit Facility." (2) Reflects the full face amount of the Notes converted to Canadian dollars based on the Noon Buying Rate on June 30, 1996 of Cdn $1.00 equals US$0.7322. (3) After giving effect to the issuance of the Notes. 31 38 SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA The following table sets forth historical consolidated financial and operating data for the Company as of and for the periods noted. The consolidated balance sheet and income statement data as of and for the years ended December 31, 1991 through 1995 has been derived from the audited consolidated financial statements of Royal Oak. The consolidated balance sheet and income statement data as of and for the six months ended June 30, 1995 and 1996 has been derived from the unaudited financial statements of Royal Oak which, in the opinion of management of the Company, contain all adjustments necessary for a fair presentation of this information. The historical data with respect to the results of operations for the six months ended June 30, 1996 should not be regarded as necessarily indicative of the results that may be expected for the entire year. The Operating Data presented below has been derived from the Company's accounting and other records. The Consolidated Financial Statements have been prepared in accordance with Cdn GAAP. These principles are also in conformity, in all material respects, with US GAAP except as described in Note 13 of the notes to the Annual Consolidated Financial Statements. The following table should be read together with the Consolidated Financial Statements (including the notes thereto) appearing elsewhere in this Prospectus. See "Index to Consolidated Financial Statements."
SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30 -------------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO) INCOME STATEMENT DATA: CDN GAAP Revenue................................... $ 96,433 $113,673 $135,326 $162,111 $208,311 $100,839 $105,846 Operating expenses........................ 72,581 89,874 110,258 117,790 182,214 89,714 81,383 Royalties and marketing expenses.......... 830 881 1,248 2,490 2,535 1,108 1,408 Administrative and corporate expenses..... 3,500 4,082 3,411 5,271 8,549 4,945 4,861 Depreciation and amortization............. 4,966 4,275 4,998 8,525 14,895 6,270 11,366 Exploration expenses(1)................... -- -- -- -- -- 254 2,409 Provision for (recovery of) loss on foreign currency contracts.............. -- -- -- 15,267 (5,244) (3,772) (976) ------- -------- -------- -------- -------- -------- -------- Operating income (loss)................... 14,556 14,561 15,411 12,768 5,362 2,320 5,395 Interest and other income, net(2)......... 1,314 638 2,289 7,074 20,902 12,135 2,462 Other(1).................................. (7,124) (3,654) (1,862) 2,960 (1,553) (235) (23) Provision for income taxes................ (105) (108) (215) (636) (1,542) (969) (2,729) ------- -------- -------- -------- -------- -------- -------- Net income................................ $ 8,641 $ 11,437 $ 15,623 $ 22,166 $ 23,169 $ 13,251 $ 5,105 ======= ======== ======== ======== ======== ======== ======== US GAAP(3) Net income................................ $ 8,226 $ 9,562 $ 13,940 $ 19,978 $ 17,177 $ 9,762 $ 3,654 OPERATING DATA: Recovered gold ounces..................... 194,952 245,469 276,320 318,171 371,151 184,206 179,643 Average spot gold price per ounce (US$)... 362 344 360 384 384 383 395 Average realized gold price per ounce (US$)................................... 432 383 380 428 409 394 431 Cash cost per ounce (US$)................. 327 304 311 311 358 351 331 Total cost per ounce (US$)(4)............. 367 346 340 353 410 400 413 Total cost excluding depreciation and amortization (US$)...................... 345 332 326 333 381 375 367 OTHER DATA: EBITDA(5)................................. $ 19,522 $ 18,836 $ 20,409 $ 21,293 $ 20,257 $ 8,590 $ 16,761 Net additions to property, plant and equipment(6)............................ 6,513 19,889 26,803 52,461 66,018 22,943 255,728 Ratio of earnings to fixed charges........ 4.43 N.A. 163.93 376.02 84.85 150.32 92.57 BALANCE SHEET DATA (AT PERIOD END): CDN GAAP Cash and cash equivalents................. $ 4,935 $ 12,719 $ 79,644 $148,524 $139,410 $164,294 $ 14,797 Property, plant and equipment............. 58,200 77,547 99,218 137,954 191,381 154,824 435,690 Total assets.............................. 74,484 111,670 217,226 384,074 428,963 421,312 580,118 Long-term debt(2)(7)...................... -- -- -- -- -- -- -- Shareholders' equity...................... 49,273 81,935 185,362 302,731 340,495 330,556 459,959
32 39
SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30 1991 1992 1993 1994 1995 1995 1996 ------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO) US GAAP(3) Total assets.............................. $ 73,319 $108,630 $213,253 $377,913 $416,810 $411,662 $646,636 Shareholders' equity...................... 48,533 79,320 181,389 296,570 328,342 320,906 446,355
- --------------- (1) Prior to January 1, 1996, the Company's exploration expenses were not material and were classified under "Other." (2) The Company historically has had no material long-term debt and, accordingly, has had no material interest expense. As a result of the Offering, the Company would have had, as of June 30, 1996, annual interest expense of approximately US$19.25 million (or approximately Cdn $26.3 million based upon the exchange rate as of June 30, 1996) associated with the Notes. (3) Under US GAAP (i) depreciation and amortization are calculated on the unit-of-production method based upon proven and probable reserves, whereas under Cdn GAAP, total mineral inventory may be used in the calculations; and (ii) for defined benefit pension plans, the projected benefit obligation should be discounted using interest rates at which the obligation could be effectively settled whereas under Cdn GAAP, the projected benefit obligation may be discounted using interest rates which are consistent with long-term assumptions. See Note 13 to the Annual Consolidated Financial Statements. (4) Total cost per ounce includes depreciation and amortization. (5) "EBITDA," as used in this Prospectus, means operating income plus depreciation and amortization. EBITDA differs from the definition of Consolidated EBITDA under the Indenture. See "Description of Exchange Notes." EBITDA is not a measure of financial performance under US GAAP. Accordingly, it does not represent net income or cash flows from operations as defined by US GAAP and does not necessarily indicate that cash flows will be sufficient to fund cash needs. As a result, EBITDA should not be considered as an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. (6) Net additions to property, plant and equipment for the six months ended June 30, 1996 include investments in Kemess capital assets of $202 million through the acquisitions of Geddes Resources Limited, El Condor Resources Ltd. and St. Philips Resources Inc. and Duport capital assets through the acquisition of Consolidated Professor Mines Limited. (7) As of June 30, 1996, the Company had capital lease obligations in the amount of $1,991,000. 33 40 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the information contained in Royal Oak's Consolidated Financial Statements (including the notes thereto) appearing elsewhere in the Prospectus. See "Index to Consolidated Financial Statements." GENERAL The majority of the Company's revenue is derived from gold sales. Revenue varies with the volume of gold produced and the price received for that production. Set out below is a table indicating the impact on revenue of increased production and of prices for the years 1993 through 1995.
1993 1994 1995 ------- ------- ------- (DOLLARS IN THOUSANDS) Impact on revenue due to: Increased Production...................................... $15,126 $ 750 $52,480 Increased (Decreased) Prices(1)........................... 6,527 26,035 (6,280) ------- ------- ------- Incremental revenue from prior year......................... $21,653 $26,785 $46,200 ======= ======= =======
- --------------- (1) Based upon realized prices and includes impact of changes in relative exchange rates. In 1995, a US$10 per ounce increase in the gold price would have increased revenue for the year ended December 31, 1995 by approximately $5.1 million. Each year since the acquisition of the Pamour and Giant Yellowknife Groups in November 1990, the Company has increased its gold production, mineral inventory, revenue, net income, and total assets through a number of acquisitions and development of several properties. This growth has been reflected in the market capitalization of the Company which has increased significantly, from $90 million at the end of 1991 to approximately $690 million as of June 30, 1996. Gold production has increased since 1990 primarily through the acquisition of the Hope Brook Mine and the Colomac Mine. Gold production is currently expected to increase from 371,151 ounces in 1995 to approximately 415,000 ounces in 1996. This increase is expected to come from increased production at the Colomac Mine and the first full year of production at the Nighthawk Mine. Future increases in production are expected to come from the Pamour Mine open pit expansion and the Development Projects. The majority of the Company's expenses consist of operating costs associated with recovering gold from the Company's mines. Operating costs include mining and processing costs for gold. The most significant of these costs are labour, consumable materials, repairs of machinery and equipment, fuel and utilities. The Company's average cash costs increased from US$311 per ounce in 1994 to US$358 per ounce in 1995 due primarily to a change in mining methods at the Pamour Mine and start-up costs at the Colomac Mill. The Company expects that average cash costs will decrease to approximately US$315 per ounce in 1996 with the implementation of more effective mining methods and the full year's operation of the Colomac Mill. See "Business -- Operating Strategy." 34 41 RESULTS OF OPERATIONS The following table indicates the Company's expenses and income as a percentage of revenue for the periods indicated:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30 ---------------------------- ----------------- 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ Revenue................................... 100.0% 100.0% 100.0% 100.0% 100.0% Operating expenses........................ 81.4 72.7 87.5 89.0 76.9 Royalties and marketing expenses.......... 0.9 1.5 1.2 1.1 1.3 Administrative and corporate expenses..... 2.5 3.2 4.1 4.9 4.6 Depreciation and amortization............. 3.7 5.3 7.1 6.2 10.7 Exploration expense(1).................... -- -- -- 0.2 2.3 Provision for (recovery of) loss on foreign currency contracts.............. -- 9.4 (2.5) (3.7) (0.9) ----- ---- - ---- - ---- - ---- - Operating income (loss)................... 11.5 7.9 2.6 2.3 5.1 Interest and other income, net(2)......... 1.6 4.4 10.0 12.0 2.3 Other(1).................................. (1.4) 1.8 (0.8) (0.2) -- Provision for income taxes................ (0.2) (0.4) (0.7) (1.0) (2.6) ----- ---- - ---- - ---- - ---- - Net income................................ 11.5% 13.7% 11.1% 13.1% 4.8% ===== ===== ===== ===== =====
- --------------- (1) Prior to January 1, 1996, the Company's exploration expenses were not material and were classified under "Other." (2) The Company historically has had no material long-term debt and, accordingly, has had no material interest expense. As a result of the Offering, the Company as of June 30, 1996 would have had annual interest expense of approximately US$19.25 million (or approximately Cdn$26.3 million based upon the exchange rate as of June 30, 1996) associated with the Notes. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Revenue from the sale of gold for the three months ended June 30, 1996 increased 3% to $54.8 million compared to the same period of 1995. In the second quarter of 1996, a 9% increase in the average realized price of US$439 per ounce of gold compared to US$401 in the same period in 1995 accounted for this increase. However, this increase was partially offset by a 6% decrease in production to 91,447 ounces (compared to 97,246 ounces in the second quarter of 1995) and a strengthening of the Canadian dollar from US$0.729 in the second quarter of 1995 to US$0.733 in the same period of 1996 which reduced revenue by approximately $0.2 million in the second quarter of 1996 compared to the same period in 1995. Revenue from the sale of gold for the six months ended June 30, 1996 increased 5% to $105.8 million compared to the same period of 1995. In the year-to-date, a 9% increase in the average realized price of US$431 per ounce of gold compared to US$394 in the same period in 1995 accounted for this increase. However, this increase was partially offset by a 2% decrease in production to 179,643 ounces (compared to 184,206 ounces in the year-to-date 1995) and a strengthening of the Canadian dollar from US$0.720 in the six months ended June 30, 1995 to US$0.732 in the same period of 1996 which reduced revenue by approximately $1.6 million in the first six months of 1996 compared to the same period in 1995. The increase in production at the Company's Ontario operations for the three months and the six months ended June 30, 1996 is mainly attributable to the production from the Nighthawk Mine which commenced operation in late 1995. The decrease in production at the Company's Newfoundland operations for the three months and the six months ended June 30, 1996 resulted from the fact that the Hope Brook Mill was temporarily shut down in March and April, as planned. Mining operations continued during this period and ore was stockpiled. This shutdown not only enabled the Company to reduce operating costs but also has allowed the mill to operate more efficiently for the balance of 1996. The Hope Brook Mill resumed operations on May 1 and all ore stockpiled during the shutdown is expected to be milled by the end of 1996. 35 42 Operating costs decreased 14% from $45.7 million in the second quarter of 1995 to $39.4 million in the same period in 1996. Operating costs decreased 9% on a year-to-date basis from $89.7 million for the six months ended June 30, 1995 to $81.4 million for the same period in 1996. The decreases were mainly attributable to the shutdown of the Hope Brook Mill in the months of March and April 1996. Operations recommenced on May 1, 1996. Mining costs incurred during the planned shutdown at the Hope Brook Mine have been deferred and will be charged to operating costs as the ore mined during the shutdown is milled during the balance of 1996. Cash operating costs on a per ounce basis decreased 8% from US$342 in the second quarter of 1995 to US$315 in the second quarter of 1996. For the year-to-date, the decrease was 6% from US$351 in the second quarter of 1995 to US$331 in the second quarter of 1996. These decreases reflect the cost controls implemented during 1996 and steps taken to reduce the average cash operating cost per ounce. Royalties and marketing expenses remained relatively constant for the second quarter. However, on a year-to-date basis, these expenses have increased by $0.3 million mainly due to royalties on production from the Nighthawk Mine where substantial mining began in 1996. Administrative and corporate expenses decreased to $2.7 million in the second quarter of 1996 from $3.3 million in the same period in 1995. This decrease was attributable to timing differences as certain expenses were incurred in the first quarter of 1996 whereas those similar expenses were incurred in the second quarter of 1995. For the six months ended June 30, 1996 and 1995, respectively, the administrative and corporate expenses were not significantly different. This reflects a decrease in corporate expenses as a result of cost controls, offset by an increase in capital taxes pursuant to the exercise of warrants and as a result of the issuance of shares of the Company in connection with the acquisitions of Geddes Resources Limited ("Geddes") and El Condor Resources Ltd. ("El Condor"). Depreciation and amortization increased from $3.0 million in the second quarter of 1995 to $6.1 million in the same period in 1996 and from $6.3 million in the first six months of 1995 to $11.4 million in the same period in 1996. Increases in capital assets and deferred mining costs over the past several years, combined with adjustments to mineral inventory on specific properties have led to these increases. Depreciation and amortization of the Nighthawk Mine assets and deferred development costs commenced in early 1996. Exploration expenses increased from $0.1 million in the second quarter of 1995 to $1.4 million in the same period in 1996 and from $0.3 million in the first six months of 1995 to $2.4 million in the same period in 1996. The Company has been evaluating its exploration projects as part of its overall strategic plan and to the extent that certain exploration costs are determined not to be recoverable due to insufficient or lack of expected mineralized material or otherwise, exploration costs have been charged to operations. Recovery of loss on foreign currency contracts resulted in a recovery of $0.2 million with respect to these contracts for the three months ended June 30, 1996 as a result of the strengthening of the Canadian dollar. The comparable recovery in the same period of 1995 was $3.8 million which reflected a substantial strengthening of the Canadian dollar compared to the United States dollar for that period. For the six months ended June 30, 1996 and 1995, respectively, the recovery balances were $1.0 million and $3.8 million. The Company's hedging strategies for foreign currency attempt to protect the Company from exchange rate fluctuations. Operating income in the second quarter of 1996 increased to $4.5 million from $4.2 million in the second quarter of 1995, and in the first six months of 1996 increased to $5.4 million from $2.3 million in the first six months of 1995. Interest and other income decreased from $6.4 million in the second quarter of 1995 to $1.1 million in the same period in 1996. Interest and other income for the six month periods ended June 30, 1995 and 1996, respectively, were $12.1 million and $2.5 million. These decreases reflect the reduction of cash balances due to the acquisitions of Geddes, El Condor, St. Philips Resources Inc. ("St. Philips") and Consolidated Professor Mines Limited ("Consolidated Professor"), and capital expenditures in the last 12 months which, in total, have reduced investment income in 1996. 36 43 Income taxes increased by $1.1 million from $0.7 million in the second quarter of 1995 to $1.8 million in the same period in 1996 while the increase was $1.7 million from $1.0 million in the six months ended June 30, 1995 to $2.7 million in the same period in 1996. The 1996 balances include a provision for deferred taxes of $1.5 million and $2.0 million for the three months and the six months ended June 30, 1996, respectively. No such provision for deferred taxes was required for 1995 because the Company had unrecognized deferred tax assets. However, the balance of the Company's unrecognized deferred tax assets has virtually been utilized such that an accrual for deferred income taxes is necessary for 1996. Net income for the second quarter of 1996 decreased by $6.0 million, or 62%, to $3.7 million from net income of $9.7 million during the same period in 1995. Net income for the six months ended June 30, 1996 decreased by $8.2 million, or 62%, to $5.1 million from net income of $13.3 million during the same period in 1995. Significantly lower investment income after the completion of the purchases of Geddes, El Condor, St. Philips and Consolidated Professor, combined with a reduction of the Company's unrecognized deferred tax assets, which have necessitated the accrual of deferred income taxes in 1996, were mainly responsible for the lower net income in the second quarter and the year-to-date. 1995 Compared to 1994 Revenue from gold sales of 371,151 ounces was $208.3 million in 1995, which was 28% higher than revenue of $162.1 million in 1994. Production in 1994 included 40,568 ounces from the Colomac Mine. Revenue from this production was netted against start-up costs which were deferred as pre-production costs in 1994 because the mine had not reached commercial levels of production by the end of 1994. Revenue in 1995 includes a full year of production from the Colomac Mine of 117,646 ounces. The increase in production at Colomac in 1995 from the level in 1994 was offset by 24,098 fewer ounces of production at three of the Company's other operating mines (i.e. Giant, Pamour and Hope Brook). The Company's average realized price decreased to US$409 per ounce in 1995 as compared to US$428 per ounce in 1994. In 1995, the Canadian/United States dollar exchange rate adversely affected the Company's revenue whereas in 1994, the exchange rate positively affected revenues. Operating costs increased to $182.2 million in 1995 from $117.8 million in 1994. The inclusion in 1995 of the Colomac Mine operating costs contributed approximately $61.5 million to this increase. In 1994, because the Colomac Mill had not reached commercial levels of production, start-up costs net of revenue generated from gold sales were deferred to pre-production costs. Operating costs at both the Giant and Pamour Mines increased slightly while the operating cost at the Hope Brook Mine decreased in 1995. Operating costs include mining and processing costs for gold. The most significant of these costs are labour, consumable materials, repairs of machinery and equipment, fuel and utilities. The costs of transporting personnel and freight to the Colomac and Hope Brook Mines are also significant costs for those operations. Average cash costs increased by 15% to US$358 per ounce in 1995 from US$311 per ounce in 1994. The increase reflected a change in mining methods at the Pamour Mine which resulted in lower mill feed grades and tonnages mined and milled, and costs at Colomac that were significantly above budget as a result of overcoming the difficulties associated with the start-up of the mill. These problems at both operations have been addressed in 1996. Royalties and marketing expenses increased marginally in 1995 as a result of increased marketing costs related to increased production at the Colomac Mine. Should the average selling price of gold exceed US$400 per ounce in 1996, an additional $1.0 million in royalties will be payable under the terms of the Colomac Mine asset purchase agreement. Administrative and corporate expenses increased 62% to $8.5 million in 1995 from $5.3 million in 1994. The corporate office relocated from Vancouver, British Columbia to Kirkland, Washington in March 1995. Costs associated with this relocation were approximately $0.5 million. Salary and benefit costs increased as a number of personnel were added in both 1994 and 1995 to strengthen the corporate office and position the Company for future growth. Travel, telephone and professional fees increased in 1995 as the Company examined various acquisition and merger opportunities and dealt with bringing cash operating costs under control. In 1994, much of the travel costs and professional fees related to the bid to acquire Lac Minerals Ltd. ("Lac Minerals") were netted against the gain on sale of securities when the shares acquired by the Company 37 44 in connection with the bid were sold. Corporate expenses are expected to decrease in 1996 as many of the one-time costs associated with moving the corporate office in 1995 will be eliminated. Depreciation and amortization increased in 1995 to $14.9 million (US$29.24 per ounce) from $8.5 million (US$22.48 per ounce) in 1994. Increases in capital assets and deferred mining costs over the past several years, combined with adjustments to mining reserves on specific properties, have led to these increases. Depreciation and amortization are provided on the unit-of-production method. Higher production in 1995 associated with the Colomac Mine increased depreciation and amortization by $7.4 million in 1995, while lower production at the other three mines in 1995 reduced the difference to $6.4 million. Provision for (recovery of) loss on foreign currency contracts resulted in a recovery of $5.2 million in 1995 as compared to a loss of $15.3 million in 1994 as a result of the strengthening of the Canadian dollar in 1995 (see below under "1994 Compared to 1993" for a discussion of the 1994 loss). These contracts were associated with the Company's contractual obligation to deliver future gold production at specified prices in United States dollars. The Company's hedging strategies for foreign currency attempt to protect the Company from exchange rate fluctuations. Operating income in 1995 was $5.4 million as compared to $12.8 million in 1994 for the reasons described above. Interest and other income increased 195% to $20.9 million in 1995 from $7.1 million in 1994. (See Note 9 to the Annual Consolidated Financial Statements for a breakdown and comparison of these amounts.) Interest income was significantly higher in 1995 as a result of the Company's high cash balances which increased due to a $100 million equity issue in 1994. Interest income in 1995 includes $1.3 million of interest received on a refund of 1988 Ontario mining taxes. Surplus cash is primarily invested in highly liquid, low risk financial instruments with relatively short maturities. This strategy gives the Company maximum flexibility should funds be needed for acquisitions or other purposes. The gain on sale of securities was $8.3 million in 1995 compared to $1.2 million in 1994. In 1994, the Company acquired approximately 1.83 million shares of Barrick Gold Corporation ("Barrick Gold") in exchange for shares of Lac Minerals which it tendered to the Barrick Gold bid for Lac Minerals. While the Company made a partial disposition of the Barrick Gold shares in 1994, it sold the remaining 978,000 Barrick Gold shares that it held during 1995. In 1995, the Company established an acquisition team to evaluate many opportunities in North America and overseas. Consistent with the approach taken in 1994 when the Company bid for Lac Minerals, the Company purchased shares in certain companies to establish an equity position prior to holding discussions with management regarding a merger or takeover. These positions were subsequently sold when discussions and negotiations with such companies were terminated, resulting in gains on sale of securities. Other income in 1995 includes a $2.0 million refund of 1988 Ontario mining taxes previously paid. Other income in 1994 includes dividends and option premiums earned on the shares of both Lac Minerals and Barrick Gold. Income taxes for 1995 were minimal. The Company has tax deductions, including earned depletion and mining exploration depletion, available to be utilized in future years totaling $183 million. Because of past reorganizations undertaken by the Company, utilization of some of these tax deductions may be restricted. The Company does not expect to pay cash income taxes or mining taxes in Canada for at least the next two years. However, the Company is subject to capital taxes and minimum taxes in certain Canadian jurisdictions. The Company's United States operations are taxable, however, the total of 1996 United States taxes is not expected to be material. The balance of the Company's unrecognized deferred income tax assets is decreasing. Accordingly, the Company expects to report a deferred income tax provision in 1996 which will increase the Company's effective tax rate above the 6% level in 1995. Net income for the year ended December 31, 1995 increased 5% to $23.2 million on revenues of $208.3 million. This compares with $22.2 million on revenues of $162.1 million in 1994. 1994 Compared to 1993 Revenue in 1994 increased 19.8% to $162.1 million from $135.3 million in 1993. This increase was primarily the result of higher gold production, favorable exchange rates and the Company's hedging program. 38 45 Gold production increased 15.1% from 276,320 ounces in 1993 to 318,171 ounces in 1994. Gold production of 40,568 ounces at the Colomac Mine, which began production in July 1994, was primarily responsible for this increase. All revenue from gold production at the Colomac Mine in 1994 was netted against start-up costs and deferred as pre-production cost. The Company's hedging strategy allowed it to realize an average gold price of US$428 per ounce in 1994, the highest in the industry, up from US$380 per ounce in 1993. The average spot price in 1994 was US$384 per ounce. The US$44 premium contributed $16.5 million to revenue. Operating costs in 1994 increased 6.8% to $117.8 million from $110.3 million in 1993, but the average cost per ounce remained at US$311. The 15.1% increase in gold production offset utility rate increases at the Giant Mine and increased labour rates, which are tied to gold prices, at the Giant and Hope Brook Mines. Royalties and marketing expenses doubled in 1994 to $2.5 million from $1.2 million in 1993 primarily as a result of royalty increases at the Hope Brook Mine. Under the terms of the Hope Brook Mine purchase agreement, the Company is obligated to pay an operating royalty of $1.3 million to $3.3 million annually depending on the average price of gold when the average price exceeds US$380 per ounce in respect of gold production from the Hope Brook Mine. Since the average price of gold was US$384 in 1994, the Company made a $1.3 million royalty payment in respect of the Hope Brook Mine. Obligations under this agreement expire in 1996. Administrative and corporate expenses in 1994 increased 54.5% to $5.3 million from $3.4 million in 1993. This increase was the result of (i) the addition of key personnel to the corporate office in late 1993 and early 1994, (ii) investor relations fees associated with the attempted takeover by the Company of Lac Minerals, (iii) higher capital taxes due to the increase in shareholders' equity and (iv) one-time costs related to the relocation of the corporate office from Vancouver. Depreciation and amortization in 1994 increased 70.6% to $8.5 million from $5.0 million in 1993. The increase is primarily due to the increase in capital assets and deferred mining costs, as well as adjustments to mining reserves on specific properties. Provision for (recovery of) loss on foreign currency contracts recorded by the Company in 1994 included a $15.3 million provision for loss on foreign currency contracts. Prior to 1994, the Company had entered into a series of foreign currency contracts at an average exchange rate of Cdn $1.2744/US$1.00 to hedge contractual obligations to deliver future gold production at specified prices in United States dollars. In November 1994, the Emerging Issues Committee of the Canadian Institute of Chartered Accountants issued an abstract restricting the use of hedge accounting when spot deferred forward contracts mature and are rolled forward to future periods. In view of this recommendation, the Company adopted a conservative approach and provided for the loss on foreign currency contracts which matured subsequent to November 1994 and prior to the end of 1994 and as well provided for the potential future loss related to its currency contracts by marking them to market at the end of 1994. The Company intends to continue to roll these foreign exchange contracts forward as they mature and will continue to mark-to-market these contracts in the future. The effect of this provision was to adjust the book carrying value of the contracts to Cdn $1.4028/US$1.00 as of December 31, 1994. Gain on issuance of shares by associated company recorded by the Company in 1994 consisted of a $3.0 million gain. Mountain Minerals Co. Ltd. ("Mountain Minerals") issued stock in 1994 which reduced the Company's equity interest from 51.1% to 41.2%. On August 12, 1996, Highwood Resources Ltd. ("Highwood"), in which the Company has a 32% interest, acquired all of the outstanding shares of Mountain Minerals. See "Business -- Strategic Investments." Operating income in 1994 decreased 16.9% to $12.8 million from $15.4 million in 1993. Interest and other income in 1994 increased to $7.1 million from $2.3 million in 1993. This increase was primarily the result of higher cash balances resulting from equity issues in 1993 and 1994. Income taxes were $0.6 million in 1994, up from $0.2 million in 1993. The Company continued to pay minimal income taxes as it utilized tax deductions from earned depletion and mining exploration depletion which it was able to carry forward. Net income in 1994 increased 41.9% to $22.2 million from $15.6 million in 1993. 39 46 SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Company, as a Canadian company, uses Canadian dollars as the basis of measurement and follows Cdn GAAP in reporting its financial results. The differences in the reported results that would have resulted from using US GAAP as opposed to Cdn GAAP are summarized in Note 13 to the Annual Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had cash, cash equivalents and short-term investments of $39.7 million compared to $41.1 million at March 31, 1996 and $142.4 million at December 31, 1995. Operating Activities. Net cash provided by operating activities for the second quarter of 1996 was $0.2 million compared to $6.3 million in the same period in 1995. However, for the six months ended June 30, 1996, the net cash used amounted to $9.5 million compared to net cash provided by operating activities of $7.7 million in the first six months of 1995. These changes for the second quarter and the year-to-date reflected a reduction in interest and other income due to reduced cash balances as well as the impact of a seasonal increase in inventory net of an increase in current liabilities which financed much of this increase in inventory. (See Note 5 to the Unaudited Consolidated Financial Statements). The increase in inventory and current liabilities was attributable to the need to supply operating and maintenance materials to the Colomac Mine site over a winter ice road, as weather conditions permit. The change was more pronounced in 1996 compared to the prior year because management decided to transport more supplies over the winter ice road than by airplane. Financing Activities. Net cash provided by financing activities for the second quarter of 1996 was $20.5 million compared to $2.3 million in the same period in 1995. The higher cash provided in the 1996 period of $18.2 million compared to 1995 was mainly the result of the early settlement of forward contracts which the Company had at December 31, 1995. For the six months ended June 30, net cash provided in 1996 amounted to $141.9 million compared to $21.1 million in 1995. This higher cash provided in 1996 resulted mainly from the issuance of share capital which generated proceeds of $114.0 million and the above-noted settlement of forward contracts in the second quarter. The issuance of shares was part of the consideration for the acquisition of the Kemess property. (See Note 8 to the Unaudited Consolidated Financial Statements.) Investing Activities. Net cash used in investing activities for the second quarter of 1996 was $22.0 million compared to $14.4 million in the same period in 1995. The higher use of cash in the 1996 period primarily reflected a higher investment in property, plant and equipment at the Company's current mines and development projects including $1.1 million for mining equipment related to the Pamour Mine open pit expansion, $6.0 million for the advanced exploration and development of the Red Mountain property and $7.9 million for the development of the Kemess property, among other items. The latter two investments were offset by an initial $14.5 million compensation payment received from the British Columbia provincial government. Net cash used in investing activities for the six months ended June 30, 1996 was $235.1 million compared to $24.6 million in the corresponding period in 1995. The Company completed the acquisition of the Kemess property in January 1996 for aggregate consideration of approximately $202.0 million. This included cash consideration of $87.8 million of which $26.9 million was incurred in prior periods in respect of open market purchases of shares of Geddes, El Condor and St. Philips. (See Note 8 to the Unaudited Consolidated Financial Statements.) In addition, during the second quarter of 1996, the Company completed the acquisition of all of the shares of Consolidated Professor for total consideration of approximately $16.2 million. (See Note 9 to the Unaudited Consolidated Financial Statements.) For the six months ended June 30, 1996, the Company had also invested $37.9 million in property, plant and equipment at its various mines and development projects including $5.1 million for mining equipment related to the Pamour Mine open pit expansion, $6.4 million for the advanced exploration and development of the Red Mountain property, $9.5 million for the development of the Kemess property and $22.6 million on mine site maintenance capital and development. The expenditures on the Red Mountain and Kemess properties were offset by an initial $14.5 million compensation payment received from the British Columbia provincial government. Also during 1996, 40 47 the Company made $6.3 million of additional investments in Mountain Minerals and Asia Minerals Corp. ("Asia Minerals"), two strategic long-term investments. Asia Minerals has recently completed a private placement offering, the proceeds of which will provide funds to allow the company to pursue its ventures in China. Capital Expenditures. The Company currently expects to spend $129 million for capital expenditures in 1996, of which approximately $45 million has been or is expected to be funded by the British Columbia provincial government. Approximately $102 million of the total will be spent on the Development Projects. See "Business -- Development Projects." The balance of the budget will be used for exploration and sustaining capital for the Company's existing operations. The Company expects that the approximately US$170.6 million of proceeds received from the Offering, together with its current cash position, amounts available under the Credit Facility, vendor financing, compensation from the British Columbia provincial government and its investment and economic assistance package (see "Business -- Development Projects -- Kemess South") and the cash flow from existing operations will be sufficient to fund the Company's capital expenditure and exploration programs and ongoing operations until 1998, when the Kemess South Project is expected to be brought into production and to generate sufficient cash flow to fund future growth. 41 48 BUSINESS THE COMPANY Royal Oak is a major North American gold mining company which, together with its predecessors, has produced in excess of 50 million ounces of gold over a 60-year period. The Company, which owns and operates five producing gold mines, is in the process of expanding one producing mine and is developing four major new projects. The Company has extensive land positions in Canada covering approximately 704,000 acres, as well as over 7,000 acres in the United States, which provide it with the opportunity to expand its reserves through focused exploration and development. As of and for the fiscal year ending December 31, 1995, Royal Oak had approximately 9.8 million ounces of mineable gold reserves and produced 371,151 ounces of gold. The Company's five producing gold mines consist of the Colomac and Giant Mines in the Northwest Territories, the Pamour and Nighthawk Mines in Ontario and the Hope Brook Mine in Newfoundland. Through acquisitions, exploration and the implementation of more advanced and efficient mining methods, the Company has increased its annual production by a compounded annual growth rate of 17.5% since 1991. The Company conducts a focused exploration program to develop additional mineable gold reserves in close proximity to its existing mines in order to maximize the utilization of its processing facilities and to increase processing efficiencies. In 1995, the Company's exploration efforts resulted in the addition of approximately 2.2 million ounces of mineable gold reserves to its existing reserve base at a cost of approximately $6.95 per ounce. A significant part of this exploration program was focused on the Pamour Mine open pit expansion which is expected to contribute approximately 60,000 ounces of gold annually when production commences in the first half of 1998. As of June 30, 1996, the Company employed 1,461 people, of which 937 are represented by one of two unions. The Company's principal executive offices are located at 5501 Lakeview Drive, Kirkland, Washington 98033, and its telephone number is (206) 822-8992. MINING PROCESS The business of gold mining is essentially divided into four phases: exploration, development, production and reclamation. During the exploration phase, geologists search for indications of mineralization. Quite often, large areas of land must be examined. Consequently, geologists rely on such general techniques as the review of geological maps, the interpretation of satellite or aerial surveys and the review of historical mining data in order to search for possible indications of mineralization. Once an area of interest has been identified, surface samples are taken and analyzed for the presence of anomalous levels of mineralization. Trenches are often dug in order to take sub-surface samples and better determine the geological structure. The final step in the identification of a mineralized body involves drilling of the identified targets by either reverse circulation or diamond core drills. Before proceeding further, a determination must be made as to whether the mineralization represents an economic ore body. To accomplish this, a feasibility study is completed. The feasibility study involves the comprehensive analysis of the entire proposed mine operation and ultimately determines whether the mine will be placed into production. The results from exploratory trenching and drilling, and in certain instances, additional work, including bulk sampling and underground development, together with estimates of capital and operating costs, are used to assess the economics of the deposit. Once a decision has been made to proceed, permission is sought and the infrastructure for the mine is constructed, including access roads, runways, power lines, living quarters, maintenance sheds and processing facilities. Concurrently, the mine is developed. In the case of an underground mine, access to the ore body must be provided. This may include the sinking of shafts and/or the development of declines, ramps or drifts. In an open pit mine, development will generally involve the removal of non-mineralized surface rock in order to allow access to the ore body. Once construction and development have been completed, the mine is brought into production with the mining of both ore and waste rock. Ore is segregated from the waste rock and then sent to the mill for further processing in order to extract the gold. Ore is first crushed in order to reduce the size of the larger pieces. If 42 49 the concentration of gold is high enough, the crushed ore will typically be processed further in a mill. In the mill, crushed ore is ground to a size small enough to ensure liberation of the gold from the associated rock, thereby forming a fine ore slurry. A gravity circuit may be employed to remove free gold or, if the gold is still associated with the waste rock, the gold is dissolved in a cyanide solution, thereby allowing the waste rock to be discarded as tailings. The goldbearing cyanide solution is then processed to remove the gold, typically through the use of either a carbon adsorption or a zinc precipitation circuit. Once extracted, the gold is smelted in a furnace and poured into molds, creating dore bars. These bars are then sent to a refinery for final purification. If the grade of the ore is low, it may be more economical to use heap leaching rather than milling to extract the gold. In heap leaching, the crushed ore is placed on lined leach pads where a weak cyanide solution is applied to the surface of the heap. The solution percolates down through the ore where it dissolves the gold and flows to a central collection location. The gold-bearing solution is then processed further at the mill (as described above). Although reclamation of a mine may occur concurrently during the production phase, it will begin in earnest once all the economic mineralization has been extracted from the ore body. Reclamation involves the returning of land disturbed by mining, including waste dumps, tailings ponds and pits, to environmentally acceptable conditions and disposal of the remaining waste in an approved manner. Reclamation may include revegetation and recontouring of the disturbed land and removal of all buildings, machinery and equipment. If necessary, monitoring of the site for potential leakage of acid rock drainage or other soluble elements may be undertaken. Reclamation requirements vary greatly according to location of the property. HISTORY The Company came into existence on July 23, 1991 as a result of the amalgamation of five companies: Giant Yellowknife Mines Limited, Pamour Inc., Pamorex Minerals Inc., Royal Oak Resources Ltd. and Akaitcho Yellowknife Gold Mines Limited, certain of which commenced operations approximately 60 years ago. As a result of this amalgamation, the Company had two operating mines, Pamour and Giant. On January 1, 1992, the Company amalgamated with its wholly-owned subsidiary, Supercrest Mines Limited. In addition to its wholly owned subsidiaries, the Company has a majority interest in three companies, Ronnoco Gold Mines Limited, Northbelt Yellowknife Gold Mines Limited and Royal Eagle Exploration Inc. Since 1991, Royal Oak has acquired the following properties and interests: - the Broulan property in Ontario from Balmoral Mines Ltd. (1991); - a 20% interest in Athabaska Gold Resources Ltd. (1991-1993); - the Hope Brook Mine in Newfoundland from Hope Brook Gold Inc. (1992); - the Colomac Mine in the Northwest Territories (and an existing royalty interest) from Neptune Resources Corp. (1993); - a controlling interest in Geddes Resources Limited from Neptune Resources Corp. (1993); - an option in respect of the Kim-Cass property in the Northwest Territories from Echo Bay Mines Ltd. (1994); - the Red Mountain property in British Columbia from Barrick Gold Corporation (1995); - the Nicholas Lake gold property in the Northwest Territories from Athabaska Gold Resources Ltd. (1995); - an 89.4% interest in Ronnoco Gold Mines Limited, thereby providing the Company with a strategic land position on the Nighthawk Lake Break in Ontario (1995-6); - a leasehold interest in the Copperstone property located in Arizona (1995); 43 50 - all of the outstanding shares of Geddes, El Condor and St. Philips, thereby acquiring the Kemess property in British Columbia (1996); - all of the outstanding shares of Consolidated Professor, thereby acquiring the Duport property in Ontario (1996); and - the Cape Ray gold property in Newfoundland from American Gem Corporation and the net smelter return royalty on the property from Homestake Canada Inc. (1996). In addition, the Company has certain strategic investments. See "-- Strategic Investments." OPERATING STRATEGY In order to capitalize on its business strengths, the Company has developed the following operating strategy to continue its growth: - Increase Production and Reduce Average Cash Costs -- As a result of increased production at the Colomac Mine and the first full year of production at the Nighthawk Mine, the Company expects to increase its gold production in 1996 to approximately 415,000 ounces from 371,151 ounces in 1995. In addition, through the successful implementation of advanced mining technologies accompanied by cost reduction programs, the Company believes that its average cash costs will decrease from US$358 per ounce of gold in 1995 to approximately US$315 per ounce of gold in 1996. The Company's cash costs for the six months ended June 30, 1996 were US$331 per ounce of gold compared to US$351 in the same period in 1995. - Complete Development of Major Projects -- The Company's primary objective with respect to the Development Projects is to efficiently complete the development of the Kemess South Project. The Company estimates that, upon completion, the Development Projects will generate additional annual production of approximately 547,000 ounces of gold and 60 million pounds of copper with an average estimated cash cost of US$192 per ounce of gold and US$0.48 per pound of copper over the life of the properties. - Expand Reserve Base Through Focused Exploration -- The Company's exploration program focuses on identifying additional mineable ore reserves in close proximity to its existing mines. This strategy allows the Company to maximize utilization of existing processing facilities, to increase processing efficiencies and to capitalize on its extensive land position in Canada. In 1995, the Company's $15.3 million exploration program delineated approximately 2.2 million ounces of mineable gold reserves. The Company has budgeted $12 million for its 1996 exploration program. Management believes that the gold mining industry will continue to consolidate over the next several years and that numerous acquisition opportunities will become available to the Company. In 1996, the Company acquired the Kemess, Duport and Cape Ray properties. In addition to the operating strategy described above, the Company intends to review acquisition opportunities as they become available and will pursue selective acquisitions of gold properties that will increase production, mineable ore reserves and cash flow from operations while reducing average cash costs. These acquisitions could be an important component of the Company's future growth. OPERATING PROPERTIES The Company produced a record 371,151 ounces of gold in 1995, an increase of 17% from the 318,171 ounces produced in 1994. This production came from the Company's five operating gold mining properties: the Colomac and Giant Mines in the Northwest Territories, the Pamour and Nighthawk Mines in Ontario and the Hope Brook Mine in Newfoundland. Set forth on the following page is a summary, on a property-by-property basis, of the Company's production, reserve and cost data: 44 51 PRODUCTION, RESERVE & COST DATA
RESERVES AT PRODUCTION YEAR END(1) ------------------------------------------------ ----------- RECOVERED MINEABLE ORE MILLED HEAD GRADE RECOVERY GOLD ORE (TONS) (OUNCES/TON) (%) (OUNCES) (000S TONS) ---------- ------------ -------- --------- ----------- GOLD Gold Colomac Mine(2) 1995..................................................... 2,725,388 0.047 92.34 117,646 12,255 1994..................................................... 985,091 0.047 87.10 40,568 13,054 1993..................................................... -- -- -- -- 13,618 Giant Mine(3) 1995..................................................... 410,966 0.254 86.73 91,423 2,466 1994..................................................... 430,238 0.264 86.95 101,176 2,395 1993..................................................... 413,098 0.264 85.86 92,948 2,617 Pamour and Nighthawk Mines 1995..................................................... 1,329,846 0.067 90.20 80,120 38,471 1994..................................................... 1,350,007 0.069 89.20 85,755 9,398 1993..................................................... 1,330,722 0.072 89.60 87,346 3,993 Hope Brook Mine 1995..................................................... 1,090,250 0.090 84.43 81,962 2,448 1994..................................................... 1,227,136 0.089 82.10 90,672 3,936 1993..................................................... 1,149,071 0.101 82.48 96,026 7,300 Kemess South(4) 1995..................................................... -- -- -- -- 220,947 Kemess North(4) 1995..................................................... -- -- -- -- -- Red Mountain 1995..................................................... -- -- -- -- 3,053 Matachewan 1995..................................................... -- -- -- -- 13,253 1994..................................................... -- -- -- -- 1,400 Duport(4) 1995..................................................... -- -- -- -- 1,008 Cape Ray(4) 1995..................................................... -- -- -- -- 502 Copperstone 1995..................................................... -- -- -- -- -- Royal Oak Consolidated 1995..................................................... 5,556,450 -- -- 371,151 294,402 1994..................................................... 3,992,472 -- -- 318,171 30,183 1993..................................................... 2,892,891 -- -- 276,320 27,527 MINERALIZED MATERIAL AT YEAR END(1) ------------------------------------- AVERAGE MINERALIZED AVERAGE GRADE GOLD MATERIAL GRADE GOLD (OUNCES/TON) (OUNCES) (000S TONS) (OUNCES/TON) (OUNCES) ------------ -------- ----------- ------------ -------- GOLD Gold Colomac Mine(2) 1995..................................................... 0.058 711,000 4,438 0.058 260,000 1994..................................................... 0.053 694,000 7,375 0.060 467,000 1993..................................................... 0.052 709,000 4,026 0.044 179,000 Giant Mine(3) 1995..................................................... 0.335 826,000 6,043 0.218 1,317,000 1994..................................................... 0.319 763,000 6,066 0.216 1,313,000 1993..................................................... 0.321 840,000 6,171 0.216 1,331,000 Pamour and Nighthawk Mines 1995..................................................... 0.046 1,771,000 19,927 0.081 1,611,000 1994..................................................... 0.067 629,000 6,223 0.086 536,000 1993..................................................... 0.097 386,000 5,615 0.090 506,000 Hope Brook Mine 1995..................................................... 0.088 215,000 3,960 0.101 399,000 1994..................................................... 0.087 343,000 4,389 0.109 477,000 1993..................................................... 0.102 746,000 2,673 0.116 311,000 Kemess South(4) 1995..................................................... 0.018 4,056,000 --(5) -- -- Kemess North(4) 1995..................................................... -- -- 173,063 0.011 1,918,000 Red Mountain 1995..................................................... 0.262 800,000 525 0.203 106,000 Matachewan 1995..................................................... 0.067 884,000 1,976 0.139 274,000 1994..................................................... 0.062 87,000 11,409 0.103 1,176,000 Duport(4) 1995..................................................... 0.380 383,000 1,007 0.320 322,000 Cape Ray(4) 1995..................................................... 0.294 147,000 -- -- -- Copperstone 1995..................................................... -- -- 2,424 0.172 417,000 Royal Oak Consolidated 1995..................................................... 0.033 9,793,000 213,363 0.031 6,625,000 1994..................................................... 0.083 2,517,000 35,822 0.111 3,969,000 1993..................................................... 0.097 2,682,000 18,485 0.126 2,327,000 COSTS -------------------------------- OPERATING CASH DEPRECIATION TOTAL MINERAL COST/TON COST AND INVENTORY(1) MILLED (US$/ AMORTIZATION (OUNCES GOLD) ($/TON) OUNCE) (US$/OUNCE) ------------- --------- ------ ----------- GOLD Gold Colomac Mine(2) 1995..................................................... 970,000 $ 22.72 $383 $46 1994..................................................... 1,162,000 -- -- -- 1993..................................................... 888,000 -- -- -- Giant Mine(3) 1995..................................................... 2,143,000 100.59 329 10 1994..................................................... 2,076,000 92.71 289 11 1993..................................................... 2,171,000 95.86 330 9 Pamour and Nighthawk Mines 1995..................................................... 3,382,000 30.39 368 20 1994..................................................... 1,165,000 28.34 327 37 1993..................................................... 892,000 26.25 310 20 Hope Brook Mine 1995..................................................... 614,000 35.35 343 32 1994..................................................... 820,000 32.30 320 23 1993..................................................... 1,057,000 31.48 292 13 Kemess South(4) 1995..................................................... 4,056,000 -- -- -- Kemess North(4) 1995..................................................... 1,918,0000 -- -- -- Red Mountain 1995..................................................... 906,000 -- -- -- Matachewan 1995..................................................... 1,159,000 -- -- -- 1994..................................................... 1,263,000 -- -- -- Duport(4) 1995..................................................... 705,000 -- -- -- Cape Ray(4) 1995..................................................... 147,000 -- -- -- Copperstone 1995..................................................... 417,000 -- -- -- Royal Oak Consolidated 1995..................................................... 16,418,000 32.79 358 29 1994..................................................... 6,485,000 39.17 311 22 1993..................................................... 5,009,000 38.27 311 14
RESERVES AT YEAR END(1) -------------------------- MINEABLE ORE AVERAGE COPPER (000S TONS) GRADE (%) ----------- ------------ Kemess South(4) 1995................................................................................................ 220,947 0.224 Kemess North(4) 1995................................................................................................ -- -- MINERALIZED MATERIAL AT YEAR END(1) ----------- COPPER MINERALIZED (000S MATERIAL COPPER POUND) (000S TONS) -------- ----------- Kemess South(4) 1995................................................................................................ 989,843 --(5) Kemess North(4) 1995................................................................................................ -- 173,063 COPPER AVERAGE (000S COPPER GRADE (%) POUNDS) ------------ -------- Kemess South(4) 1995................................................................................................ -- Kemess North(4) 1995................................................................................................ 0.180 623,026 COPPER Kemess South(4) 1995................................................................................................ Kemess North(4) 1995................................................................................................ COPPER Kemess South(4) 1995................................................................................................ Kemess North(4) 1995................................................................................................
- --------------- (1) See "Risk Factors -- Reserve Estimates; Mineral Inventory." (2) In 1994, revenue from production at Colomac was netted against start-up costs and deferred as pre-production costs, and 1994 and 1995 include data with respect to the Kim-Cass property on a 100% ownership basis. See "Business -- Operating Properties -- Colomac." As of June 30, 1996, the mine plan at the Colomac Mine was under review by the Company's management which could affect the reserves at such property; however, based upon information currently available to the Company, any adjustment to such reserves is not anticipated to be material to the Company's total mineral inventory in the Indin Lake area that would be processed by the Colomac Mill. (3) 1995 reserves include data with respect to the Nicholas Lake property. (4) Property acquired in 1996. (5) In addition, the Kemess South property includes in-situ mineralization of approximately 151 million tons. The Company intends to further delineate such mineralization during the development of Kemess South. 45 52 COLOMAC Background The Colomac Mine, which is located approximately 137 miles northwest of Yellowknife in the vicinity of Indin Lake, was acquired in April 1993 from Neptune Resources Corp. ("Neptune") after having been shut down since June 1991. Stripping operations at the Colomac Mine recommenced in March 1994, and the first gold production was realized in July 1994. During 1995, the Colomac Mine produced 117,646 ounces of gold at an average cash cost per ounce of US$383. For the six months ended June 30, 1996, the Colomac Mine produced approximately 60,552 ounces of gold at an average cash cost per ounce of US$356. As of December 31, 1995, the Colomac Mine and the nearby Kim-Cass deposit had mineable ore reserves of 711,000 ounces of gold and additional mineralized material of 260,000 ounces of gold. As of June 30, 1996, the mine plan at the Colomac Mine was under review by the Company's management which could affect the reserves at such property; however, based upon information currently available to the Company, any adjustment to such reserves is not anticipated to be material to the Company's total mineral inventory in the Indin Lake area that would be processed by the Colomac Mill. The property is accessible by winter road from Yellowknife for approximately three months each year or on a year round basis by chartered aircraft to a 5,000 foot airstrip at the mine site. The Kim-Cass property, which is located 9 miles southwest of the Colomac Mine, contains two deposits, the Main Zone and the Cass Zone, that will become feed for the Colomac Mill. The Kim-Cass property consists of 12 leased mining claims covering approximately 15,322 acres and will be accessible from Colomac by an all-weather road. Currently, the Kim-Cass property is accessible by chartered aircraft from Yellowknife or by winter road from Colomac. Ownership The Colomac property is comprised of four mining leases and three surface leases which cover approximately 3,400 acres. In 1993, the Company acquired the Colomac Mine for shares of Royal Oak worth $7,875,000 and the gross production royalty on the Colomac property for shares of Royal Oak worth $4,000,000. The Company holds a 100% interest in the leases. The mining leases are subject to an operating royalty payable to Neptune. The Company is obligated to pay an operating royalty when the average price of gold for a calendar year exceeds US$400 per ounce. Amounts payable are $1.0 million or $2.0 million annually depending on the average price of gold. No amount has been payable under this royalty to date. Obligations under this agreement expire after five years of production, which is currently expected to be reached at the end of 1999. The net book value of the Colomac property, plant and equipment was approximately $45.9 million as of December 31, 1995. In 1994, the Company entered into an agreement with Echo Bay Mines Ltd. ("Echo Bay") pursuant to which Echo Bay granted the Company an option to acquire up to a 100% interest in the Kim-Cass property, exclusive of diamond rights, by placing the property into production within a four-year period. The Company is obligated to incur minimum annual exploration expenses of $250,000 on the property during the four-year earn-in period and has the right to extend the earn-in period for consideration of $100,000 per year. Upon the Company placing the Kim-Cass property into production, the property will be subject to a net smelter return royalty which will be on a sliding scale based on the price of gold. The Company has spent over $1.0 million for exploration on the property to date, which spending satisfies the option requirements. Mining and Milling Facilities The Colomac Mine uses conventional open pit mining techniques. The mill, built in 1989, is a conventional 9,300 tons per day CIP circuit with historical recoveries of approximately 90%. The mill circuitry was modified, including installation of a pebble crusher by-pass, in 1996 to overcome operating difficulties and to facilitate the processing of 10,000 tons of ore per day. The plant and equipment are generally in good to excellent condition. The design of the open pit was carried out with computer-aided mine design software which allows for block model generation, reserve calculation and interactive pit design. The power for this property is diesel-generated on site. 46 53 Geology The Colomac ore body is hosted within a large quartz feldspar porphyry sill of the Pre-Cambrian age. It was later tilted into a vertically dipping orientation and has been named the Colomac Dyke. This intrusion was fractured and recemented by quartz veinlets containing free gold and pyrite. The Colomac Dyke averages 120 feet wide in the Zone 2.0 pit. It has a strike length of approximately 7 miles. The Main Zone occurs within a package of steeply dipping mafic pillowed volcanics. The gold occurs associated with enriched areas of sulphides. The Cass Zone occurs within a steeply dipping mafic intrusive body. Gold occurs associated with swarms of quartz veinlets containing minor amounts of sulphides. Ore Reserves As of December 31, 1995, the Colomac operation, including its satellite deposits, the Main and Cass Zones, had proven and probable ore reserves of approximately 12,255,000 tons grading 0.058 ounces of gold per ton. As of June 0, 1996, the mine plan at the Colomac Mine was under review by the Company's management which could affect the reserves at such property; however, based upon information currently available to the Company, any adjustment to such reserves is not anticipated to be material to the Company's total mineral inventory at Indin Lake area that would be processed by the Colomac Mill. The cut-off grade used in estimating these reserves of 0.030 ounces of gold per ton for the open pit is based on current mining costs and a gold price of $517 (US$383) per ounce. Allowances are made in these estimates for dilution and mining losses. Ore reserves do not include allowances for losses in milling. GIANT Background The Giant Mine, located approximately three miles north of Yellowknife, has been in production continuously since 1948. The Ingraham Trail and Vee Lake Road from Yellowknife both pass through the centre of the property. Mining is conducted underground and there is an on-site mill. In 1995, the Giant Mine produced 91,423 ounces of gold at an average cash cost per ounce of US$329. For the six months ended June 30, 1996, the Giant Mine produced approximately 40,049 ounces of gold at an average cash cost per ounce of US$352. Since the commissioning of the mill in 1948, the Giant Mine has produced in excess of 7,000,000 ounces of gold. The Company has undertaken a number of development initiatives on properties in the vicinity of the Giant Mine, namely the Supercrest deposit and the Nicholas Lake property. The Company has begun rehabilitation of the infrastructure which accesses the Supercrest ore body and which enables large scale mining of this ore body. The higher grade mineable ore from Supercrest, which averages 0.384 ounces of gold per ton in situ compared to 0.301 ounces of gold per ton at Giant, is expected to have a beneficial impact on production and cash cost of the Company beginning in the second half of 1996. The net book value of the Giant Mine property, plant and equipment was approximately $49.9 million as of December 31, 1995. The Nicholas Lake property, which was acquired in 1995 from Athabaska Gold Resources Ltd., is located 60 miles north of Yellowknife. It can be accessed by chartered aircraft from Yellowknife or by winter road. Production is expected to commence in 1998. Ore will be mined year round, and stockpiled at site, for shipment to the Giant Mine in Yellowknife on the winter ice road. The ore will be processed at the Giant facility in a parallel circuit that will utilize common infrastructure where possible, namely buildings, power and tailing ponds. The Nicholas Lake parallel circuit is expected to operate at a capacity of 200 to 300 tons per day. Ownership The Company owns a 100% interest in the Giant Mine property which consists of six mining leases covering 1,636 acres and one surface lease covering 2,243 acres. The Company purchased a 100% interest in the Nicholas Lake property in 1995 from Athabaska Gold Resources Ltd., for $3.8 million. The Nicholas Lake property is subject to a 1% net smelter return royalty. 47 54 Mining and Milling Facilities The Giant Mine currently operates underground with access provided by two large service raises, five declines and the "C" shaft, which is the principal operating opening for hoisting and extends to a depth of 2,124 feet. Mining is by conventional underground mining techniques utilizing equipment to drill small diameter holes for blasting the ore. The ore is carried to the ore dumps by mechanized scooptrams and/or battery operated trains. Development is carried out by conventional equipment as well as with some mechanized drill jumbos. The mill at the Giant Mine is a 1,100 ton per day milling and refining complex. The power source for this property is Northwest Territories Power Corp. The Nicholas Lake ore body consists of eleven zones of mineralization. These zones are near vertical quartz-sulphide veins. The zones have been drilled from surface and underground at a spacing of approximately 65 feet. The ore body is accessed by a ramp (driven in 1994) to a depth of 300 feet below surface. A total of 750 feet of cross-cutting and silling has been conducted on two of the major zones (including detailed mapping and sampling). Mining methods during the production phase will be shrinkage. Access will be provided by deepening the existing ramp as mining progresses. The main infrastructure of the Giant Mine has been in place since 1946. An Edwards Hearth roaster was added in 1948 and a fluid bed roaster was added in 1950. In the mid-1950s, a two-stage fluid bed roaster was added along with a roaster gas cleaning plant. In the early 1980s, a new effluent treatment plant was added, and in 1992 to 1994, the mill's flotation cells were replaced. As a result of the Company's operations at the Giant Mine, there are small amounts of sulphur dioxide and arsenic emissions, but the Company's roaster currently operates in compliance with all existing legislation and regulations in this regard. The Giant Mine's plant and equipment are generally in good condition. Geology The Giant Mine is in the Yellowknife Greenstone belt, a package of Pre-Cambrian basic volcanic rocks. Ore bodies are hosted in shear zones within the greenstones. Individual ore bodies are veins, quartz lenses or silicified areas within the shear. Gold is associated with fine-grained arsenopyrite. The Nicholas Lake deposit is a series of narrow, steeply dipping quartz veins containing gold, arsenopyrite and other sulphides. These veins occur within a granitic intrusive body. Ore Reserves As of December 31, 1995, the Yellowknife operation, including Nicholas Lake, had remaining proven and probable ore reserves of approximately 2,466,000 tons grading 0.335 ounces of gold per ton. A cut-off grade of 0.20 ounces of gold per ton, based on current mining costs and a gold price of $517 (US$383) per ounce, was used in calculating these reserves. Allowances are made in these estimates for dilution and mining losses. Ore reserves do not include allowances for losses in milling. In some areas, such as Nicholas Lake, higher cut-off grades were used. PAMOUR Background The Pamour Mine consists of two underground and two open pit mining operations. The Pamour Mine is located approximately 15 miles east of the City of Timmins, Ontario, and has been in production since 1936. Both the Pamour and Hoyle properties are transected by Highway 101. In 1995, the Pamour and Nighthawk Mines produced approximately 80,120 ounces of gold at an average cash cost per ounce of US$368. For the six months ended June 30, 1996, the Pamour and Nighthawk Mines produced approximately 47,977 ounces of gold at an average cash cost per ounce of US$287. Since the commissioning of the mill in 1936, the Pamour Mine has produced in excess of 4.0 million ounces of gold. The net book value of the Company's property, plant and equipment in the Ontario operations, including those associated with the Pamour, Hoyle and Nighthawk properties, was approximately $57.2 million as of December 31, 1995. 48 55 Ownership The Pamour property consists of 38 patented mining claims and one License of Occupation. Together, the property covers approximately 1,531 acres of mining and surface rights. Directly adjacent to the Pamour Mine is the Hoyle property which is comprised of 37 patented mining claims and 4 leased claims covering approximately 1,608 acres. The Company has a renewable 10-year lease on that portion of the Hoyle property lying south of the Timiskaming Unconformity. The lease terms include the payment of a minimum annual rent of $100,000 which is credited against a production royalty, being the higher of $0.75 per ton or a 2% net smelter return. In order to renew the lease, which expires in 1999, for a further 10-year term, the Company must spend $1.0 million on exploration and mine one million tons of ore. The Company has a 51% interest in the portion of the Hoyle property north of the Timiskaming Unconformity, which is not currently in production. Mining and Milling Facilities The Pamour Mine currently operates both open pit and underground mining operations. The underground mine currently produces approximately 2,000 tons of ore per day, while the open pit operations produce approximately 1,500 tons per day. The Pamour Mine is comprised of the Pamour No. 1 Underground Mine, surface pits and the Hoyle Mine. The Pamour No. 1 Underground Mine commenced operations in 1936 as the original Pamour Mine and has operated continuously since. The leased Hoyle Mine extension, which commenced production in April 1990, is the eastern strike extension of the Pamour ore body and is a large resource of bulk mineable conglomerate ore which has been accessed by a decline from surface and by underground drifts from the Pamour shaft. The underground mine currently produces approximately 2,000 tons per day through a 3,145 foot deep five-compartment timbered shaft. The Hoyle property has the capacity to produce 18,000 tons per month. The mine is adjacent to the Pamour No. 1 operation and has higher grade ore than present reserves at the Pamour No. 1 Mine. Where possible, bulk mining methods are utilized, primarily by modified vertical crater retreat as well as sublevel blasthole stoping. The bulk mining areas are developed with large mechanized drill jumbos, scooptrams and trucks. The blocks are drilled off with 4.5 inch and/or 6.5 inch diameter blastholes and blasted into drawpoints located at the bottom of the block. Scooptrams and trucks move the blasted ore from the drawpoints to an internal pass. An electric trolley with 5 ton cars transports the ore from the internal pass to 3 Shaft where it is shipped to the surface. Higher grade, narrow veins are mined by a modified open shrinkage method. The ore is developed and mined with jacklegs and stopers which drill narrow blastholes (1.25 inch in diameter). The broken ore is transported to the surface through mechanized scoops, trucks and/or electric trains. The No. 3 Pit is located immediately southeast of the Pamour Mill. This open pit was developed over the workings of the Pamour Mine and first came into production in 1985. The No. 5 Pit, at the extreme west end of the Pamour No. 1 property, was brought into production in 1989. Total pit production is 1,500 tons of ore per day. An additional jaw crusher was added to the Pamour Mine in the early 1990s. In 1995, all 25-cycle electrical motors in the mine were replaced due to the change in the power supply from 25 cycles to 60 cycles. Also in 1995, an additional ball mill was installed to increase capacity from 3,600 to 4,500 tons per day. The on-site mill at Pamour has the capacity to treat approximately 4,000 tons per day and is expected to increase to 8,000 tons per day after the completion of modifications which are underway. The Pamour Mine plant and equipment are generally in good condition. A gold pyrite flotation concentrate is produced from the ore and is treated by a conventional cyanidation process to produce a gold precipitate which is refined into dore. The power source for this property is Ontario Hydro. 49 56 Pamour Mine open pit expansion As a result of its successful exploration program, the Company is developing a significant expansion project at the Pamour property. The Company has focused on examining the low grade halo around the mined out stopes at the Pamour Mine. As of December 31, 1995, the Company had added approximately 1.14 million ounces of gold to mineable ore reserves from this exploration. Production from the site is expected to commence in 1998 at a rate of 60,000 ounces of gold per year. The current dimensions of the planned pit are approximately 6,000 feet long, 2,400 feet wide and 800 feet deep. However, the ultimate extent of the pit will be determined by staged drilling over the next few years. Total capital costs to complete the expansion are expected to be approximately $22 million. Geology The Pamour Mine is located approximately one mile north of the Destor-Porcupine Fault, an east-northeast to west-southwest striking structure. The majority of the historic gold producing mines in the Porcupine Gold Camp have been located near this structure. On the property, a series of basic volcanic rocks are unconformably overlain by greywackes and a thick conglomerate, known as the Pamour conglomerate. All rocks are of the Pre-Cambrian age. Gold occurs in narrow high grade quartz veins in the volcanics and in the sediments. The majority of the gold that has been mined from this property occurs in sheeted sets of quartz veins in the Pamour conglomerate and in the greywackes on either side of it. Gold also occurs in broad irregular zones of quartz veinlets in the volcanic rocks. Ore Reserves As of December 31, 1995, the Pamour and Nighthawk operations had remaining proven and probable ore reserves of approximately 38,471,000 tons grading 0.046 ounces of gold per ton. The ore reserves at this division have increased in each of the last three years due to expansion of open pit reserves. A major drilling campaign was undertaken in 1995 for this purpose. Cut-off grades (which range from 0.023 to 0.200 ounces per ton) are determined for each type of ore based on current mining costs, and a gold price of $517 (US$383) per ounce. Allowances are made in these estimates for dilution and mining losses. Ore reserves do not include allowances for losses in milling. NIGHTHAWK Background The Nighthawk Mine, which was operated by Porcupine Peninsular Gold Mines Limited between 1924 and 1927, is located east of the Pamour Mine and commenced production in September 1995. Access is via highway, 10 miles from the Pamour Mill. The Company and its predecessors paid a total of $287,500 from 1973 to 1994 in the form of cash payments and work requirements of the Nighthawk Mine. The net book value of the Company's properties and the associated plants and equipment in its Ontario division, which includes the Nighthawk Mine, was approximately $57.2 million as of December 31, 1995. In 1995, the Pamour and Nighthawk Mines produced approximately 80,120 ounces of gold at an average cash cost per ounce of US$368. For the six months ended June 30, 1996 the Pamour and Nighthawk Mines produced approximately 47,977 ounces of gold at an average cash cost per ounce of US$287. Ownership The Company's land holdings in the Nighthawk Lake area are extensive with approximately 11,726 acres held representing 254 claims. Most of the property is held outright by the Company as staked claims. Other portions are held through various option agreements which also provide for some form of production royalty. The Ronnoco claims on the east peninsula of the lake are held through a subsidiary company, Ronnoco Gold Mines Limited. The current producing deposit, the Nighthawk Mine, is located on the north peninsula of the lake and is subject to a production royalty being the higher of (i) $0.003 times tons times dollars per ounce of gold or (ii) 20% of the net profits. 50 57 Mining and Milling Facilities During the period from 1924 to 1927, the Nighthawk Mine produced 99,628 tons of ore grading 0.32 ounces of gold per ton. Additional exploration was done periodically over the ensuing years. The Company developed the Nighthawk Mine and began production in September 1995. Full production levels of 750 tons per day were reached in May 1996. The ore body is accessed by a ramp currently at 450 feet below surface, which will ultimately be driven to 750 feet below surface. Mining methods for this underground mine are primarily longhole open stoping, with 50 feet between sublevels. Waste rock will be placed in stopes as delayed backfill. Ore is hauled to surface stockpiles in 30 ton dump trucks. The material is then hauled by truck 10 miles to the Pamour Mill for processing. The mine's equipment is generally in excellent condition. The power source for this property is Ontario Hydro. Geology The Nighthawk Mine is adjacent to a major structure called the Nighthawk Break, which is thought to be a splay off of the Destor-Porcupine Fault. The geology in this area consists mainly of steeply dipping volcanic flows. In the mine area, these have undergone intensive carbonate alteration. Gold occurs in quartz veins and silicified zones associated with minor amounts of sulphide minerals. Ore Reserves As of December 31, 1995, the Nighthawk Mine had mineable ore reserves of 853,000 tons grading 0.166 ounces of gold per ton and mineralized material of 599,000 tons grading 0.164 ounces of gold per ton. A cut-off grade of 0.100 ounces per ton, based on current mining costs and a gold price of $517 (US$383) per ounce, was used in calculating these reserves. Allowances are made in these estimates for dilution and mining losses. Ore reserves do not include allowances for losses in milling. HOPE BROOK Background The Hope Brook Mine is located approximately 5 miles inland from the southwest coast of Newfoundland, between the towns of Burgeo and Port aux Basques. It was acquired in April 1992 from Hope Brook Gold Inc., which had shut down operations in May 1991. The mine currently produces 3,000 tons of ore per day. For 1995, the Hope Brook Mine produced 81,962 ounces of gold at a cash cost per ounce of US$343. For the six months ended June 30, 1996, the Hope Brook Mine produced approximately 31,065 ounces of gold at an average cash cost per ounce of US$327. As of December 31, 1995, the Hope Brook Mine had mineable ore reserves of 215,000 ounces of gold and mineralized material of 399,000 ounces of gold. Access to the mine is restricted to air or sea travel. A 4,000 foot airstrip was constructed in 1992 to provide transportation for the mine employees. The mine is being operated as a fly-in, fly-out camp. The principal mode of access for supplies is by a ship owned and operated by the Company exclusively for the mine. The ship is based in Rose Blanche, Newfoundland. The net book value of the Hope Brook Mine property, plant and equipment was approximately $19.7 million as of December 31, 1995. Ownership Production from the Hope Brook Mine is subject to an operating royalty for five years ranging from $1.3 million to $3.3 million annually in favour of the prior owner when the annual average spot price of gold exceeds US$380 per ounce. In 1995, the Company paid $1.3 million in respect of such royalty. This operating royalty expires at the end of 1996. The Hope Brook Mine area consists of a 25-year mining lease, surface lease and extended exploration licenses which cover approximately 6,800 acres of mining rights and 490 acres of surface rights. The Company holds a 100% interest in the property subject to the above operating royalty. All mining activities are confined to the mining leases. 51 58 Mining and Milling Facilities The Hope Brook Mill was first commissioned in September 1988. The Hope Brook ore body is intersected by a number of mafic dykes which have proven to be significantly harder to grind than the ore material. In 1990, Hope Brook Gold Inc., owned by B.P. Resources Canada Inc., added a pebble crushing circuit to the primary grinding circuit. This circuit was intended to extract the mafic pebbles from the SAG mill and to crush them externally, thereby increasing overall throughput. The circuit was not totally successful and was subsequently shut down. In May 1991, operations at the mine were voluntarily suspended by Hope Brook Gold Inc. due to an unacceptable level of contamination in the tailings pond and concern about its ability to continue operations while meeting the environmental discharge specifications set by the federal and provincial authorities. In 1992, Royal Oak successfully modified the mafic pebble crushing circuit. This action, coupled with other circuit modifications, has significantly increased overall throughput. In 1995, Hope Brook produced an average of 2,987 tons per day. Ore is delivered to the surface and crushed to a nominal minus 6 inch using a primary gyratory crusher. The crushed ore is stockpiled and withdrawn as required to feed the mill grinding circuit. Grinding to 70% minus 200 mesh is accomplished in a conventional SAG circuit followed by a conventional ball mill grinding circuit operating in closed circuit with cyclones. Gold is extracted from the grinding circuit product in a conventional 60 hour cyanide leach circuit followed by 6 stages of CIP. Gold is recovered from activated carbon in a pressure stripping-electrowinning circuit. Gold is stripped from the electrowinning cell cathodes and melted in an induction furnace to yield dore bullion. The dore is subsequently shipped to a refinery for final refining. In 1993, a sulphide flotation circuit was added to the mill flowsheet. The final tailings from the CIP circuit are treated through an effluent treatment plant utilizing the INCO SO2-Air process. The treated slurry is conditioned and then subjected to a conventional copper rougher-scavenger flotation process. The resulting concentrate is upgraded through several stages of cleaner flotation to yield a concentrate grading 20 to 22% copper. The concentrate also bears significant gold values increasing overall mill gold recovery by up to 4%. The concentrate is dewatered, dried and shipped to a custom smelter for processing of both the contained copper and gold values. The Hope Brook effluent treatment circuit achieved wastewater quality that was in substantial compliance with the mine's Certificate of Approval in 1993, 1994 and 1995. However, in 1994 and 1995, while the effluent treatment circuit was in full compliance with the mine's certificate of approval, the discharge from the mine's tailings impoundment area did not consistently pass Environment Canada's LC50 fish toxicity test. Although, in Canada, gold mining operations are exempt from Environment Canada's Metal Mining Liquid Effluent Regulations, including the LC50 fish toxicity test, remedial actions have been taken to eliminate the problem and for the last several months, the Company's effluent has met the LC50 fish toxicity test. The main access to the underground mine is by ramp which has been driven to a vertical depth of 1,000 feet below surface. The haulage component of the ramp-haulage system installed at Hope Brook uses 55 ton capacity electric Kiruna trucks and diesel trucks. The prior owner of the Hope Brook Mine conducted its operations using a blasthole stoping and fill method. In 1995, the Company changed the mining method to sublevel stoping, similar to that used at its Hoyle property. The Hope Brook plant and equipment are generally in good condition. The source of power for this property is Newfoundland Hydro. Geology Gold mineralization occurs in an alteration zone of pervasive silica, pyrite and pyrophyllite which is approximately 4 kilometres long and 300 metres wide. The alteration zone exists within the Mid-Ordovician Georges Brook Formation which consists of a mixed volcanic-sedimentary sequence. The Hope Brook ore body is located in the zone of alteration. Ore covers a strike length of 500 metres and extends from surface to a depth of 400 metres, dipping steeply at an angle of seventy-five degrees. 52 59 Ore Reserves As of December 31, 1995, the Hope Brook Mine had remaining proven and probable ore reserves of approximately 2,448,000 tons grading 0.088 ounces of gold per ton. A cut-off grade of 0.079 ounces per ton, based on current mining costs and a gold price of $517 (US$383) per ounce, was used in calculating stope reserves. Allowances are made in these estimates for dilution and mining losses. Ore reserves do not include allowances for losses in milling. The Company expects that the Cape Ray acquisition will extend the life of the Hope Brook Mine. Cape Ray Acquisition In July, 1996, the Company purchased the Cape Ray gold property from American Gem Corporation for $500,000, and purchased Homestake Canada Inc.'s net smelter return royalty on the property for $425,000. The acquisition of the Cape Ray property is of strategic importance to Royal Oak's Newfoundland operations. The Cape Ray deposit is expected to provide high grade feed over the next several years to the Hope Brook Mill for processing in combination with lower grade ore from the Hope Brook Mine. Ore will be transported to the mill using a combination of truck and the Company's supply ship. A feasibility study completed by Kilborn Inc. in 1989 indicates that the Cape Ray property contains a diluted mineable ore reserve of 501,619 tons at a grade of 0.294 ounces of gold per ton. Underground work in the 1980s included a decline facilitating development on the 90 foot and 200 foot levels of the 04 Zone. The Cape Ray property is located 12 miles northeast of the town of Port aux Basques in southeast Newfoundland. Access to the Cape Ray property is by a 12 mile gravel road from the community of Isle aux Morts. The property consists of an extensive land position of 62 square miles covering 29 miles of strike length on the Cape Ray fault. In addition to the existing reserve within the Main Zone, the property hosts several known mineralized zones including Windowglass Hill, Gulch, Sleeper and Big Pond. Previous drilling on the Big Pond Zone returned a significant intersection of 0.62 ounces of gold per ton over 7.7 feet. The Main Zone is located along a shear zone diverging from the Cape Ray Fault within the Windsor Point Group, which is comprised of a discontinuous sequence of volcaniclastics, associated argillaceous sediments, mafic volcanics, schists and mylonites. The access road will be rehabilitated in the summer of 1996 and the decline will be dewatered when permitting has been arranged so that underground development and mining can commence. The Company currently intends to operate the Cape Ray property as an underground mine. The power source for the property is expected to be either an on-site diesel generator or Newfoundland Hydro. The Company plans to conduct geochemical and geophysical surveys and 25,000 feet of diamond drilling over four areas of this property during the summer field season. The Company has also optioned the Coast property owned by Coast Petroleum Transport Ltd., which lies on strike with the Cape Ray deposit. This property is located 35 miles west of the Hope Brook Mine. DEVELOPMENT PROJECTS KEMESS SOUTH Background The Kemess South Project is located 186 miles northwest of Mackenzie, British Columbia, and to the east of Thutade Lake. Currently, access to the area is by air from Smithers or Prince George to the Sturdee airstrip (a 4,500 foot gravel strip) 24 miles to the north, or from the south via an all-weather road from Fort St. James or Mackenzie. As part of the Kemess South Project, the Company intends to construct an airstrip adjacent to the mine site. In May 1993, Royal Oak acquired 39% of Geddes, a company whose only significant asset was a 100% interest in a block of mineral claims located in the vicinity of Windy Craggy mountain in northwestern British Columbia. In June 1993, the British Columbia provincial government announced that it would permanently protect, as a provincial park, the region which included Windy Craggy, and would provide compensation for holders of mineral claims in the area. Subsequently, in December 1994, the United Nations Educational, 53 60 Scientific and Cultural Organization (UNESCO) designated the Tatshenshini-Alsek Provincial Park, which includes Windy Craggy, a World Heritage site. In May 1995, the British Columbia provincial government commenced active negotiations with senior officers of Geddes pertaining to compensation respecting Windy Craggy. In order to facilitate such negotiations, Royal Oak indicated to the British Columbia provincial government a willingness to purchase the Kemess and Red Mountain properties and to develop these properties, provided appropriate project support and investment arrangements were provided by the British Columbia provincial government. In January 1996, the Company completed the acquisition of Geddes, El Condor and St. Philips. The remaining outstanding shares of Geddes were acquired for shares of the Company and cash with a total acquisition cost of $40.9 million; the outstanding shares of El Condor were acquired for shares of the Company and cash worth $110.6 million; and the outstanding shares of St. Philips were acquired for $38.6 million in cash. El Condor and St. Philips owned the Kemess South property and El Condor owned the Kemess North property. These properties are now owned by Kemess Mines Inc. (formerly Geddes Resources Limited). Although the Company will continue to evaluate the potential of the Kemess North property, there is presently no plan to develop this property. On April 29, 1996, the British Columbia provincial government announced that it had issued a Project Approval Certificate for the Kemess South Project which entitles the Company to proceed with permitting applications for construction of the mine site and attendant infrastructure. Federal approval under the Environmental Assessment Act (Canada) and the Fisheries Act (Canada) is expected shortly and will facilitate completion of all infrastructure impacting on viable lakes and streams in the project area. Timetable for Development The phases of development of the Kemess South Project are: (i) completion of permitting and planning; (ii) preparation of detailed design and procurement; and (iii) project management and construction. Construction of the Kemess South Project commenced in July 1996 and is anticipated to take 24 months to complete. The construction phase will employ a work force of approximately 350 persons, peaking at 450 to 550 persons. The engineering of the processing facilities, which commenced in November 1995, is being carried out by Kilborn Engineering Pacific Ltd. Teshmont Consultants Inc. of Winnipeg is designing the power line and Knight & Piesold has commenced engineering studies for the design of the tailings dam. Compensation, Financial Assistance and Investment The Company currently estimates that its total capital costs for the Kemess South Project will be approximately $390 million. The net book value of the plant and equipment of the Company's British Columbia operations which include the Kemess South Project, was approximately $10.7 million as of December 31, 1995. The Company is expecting to bring the Kemess South Project into production in the second quarter of 1998. The project development will be facilitated by up to $166 million of economic assistance, investment and compensation from the British Columbia provincial government as described below. The Company is not obligated to repay the British Columbia provincial government any of such amounts. Section 25 of the Financial Administration Act (British Columbia) provides that, notwithstanding the commitment to pay, any payment of money by the British Columbia provincial government pursuant to an agreement is subject to (i) an appropriation being available for that agreement in the year in which the payment falls due and (ii) the Treasury Board not having controlled or limited expenditure under any such appropriation. See "Risk Factors -- Government Permits and Payments." 54 61 The compensation, financial assistance and investment of up to $166 million to be provided by the British Columbia provincial government consist of the following components described below: (i) Compensation -- $29 million payable over two years. On April 15, 1996, the Company's wholly owned subsidiary, Kemess Mines Inc., received the first of two equal compensation payments of $14.5 million. The final payment is due in April 1997. (ii) Royalty interest investment -- $50 million to develop on- and off-site mine infrastructure for the Kemess South Project. The Company will pay the British Columbia provincial government a royalty of 4.8% on all copper extracted and processed from the Kemess South Project. The Company is the general partner and a wholly owned subsidiary of the Company is currently the sole limited partner of a limited partnership which is entitled to a royalty on the copper from the Kemess South Project. The royalty payable to the British Columbia provincial government will form a portion of the royalty held by the limited partnership. (iii) Power line installation -- $49 million payable over three years to cover the cost of constructing a 320 kilometre power line from the Kennedy substation to the Kemess Mine site together with related equipment. The power will initially be supplied by B.C. Hydro. The power line will be owned and operated by the Company for at least 20 years. (iv) Regional resource infrastructure -- $14 million payable over 14 years for emergency health facilities, airport facilities and for developing and maintaining a connector road. (v) Human resource development program -- $4.0 million payable over two years to facilitate recruitment, selection, relocation, mobility, training, upgrading and safety training for personnel working at the Kemess South Project. (vi) Mining development -- $20 million to be matched dollar for dollar for the development of properties in British Columbia, including the Kemess and Red Mountain properties and extensions. (vii) Facilitation and support -- The British Columbia provincial government agreed to facilitate and support the Company with respect to the negotiation of appropriate contracts of rail transport, port and power charges and to facilitate the review and consideration of permits and other authorizations required for the development of the project. Ownership The Kemess property consists of 404 staked mineral claims in three distinct groups that cover approximately 68,259 acres. The Kemess South property was owned by El Condor and St. Philips, and the Kemess North property was owned by El Condor. The property was transferred to Kemess Mines Inc. pursuant to the winding up of El Condor and St. Philips. There are two royalty agreements that affect a small number of claims. The Company will pay the British Columbia provincial government a royalty of 4.8% on all copper extracted and processed from the Kemess South Project. Geology The Kemess South deposit is a large low grade gold-copper porphyry-type deposit. It is hosted by a flat-lying porphyritic quartz monzodiorite intrusion. Pyrite, the dominant sulphide, occurs as veins and fracture coatings accompanying quartz stringers. Chalcopyrite occurs as disseminated grains and in quartz stockwork veins. Native gold is included within or is peripheral to grains of chalcopyrite, and gold grades correlate closely with those of copper in the hypogene zone. The highest grade of gold and copper mineralization correlate with zones of intense quartz stockwork development. A supergene zone, comprising 20% of the deposit, formed during a period of weathering synchronous with the formation of the Late Cretaceous Sustut Basin. Copper grades within this zone are locally leached or enriched, while gold concentrations remain relatively unchanged. Native copper is the dominant secondary copper mineral except at the base of the supergene zone where chalcocite becomes more and more abundant. 55 62 Mining and Milling The deposit will be mined at an average rate of approximately 107,000 tons per day at an estimated cost of $1.56 per ton. Milling at the rate of approximately 50,000 tons per day will cost approximately $1.81 per ton. At this mining rate, the life of the project is estimated to be approximately 15 years. Ore Reserves Ore reserves for the Kemess South Project were calculated in a 1993 pre-feasibility study completed by Kilborn Engineering Pacific Ltd., for El Condor and St. Philips, the former owners of the property. These reserves were reviewed by Royal Oak prior to the purchase of the property in 1995. In addition, they were verified for the Company in February, 1996. Reserves for this property are 221 million tons of ore averaging 0.018 ounces per ton of gold and 0.224% copper. These reserve estimates contain allowances for mining losses and dilution, but not for losses in milling. Net smelter return calculations were carried out on mineralization at Kemess South in order to determine the value that would be returned from mining and processing. These estimates included all transportation and smelter charges. The prices of gold and copper used in the above feasibility studies were US$350 per ounce and US$1.00 per pound, respectively, with an exchange rate of US$0.78/Cdn $1.00. RED MOUNTAIN Background The Red Mountain project area is located in the Coastal Mountain Range, 11 miles east of the seaport of Stewart, in northwestern British Columbia. Currently, access to the property is by helicopter from Stewart; however, a road has been constructed to a potential portal site in Bitter Creek adjacent to the ore zone but at a lower elevation. The net book value of the plant and equipment of the Company's British Columbia operations, which include the Red Mountain deposit, was approximately $10.7 million as of December 31, 1995. Ownership The property consists of 147 staked mining claims that cover 86,070 acres. The Company acquired 100% of the Red Mountain property from Barrick Gold for $1. The Company assumed all past environmental liabilities, estimated at $3.0 million, as part of this purchase. The Company is committed to spend $3.0 million in exploration and development on the Red Mountain property over three years. The Company has budgeted for a $9.0 million development program for 1996. The prior owner will receive a 1% net smelter return royalty on production from the property, and on production over 1.85 million ounces of gold, an additional $10.00 per ounce of gold is payable. In addition, the Company is required to pay a 2.5% net smelter return royalty to a third party. Geology The Red Mountain orebody is a hydrothermal gold deposit related to a multiphase intrusion. The Red Mountain area is underlain by Upper Triassic to Middle Jurassic sedimentary and volcanic rocks of the Hazelton Group. Early Jurassic plutons, sills and dykes have intruded this volcanic-sedimentary assemblage, the largest of which (the Goldslide-Hillside intrusion) lies beneath Red Mountain. The orebody currently consists of three northwest plunging, southwest dipping elliptical zones located beneath the summit approximately at the contact between two phases of the Goldslide intrusion and hosted within both the stratified sediments and the Hillside intrusion. Both the ore zones and the host rocks have been disrupted by northwest plunging folds and at least two phases of brittle faulting. Mining and Milling It is estimated that over US$30 million was spent by the former owners of this property, Lac Minerals and Barrick Gold, between 1991 and 1994 outlining and developing the Marc, AV and JW Zones, which 56 63 included 300,000 feet of drilling. These zones remain open down-plunge and the exploration potential for the area north of the deposit is deemed by the Company to be excellent. The main development focus for 1996 will be to expand the mineable reserves at Red Mountain by 500,000 ounces, from the current 800,000 ounces to 1,300,000 ounces of gold through underground and surface delineation drilling of the down-plunge extension of the orebody. The decline will be extended approximately 1,000 feet to facilitate the drilling. A joint federal-provincial committee has been established to address environmental assessment and permitting of the Red Mountain project. Currently, an updated feasibility study is being completed and the Company expects to file a development plan with the British Columbia provincial government in the third quarter of 1996. Subject to receipt of the necessary permits, the project is expected to produce approximately 150,000 ounces of gold per year commencing in the fourth quarter of 1999. It is expected that the Red Mountain mine will be operated as an underground mine. The source of power for this property will be British Columbia Hydro. Ore Reserves The Red Mountain deposit contains 800,000 ounces of gold in the mineable category, grading 0.262 ounces of gold per ton. MATACHEWAN Background The Matachewan project is located approximately 56 miles southeast of the City of Timmins, Ontario and is accessed directly by either two-way highway and/or all-weather roads from Timmins. The main area of interest is called the Young Davidson property, located two miles west of the Town of Matachewan. The Matachewan property was mined from 1933 to 1957 by Young Davidson Mines Limited and Matachewan Consolidated Mines Limited and produced an aggregate of 956,117 ounces of gold grading 0.10 ounces per ton from both underground and open pit developments. The Matachewan deposit was milled historically using flotation and cyanidation which achieved excellent recoveries. The current plan is to produce a concentrate on site that would be transported to the Pamour Mill for cyanidation. The presence of free gold and the metallurgical testing at Lakefield Research Limited has necessitated the addition of a gravity circuit to the mill design. A very coarse cost effective grind was used historically and it is expected that this will not change. The source of power for this property will be Ontario Hydro. To date, the Company has received permits necessary to dewater the existing mine shaft, to cross the highway with a pipeline and to proceed with advanced exploration. Discussions are currently underway with respect to environmental assessment and permitting of the full project. The current discussions relate to a fish compensation plan and tailings as well as approval under the Environmental Assessment Act (Canada). The development plan calls for milling of the open pit ore to commence by the second half of 1998 while the underground mine is being developed. Production is targeted for 100,000 ounces of gold per year at an average cash cost of US$227 per ounce. The existence of a 2,450 foot deep shaft will allow the underground mine to be economically developed. Ownership The Matachewan property is held under two lease agreements. The lease agreement with Matachewan Consolidated Mines Limited provides for advanced royalty payments of $15,000 per year or rent of $7,500 per year, depending on the current gold price. The Young Davidson lease agreement provides for advance royalty payments of approximately $40,000 per year. The property is subject to a minimum 3% net smelter return royalty. 57 64 Geology The Matachewan deposit is hosted within a syenite body which has intruded along and near the highly deformed contact between Timiskaming Group sedimentary rocks and Larder Lake Group volcanic rocks. The main syenite body is approximately 2,460 feet long, 410 feet wide and dips steeply to the south. Ore Reserves As of December 31, 1995, the Matachewan property had proven and probable ore reserves of 13,253,000 tons grading 0.067 ounces of gold per ton. Allowances are made in these estimates for dilution and mining losses. Ore reserves do not include allowances for losses in milling. Cut-off grades used in estimating these mineable reserves are 0.021 ounces per ton for open pit reserves and 0.080 ounces per ton for underground reserves and are based on current mining costs and a gold price of $517 (US$383) per ounce. DUPORT Background The Duport property is located on Shoal Lake, 28 miles southwest of the Town of Kenora in northwestern Ontario. The development ramp is located on an island and is accessible by barge. Ownership Intermittent exploration of the Duport deposit was carried out by various parties from 1930 to 1950, including underground exploration. In 1973, Consolidated Professor obtained an option on the Duport property and conducted an extensive sampling and drilling program from 1973 to 1974. Subsequently, this option was exercised and Consolidated Professor acquired a 100% interest in this property after amalgamating with Duport Mining Company Limited. The Company completed the acquisition of all of the shares of Consolidated Professor in May 1996 pursuant to a tender offer followed by a compulsory acquisition. There is a royalty payable to Union Carbide Canada Limited ("Union Carbide") equivalent to a 50% net profits interest until recovery of pre-production expenditures, up to a maximum of $2.0 million. Thereafter, Union Carbide will receive a 10% net profits interest until a maximum of $5.0 million in the aggregate has been paid. There is a buyout provision for this royalty. Mining and Milling Facilities The Duport project is situated in the environmentally sensitive area of Shoal Lake, the source of Winnipeg, Manitoba's residential and commercial water supply. Environmental concerns were raised in 1989 by local cottagers and the City of Winnipeg, after Consolidated Professor announced its plans to advance the project to the permitting stage. The main concern was the perception of potential environmental hazards associated with the processing of the refractory gold ore and the disposal of cyanide treated tailings. For the past six years, Consolidated Professor conducted impact and sensitivity studies related to these concerns. All aspects of mining, ore transport, milling, tailings disposal and site reclamation were reconsidered and re-engineered with the objective of alleviating the fears of all concerned parties. Among other features, the redesigned development plan involved transporting the ore by truck to the mainland via a year-round ferry to a mill site located 5.2 miles inland, outside of the Shoal Lake watershed. The new design concept effectively addressed every concern brought forth during the consultation process. Consolidated Professor has since submitted a detailed environmental study of the project to the Ontario, Manitoba and Canadian governments for review. The Company plans to continue the environmental permitting process initiated by Consolidated Professor. Development of the project is anticipated shortly after the permitting process is completed. Geology The northern end of the Lake of the Woods District is underlain by the volcanic and sedimentary rocks of an extensive Keewatin greenstone belt. In the general Shoal Lake area, two granodiorite intrusions, namely, 58 65 the Canoe Lake Stock and the Snowshoe Bay Stock, intrude the greenstone belt assemblage and are separated by a five mile broad section of volcanic and volcaniclastic rocks. Within this volcanic pile is a wide deformation zone which hosts the gold mineralized zones of the Duport project which occur as en echelon lenses within highly sheared felsic tuffs. Ore Reserves The Duport project has proven and probable ore reserves of approximately 1,008,000 tons grading 0.38 ounces of gold per ton. A cut-off grade of 0.15 ounces per ton, based on current mining costs and a gold price of $517 (US$383) per ounce, was used in calculating these reserves. Allowances are made in these estimates for dilution and mining losses. Ore reserves do not include allowances for losses in milling. OTHER EXPLORATION PROPERTIES In June 1995, the Company entered into a lease agreement, which includes a production royalty, with the owner of the Copperstone gold property, located in La Paz County, southwestern Arizona. The Company proposes to carry out a 10,000 foot reverse circulation drilling program on the Copperstone property which consists of 284 unpatented mining claims totalling 5,680 acres and two state leases totaling 1,300 acres. Mineralized material has been estimated by the Company at 2,424,000 tons at a grade of 0.172 ounces of gold per ton containing approximately 417,000 ounces of gold. Cyprus Gold Corp. operated the Copperstone property between 1987 and 1992 and produced in excess of 500,000 ounces of gold from ore grading 0.10 ounces of gold per ton in the Main Zone by open pit mining and heap leaching. Compiled data indicates a down dip extension of the Main Zone as well as parallel structures in the footwall areas that could possibly be economically mined by underground methods. The Main Zone has been traced an additional 950 feet along the dip of the structure below the floor of the pit as well as 425 feet along strike to the north. Gold mineralization remains open at depth and along strike. Previous drilling encountered high gold values over significant widths: 0.225 ounces of gold per ton over a core length of 50 feet (0.225/50), and 0.602/10 approximately 2,000 feet to the north of the previous hole. Other intersections below the Main Zone recorded 0.646/15 at a vertical depth of 900 feet and collared at the pit floor, and 0.268/40 in another hole. The objective of the first phase of the Company's drill program is to develop continuity and expand the existing mineral resource of the Main Zone, and to evaluate additional high priority gold targets in the footwall of the deposit. STRATEGIC INVESTMENTS The Company has strategic investments in a number of junior resource companies including Highwood (32% interest) and Asia Minerals (40.1% interest). Pursuant to an arrangement with the effective date of August 12, 1996, Highwood acquired all of the outstanding shares of Mountain Minerals. Mountain Minerals (in which the Company had held a 45.1% interest prior to the arrangement) is a diversified producer and marketer of high quality industrial minerals, particularly barite and silica. Mountain Minerals has expanded into the Chinese barite market and entered the zeolite business in British Columbia. The principal business of Highwood is the exploration for specialty mineral deposits such as beryllium, yttrium and zirconium and the development thereof, where warranted. Asia Minerals is active in mineral exploration in China. Asia Minerals recently announced that it had signed a joint venture contract to acquire a 50% interest in the Yingezhuang gold mine located in Shandong Province, China. The Chinese partner is Zhaoyuan City Gold Corp. The Yingezhuang gold mine began production in 1992 and in 1993, 154,280 tons of ore was mined and 12,000 ounces of gold were produced at a total cost of US$173 per ounce. In July 1994, Asia Minerals and the Company jointly completed a pre-feasibility study to evaluate a proposed expansion which outlined a global geological resource of 21.4 million tons at a grade of 0.09 ounces of gold per ton, based on a 0.06 ounce per ton cut-off grade. The total contained gold is estimated at 1.76 million ounces. 59 66 Asia Minerals can earn a 50% interest in the Yingezhuang joint venture by making staged investments in the project. The first stage requires Asia Minerals to fund a US$3.5 million mine expansion feasibility study. The total investment required to earn a full 50% interest is estimated to be US$36 million. Asia Minerals filed a final prospectus dated August 12, 1996 in British Columbia, Alberta and Ontario qualifying the distribution in such provinces of common shares issuable upon the exercise of special warrants previously issued for aggregate gross proceeds of $7.0 million. Royal Oak subscribed for and purchased 3,531,250 of such special warrants for $2,825,000. Royal Oak has advised Asia Minerals that it intends to exercise options that it holds to purchase an aggregate of 2,750,000 common shares of Asia Minerals for an aggregate exercise price of $1,675,000 on or before December 31, 1996. After exercise of such options, Royal Oak will hold approximately 46.5% of the shares of Asia Minerals (on an undiluted basis). ENVIRONMENTAL The Canadian mining industry is subject to stringent environmental regulations. Government regulation of the industry requires extensive monitoring activities and contingency planning. All phases of the Company's activities are subject to legislation from exploration through mine development, and mine operations through decommissioning and reclamation. In 1995, and to date in 1996, all of the Company's operations have continued to be in compliance in all material respects with applicable environmental legislation. There were no environmental related legal proceedings pending against the Company in 1995 or to date in 1996. The Hope Brook Mine operated in substantial compliance with the terms and conditions contained in the mine's operating Certificate of Approval in 1995 and to date in 1996. This Certificate is a perpetual certificate. In December 1995, the operation failed to comply with effluent quality limits on a weighted monthly average basis. This noncompliance arose from a circuit upset which occurred over a three day period. Steps have been taken by management to respond to such circuit upsets in a more timely fashion. The Newfoundland Department of Environment was advised of the non-compliance condition and of the action plan initiated by the Company to prevent reoccurrence. To the Company's knowledge, no action has been taken at this time by the regulator. The Pamour Mine and the Nighthawk Mine operated in substantial compliance with all of the terms and conditions of their respective operating Certificates of Approval in 1995 and to date in 1996. Both of these certificates are perpetual. In 1995 and to date in 1996, the Giant Mine operated in substantial compliance with all of the terms and conditions of its Water Use Licence. In response to a complaint filed under the Northwest Territories Environmental Rights Act alleging damages to vegetation to the northwest of the mine site, the Northwest Territories government is considering draft regulations under the Environmental Protection Act (Northwest Territories) that would control the amount of permissible sulphur dioxide emissions from the Company's roaster facility at the Giant Mine. The Company has undertaken a cooperative program with the regulators to evaluate the technical feasibility of such emission controls and of the environmental and economic impact of such regulations on the Giant Mine. The Company believes that the economic impact of such regulations on the Giant Mine will not be material, as installation of a taller roaster stack in the ordinary course at a cost of $1.5-2.0 million should be sufficient for compliance. The federal government of Canada is considering the drafting of new regulations under the Environmental Protection Act (Canada) that would control the amount of permissible airborne arsenic emissions from the Company's roaster facility at the Giant Mine. The government is currently assessing the socio-economic benefits and impacts that would accrue from implementing new regulations in the area of airborne arsenic emissions. The Company's Giant roaster facility currently operates in compliance with all existing environmental requirements. On May 1, 1993, Royal Oak was granted a five-year renewal of its licence to use water at the Giant Mine to a new expiry date of April 30, 1998. The Colomac Mine operated in substantial compliance with all of the terms and conditions of its Water Use Licence in 1995, which is effective through February 1999. The Company has recently implemented measures to reduce fresh water consumption in the Colomac Mill in compliance with new standards that came into effect in 1996. 60 67 In 1995, the Company spent approximately $0.8 million on capital improvements and $2.8 million on operations and maintenance for environmental matters. The Company expects to spend the same amount in 1996 for these matters. The majority of the operating costs are related to effluent treatment plants at the Giant Mine and the Hope Brook Mine, as well as increasing the height of tailings pond dykes at the Pamour Mine. The Company recognizes that it has a responsibility to operate in a manner that minimizes the impact of its mining operations on the environment. To this end, the Company upgrades its policies and practices on a continuing basis with a view to surpassing regulatory guidelines. In 1994, the Company instituted an Environmental Code of Practice which established the principles under which the Company manages the environmental performance of its operations. These principles encompass compliance with all applicable statutory legislation, minimizing risk to the environment, self monitoring of environmental protection management programs, and communicating effectively with governments and the public on environmental protection matters. In 1996, the Company expects to commence development of a formal environmental management system, including periodic internal audits and reporting of results, based on standards developed by the Canadian Standards Association. RECLAMATION Where feasible, reclamation is conducted by the Company concurrently with mining. In general, the Company is required to mitigate long-term environmental impacts by stabilizing, contouring, resloping and revegetating various portions of a site once mining and mineral processing operations are completed as well as by appropriately managing residual waste. These reclamation activities are conducted in accordance with detailed plans which have been reviewed and, where applicable, approved by the appropriate regulatory agencies. In Ontario, the Northwest Territories and British Columbia, the Company is required to post security against all or part of the estimated cost of such reclamation and has done so. The Company has completed and filed reclamation plans for all of its active operations. Reclamation plans have also been prepared for most of the Company's inactive sites and reclamation is well advanced on many of these sites. The Company's total estimated cost of reclamation at all active and inactive mining properties is $25.8 million. The Company has accrued $4.9 million through December 1995 and will charge the remaining amount to operations, over the remaining lives of its operations, on a unit-of-production basis. As of December 31, 1995 and 1994, the Company had outstanding bonds for reclamation of $3.5 million and $0.8 million, respectively, and letters of credit for reclamation of $1.4 million in 1995. Further, the Company believes that the salvage value of its assets at its various mine sites will be sufficient to fund the majority of these reclamation costs. LEGAL MATTERS In the normal course of business, the Company is subject to proceedings, lawsuits and other claims, including proceedings under laws and regulations related to environmental and other matters. It is the belief of management that the various asserted claims and litigation in which the Company is currently involved will not have, individually or in the aggregate, a material adverse effect on its financial position. However, no assurance can be given as to the ultimate outcome with respect to such claims and litigation. The resolution of such claims and litigation could be material to the Company's operating results of any particular period, depending upon the level of income for such period. On September 18, 1992, nine miners were murdered in an underground explosion at the Company's Giant Mine. A member of the union which was on strike at the time was charged and convicted of nine counts of second degree murder. In September 1994, dependents of the deceased miners sued the Company and two of its officers and directors, along with 23 other named defendants unrelated to the Company, for losses allegedly suffered as a result of the explosion. The claim against the Company and all defendants but one totals approximately $10.8 million plus taxes, interest and costs. The claim against the two officers and directors and all other defendants, excluding the Company, totals approximately $33.65 million plus taxes, interest and costs. The Company's insurers have been notified and a vigorous defense of the claim is intended. Any liability that might be imposed in the matter as presently pleaded would be within the Company's liability insurance coverage. 61 68 EMPLOYEE RELATIONS As of June 30, 1996, the Company employed 1,461 people, of which 937 are represented by either the United Steelworkers of America (177 employees at Colomac, 308 employees at Pamour and at Nighthawk and 202 employees at Hope Brook) or the Canadian Auto Workers Union (250 employees at Giant). The Company is currently negotiating a collective agreement with the United Steelworkers of America in respect of 177 employees employed at the Colomac Mine. Effective July 1, 1996, the Company and the United Steelworkers of America reached a new collective agreement, expiring June 30, 1999, in respect of the employees employed at the Pamour and Nighthawk Mines. The collective agreement with the United Steelworkers of America in respect of 202 of the Hope Brook Mine employees expires on April 30, 1997 and the collective agreement with the Canadian Auto Workers Union in respect of 250 of the Giant Mine employees expires in November 1996. The current agreement with the Canadian Auto Workers Union provides that there cannot be a strike or a lockout in November 1996 when the collective agreement expires. 62 69 MANAGEMENT The following table and associated notes set forth the names of each director and executive officer of the Company, their age as of July 31, 1996 and their respective positions with the Company.
NAME AGE POSITION - ------------------------------------- --- ----------------------------------------------- Margaret K. Witte(1)(2).............. 42 President, Chief Executive Officer and Chairman of the Board Ross F. Burns(3)..................... 52 Vice-President, Exploration and a Director James H. Wood........................ 49 Chief Financial Officer John R. Smrke........................ 46 Senior Vice-President Sadek E. El-Alfy..................... 45 Vice-President, Operations J. Graham Eacott..................... 55 Vice-President, Investor Relations Edmund Szol.......................... 55 Vice-President, Human Resources George W. Oughtred(1)(4)............. 66 Director Matthew Gaasenbeek(1)(2)............. 66 Director William J. V. Sheridan(2)............ 51 Secretary and a Director J. Conrad Lavigne(4)................. 79 Director John L. May(2)(4).................... 61 Director
- --------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Pension Committee. (4) Member of the Governance and Nominating Committee. Margaret K. (Peggy) Witte has served as President and Chief Executive Officer and Chairman of the Board of Royal Oak or a predecessor thereof since 1989. From 1986 to 1989, Ms. Witte was President and Chief Executive Officer of Neptune Resources Corp. Ms. Witte has a Master of Science degree in Metallurgical Engineering from the Mackay School of Mines and Geology in Reno, Nevada and a Bachelor of Science degree in Chemistry from the University of Nevada. Ms. Witte is a member of the American Institute of Mining, Metallurgical and Petroleum Engineers and the Canadian Institute of Mining and Metallurgy and a past director of the Mining Association of Canada and the Prospectors and Developers Association of Canada. Ms. Witte is the recipient of several awards, including Special Achievement Award, Canadian Mineral Processors (1985), Woman of Distinction Award Y.W.C.A. (1991), Developer of the Year, Prospectors and Developers Association of Canada (1993) and the Financial Post's Newsmaker of the Year (1994). Ms. Witte is also a director and Chairman of Mountain Minerals, Talisman Energy, an oil and gas company, and Trans Canada Pipelines, an oil and gas pipeline company. Ross F. Burns has served as Vice-President, Exploration of Royal Oak or a predecessor thereof since 1989. From 1986 to 1989, Mr. Burns was Vice-President of Neptune Resources Corp. Mr. Burns has a Bachelor of Science (Honours) degree in Geology from Queens University and is a Fellow of the Geological Association of Canada, a registered professional geologist in the Northwest Territories, and a member of the Prospectors and Developers Association and the British Columbia and Yukon Chambers of Mines. Mr. Burns is also the President and a director of Ronnoco Gold Mines Limited and a director of Asia Minerals. James H. Wood has served as Chief Financial Officer of Royal Oak since May 1994. From 1992 to 1994, Mr. Wood was Vice-President, Finance of Maclean Hunter Publishing Limited and from 1980 to 1992 he held various senior financial positions at CCL Industries Inc. and its subsidiary companies. Mr. Wood has a Bachelor of Commerce (Honours) degree from Laurentian University and is a Chartered Accountant. Mr. Wood is a member of the Canadian Institute of Chartered Accountants, the British Columbia Institute of Chartered Accountants and the Ontario Institute of Chartered Accountants. John R. Smrke has served as Senior Vice-President of Royal Oak since 1993. From 1989 to 1993, Mr. Smrke held the positions of General Manager, Vice-President, Corporate and Employee Development, and Vice-President, Operations of Royal Oak or a predecessor thereof. Mr. Smrke received a diploma in 63 70 Mining Engineering Technology (Honours) from Cambrian College, Sudbury. Mr. Smrke is Chief Executive Officer and Chairman of the Board of Highwood, Chief Executive Officer and a director of Mountain Minerals and a director of Asia Minerals. Sadek E. El-Alfy has served as Vice-President, Operations of Royal Oak since 1995. From 1990 to 1995, Mr. El-Alfy was General Manager, Mining and Concentrating of Iron Ore Company of Canada, where he managed a large iron ore open pit mine which produced 17 million tonnes of concentrate per annum. Mr. El-Alfy holds a Bachelor of Science degree in Mining Engineering (Associate of the Royal School of Mines) from University of London. Mr. El-Alfy is a member of the Institute of Mining and Metallurgy, London, United Kingdom, the Canadian Institute of Mining, Metallurgy and Petroleum, and the Association of Professional Engineers of Newfoundland. J. Graham Eacott joined Royal Oak in 1991 as Manager, Investor Relations and has served as Vice-President, Investor Relations since 1995. From 1987 to 1991, Mr. Eacott was a Senior Financial Analyst at Maison Placements Canada Inc., Merrill Lynch Canada Inc. and ScotiaMcLeod Inc. Mr. Eacott has a Master of Science degree in Industrial Metallurgy & Management Techniques from the University of Aston, Birmingham, and a Bachelor of Science (Honours) degree in Metallurgy from Manchester University. Mr. Eacott is a professional engineer in the Province of Ontario and is a graduate of the Canadian Securities Course and a Registered Representative. He is a member of the Canadian Institute of Mining and Metallurgy and is the author of several technical papers. Edmund Szol has served as Vice-President, Human Resources since 1995. Prior to joining the Company, Mr. Szol was Vice-President, Human Resources and Administration of Nerco Inc., where he was responsible for all human resources and administrative functions. Mr. Szol has a Bachelor of Arts degree from Youngstown University, Youngstown, Ohio and is a graduate of the Advanced Executive Development Program, Harvard University. Mr. Szol is a member of the Society for Human Resource Management. George W. Oughtred has served as a director of Royal Oak since 1991. Mr. Oughtred is President of Privatbanken Holdings Inc., a private holding company and a director of C.I. Fund Management Inc., an investment fund manager. Mr. Oughtred has served as a director and/or officer of numerous other public companies. Mr. Oughtred has a Bachelor of Commerce degree from McGill University and a Master of Business Administration degree from the University of Western Ontario. Matthew Gaasenbeek has served as a director of Royal Oak since 1993. Mr. Gaasenbeek is President of Northern Crown Capital Corporation, a private venture capital company and Chairman of the Ontario Development Corporation. Mr. Gaasenbeek has been and continues to serve as a director or officer of various public and private resource and finance companies. Mr. Gaasenbeek has a Bachelor of Arts (Honours) degree in Business Administration from the University of Western Ontario. Prior to October 1991, Mr. Gaasenbeek was President and a director of Camreco Inc., a mining exploration company. William J.V. Sheridan has served as a director of Royal Oak since 1991. Mr. Sheridan has a Bachelor of Commerce degree from the University of Toronto and a law degree from Osgoode Hall Law School, Toronto. Mr. Sheridan joined Lang Michener, a Canadian law firm, in 1972, became a partner in 1974 and is currently the Managing Partner. He specializes in mergers and acquisitions, mining, securities and international joint ventures. Mr. Sheridan is also a director and/or officer of Eden Roc Mineral Corp., Hydra Capital Corp., Pinkerton's of Canada Limited, Witco Canada Inc. and other public and private companies, and a Governor of the Queen Elizabeth Hospital, Toronto. J. Conrad Lavigne has served as a director of Royal Oak since 1991. Mr. Lavigne is President of JCL Corporation, a broadcast consulting firm. Mr. Lavigne is the former Chairman of Northern Telephone Co. Ltd. and a former director of Ontario Hydro and National Bank of Canada. Mr. Lavigne is a Lifetime Honorary Associate Member of the Central Canadian Broadcast Association and was inducted into the Canadian Broadcasters Hall of Fame in 1990. John L. May has served as a director of Royal Oak since 1991. Mr. May is a retired mining executive and prior to his retirement in 1991 was Vice-President of Exploration of Teck Corporation. Mr. May has a Bachelor of Science degree in Applied Geology from the University of Toronto. During his career, he has been 64 71 an officer and/or director of a number of public natural resource companies. He is currently a director of HRC Development Corporation. The table below sets forth certain information regarding equity ownership of each director or executive officer of the Company and all directors and executive officers of the Company as a group as of July 31, 1996, and the percentages set forth are based upon 138,319,263 shares outstanding on such date (excluding the 1,924,816 shares owned by a wholly owned subsidiary of the Company, see "Certain Relationships and Related Transactions").
NUMBER OF PERCENTAGE OF DIRECTORS AND EXECUTIVE OFFICERS COMMON SHARES(1)(2) COMMON SHARES(1)(2) - ----------------------------------------------------- ------------------- ------------------- Margaret K. Witte(3)................................. 2,930,376 2.1% Ross F. Burns........................................ 349,129 * William J.V. Sheridan................................ 30,000 * J. Conrad Lavigne.................................... 55,000 * John L. May(3)....................................... 4,500 * George W. Oughtred................................... 520,000 * Matthew Gaasenbeek................................... 52,500 * John R. Smrke........................................ 211,370 * James H. Wood........................................ 112,500 * J. Graham Eacott..................................... 111,000 * Edmund Szol.......................................... 50,000 * Sadek E. El-Alfy..................................... 50,000 * All directors and executive officers as a group (12 persons)........................................... 4,476,375 3.2%
- --------------- * The percentage of shares beneficially owned does not exceed 1% of the class. (1) The information as to shares beneficially owned, not being to the knowledge of the Company, has been furnished by the respective directors and officers individually. (2) Includes and assumes the issuance of the following number of common shares issuable upon the exercise by the following individuals of options which are currently exercisable or exercisable within 60 days of the date hereof: Ms. Witte 350,000; Mr. Burns 95,000; Mr. Sheridan 15,000; Mr. Lavigne 40,000; Mr. Gaasenbeek 50,000; Mr. Smrke 160,000; Mr. Wood 110,000; Mr. Eacott 109,000; Mr. Szol 50,000; and Mr. El-Alfy 50,000. (3) In addition, Ms. Witte has granted 2,200 put options which oblige Ms. Witte to purchase 220,000 common shares of Royal Oak at a price of $6.00 per share if the holder requires her to do so prior to the expiry of the options on September 21, 1996. In addition, Mr. May has granted 100 put options which oblige Mr. May to purchase 5,000 common shares of Royal Oak at a price of $6.00 per share and 5,000 common shares of Royal Oak at a price of $5.00 per share if the holders require him to do so prior to the expiry of the options on September 21, 1996. 65 72 EXECUTIVE COMPENSATION The following table sets forth all compensation for the fiscal years ended December 31, 1995, 1994 and 1993 for the Chief Executive Officer and the four other most highly compensated executive officers of the Company (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION -------------------------------------------- ---------------- OTHER ANNUAL SECURITIES UNDER NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS PRINCIPAL POSITION YEAR ($) ($) ($)(3) GRANTED(#) - ----------------------------- ----- ------------ ------------ ------------ ---------------- M.K. Witte................... 1995 US$250,200 US$150,000 US$132,735(4) -- Chairman, President and 1994 Cdn $250,000 Cdn $75,250 50,000 Chief Executive Officer 1993 Cdn $206,250 Cdn $100,000 -- 300,000 -- J.R. Smrke................... 1995 US$132,800 US$30,000 US$63,400(5) -- Senior Vice-President (4) US$41,034 1994 Cdn $145,000 Cdn $60,250 -- 50,000 1993 Cdn $136,250 Cdn $40,000 Cdn $52,038 -- J.H. Wood.................... 1995 US$123,600 US$30,000 US$41,034(4) -- Chief Financial Officer(1) 1994 Cdn $87,917 Cdn $40,250 230,000 1993 -- -- -- -- -- R.F. Burns................... 1995 US$124,500 US$30,000 US$25,452(4) -- Vice-President, Exploration 1994 Cdn $145,000 Cdn $5,250 50,000 1993 Cdn $127,500 Cdn $40,000 -- -- Cdn $430,360 J. Graham Eacott............. 1995 US$102,800 US$30,000 US$30,825(4) -- Vice-President, 1994 -- -- -- Investor Relations(2) 1993 -- -- -- -- --
- --------------- (1) Mr. Wood was hired and appointed Chief Financial Officer in May 1994. (2) Mr. Eacott was appointed Vice-President, Investor Relations in January 1995. Prior to that time, Mr. Eacott was Manager, Investor Relations. (3) Except as otherwise indicated, the value of perquisites and benefits do not exceed the lesser of $50,000 and 10% of the total annual salary and bonus. (4) Relocation payments upon the Company's move of its executive offices to the United States were made to Ms. Witte for US$100,000, Mr. Smrke for US$40,000, Mr. Wood for US$40,000, Mr. Burns for US$15,000 and to Mr. Eacott for US$30,000. Directors' fees were paid to Ms. Witte and Mr. Burns of Cdn $14,500 and Cdn $13,000, respectively. Other than with respect to Ms. Witte, the balance relates to the Company's contribution to the employees' 401(k) savings plan. In respect of Ms. Witte, the balance relates to payment of life insurance premiums of US$15,396, car lease payments and reimbursements of US$4,653 and the Company's contribution to the 401(k) savings plan of US$2,102. (5) Represents the difference between the market price of the Company's common shares on the date of exercise and the option exercise price, multiplied by the number of shares acquired. STOCK OPTIONS During 1995, no options were granted to any of the Named Executive Officers. During 1995, options to purchase a total of 605,000 common shares of the Company were granted to officers and employees of the Company. Particulars of the grants of options are as follows:
DATE OF GRANT NUMBER OF SHARES EXERCISE PRICE - -------------------------------------------------------- ---------------- ------------------- February 17, 1995....................................... 260,000 US$3.15, Cdn $4.60 June 29, 1995........................................... 70,000 US$3.15 September 6, 1995....................................... 220,000 US$3.85, Cdn $5.13 November 21, 1995....................................... 55,000 US$4.00
66 73 AGGREGATE OPTION EXERCISES DURING 1995 AND 1995 YEAR-END OPTION VALUES
VALUE OF UNEXERCISED UNEXERCISED OPTIONS AS OF IN-THE-MONEY SECURITIES AGGREGATE YEAR END OPTIONS AT YEAR END ACQUIRED ON VALUE (#) ($) EXERCISE REALIZED ---------------------------- ---------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------ ----------- --------- ----------- ------------- ----------- ------------- M.K. Witte.............. -- -- 383,333 50,000 $ 364,165 $17,500 J.R. Smrke.............. 20,500 $86,612 100,000 60,000 $ 331,000 $49,000 R.F. Burns.............. -- -- -- 50,000 -- $17,500 J.H. Wood............... -- -- 40,000 190,000 -- $10,500 J.G. Eacott............. -- -- 61,000 30,000 $ 247,050 $10,500
RETIREMENT PLAN The officers of the Company participate in the Royal Oak Mines (USA) Retirement Plan, which covers substantially all of the head office employees of the Company. Contributions to the Retirement Plan, and the related expense or income, are based on general actuarial calculations and accordingly, no portion of the Company's contributions, and related expenses or income, is specifically attributable to the Company's officers. The current maximum annual pension benefit payable by the Retirement Plan to any employee is $120,000, subject to specified adjustments. Upon reaching the normal retirement age of 65, each participant is eligible to receive annual retirement benefits in monthly installments for life equal to, for each year of credited service, 1.2% of Final Average Earnings ("FAE") (defined as the average of the highest 60 consecutive months of earnings during the 120 months preceding severance date). Officers of the Company are eligible to receive reduced retirement benefits as early as age 55 with 5 years of eligible service. For purposes of the Retirement Plan, earnings include "regular salary or wages and any base salary deferrals under the 401(k) savings plan. Earnings do not include any bonus or commissions, overtime pay, moving expenses, car allowances, other business expense reimbursement or non-qualified deferrals." The following table shows estimated aggregate annual benefits under the Retirement Plan payable upon retirement to a participant who retires in 1996 at age 65 having the years of service and FAE, as specified.
YEARS OF CREDITED SERVICE -------------------------------------------------------------- FAE 5 10 15 20 25 30 - ---------------------------------- ------ ------ ------ ------ ------ ------- $ $ $ $ $ $ 75,000............................ 4,500 9,000 13,500 18,000 22,500 27,000 100,000........................... 6,000 12,000 18,000 24,000 30,000 36,000 125,000........................... 7,500 15,000 22,500 30,000 37,500 45,000 150,000........................... 9,000 18,000 27,000 36,000 45,000 54,000 175,000........................... 10,500 21,000 31,500 42,000 52,500 63,000 200,000........................... 12,000 24,000 36,000 48,000 60,000 72,000 225,000........................... 13,500 27,000 40,500 54,000 67,500 81,000 275,000........................... 16,500 33,000 49,500 66,000 82,500 99,000 300,000........................... 18,000 36,000 54,000 72,000 90,000 108,000
Benefits listed in the pension table are not subject to any deduction for social security or other offset amounts. As of December 31, 1995, the Named Executive Officers have completed the indicated number of years of credited service: R. Burns, five years; G. Eacott, four years; J. R. Smrke, six years, M. K. Witte, five years and J. Wood, 1.6 years. SUPPLEMENTAL LIFE INSURANCE PLAN The Company has established a plan effective January 1, 1996 to provide certain executives of Royal Oak with supplemental life insurance protection for their families in the event of death under a split dollar life insurance arrangement. Under this plan, upon the death of a participant, beneficiaries designated by such 67 74 participant will be entitled to receive that portion of the policy proceeds equal to the greater of the total cash value of the policy or two times the participant's highest annual compensation from the Company during the three consecutive calendar years prior to death. The cost to the Company of this plan in 1996 is estimated to be approximately US$110,000. EMPLOYMENT AGREEMENTS Following the transfer in March 1995 of head office staff to its corporate offices in Kirkland, Washington, the Company guaranteed the performance of employment agreements (collectively, the "Agreements") made by its wholly-owned United States subsidiary, Arctic Precious Metals, Inc., carrying on business as Royal Oak Mines (USA) Inc. ("Arctic"), with Margaret K. Witte, President and Chief Executive Officer of the Company, and Ross F. Burns, Vice-President of Exploration. The Company also guaranteed the performance by Arctic of employment agreements with the Company's Chief Financial Officer and four Vice-Presidents (collectively, the "Executives"), being Messrs. Wood, Smrke, El-Alfy, Szol, and Eacott. The Agreements, which for the five Executives are substantially identical except for the compensation provisions, were reviewed and approved by the Board of Directors of the Company following the recommendation of the Compensation Committee. The Agreements are for initial fixed terms of two years in the case of Ms. Witte and Mr. Burns and one year for the Executives, with identical automatic renewal terms of additional 12-month periods until termination. In the event of a termination of employment without cause and in certain other specified circumstances, including a change of control of Arctic or the Company, each employee is entitled to compensation. In the case of Ms. Witte and Mr. Burns, the acquisition by any person or group acting in concert of more than 30% of the issued and outstanding common shares of Arctic or the Company or the election to the Board of Directors of Arctic or the Company of persons employed by or representing any one person or group acting in concert and constituting 40% or more of the Board of Directors would constitute a "Terminating Event." In the event that the employment of either Ms. Witte or Mr. Burns is terminated without cause, each is entitled to 24 months' notice of termination or payment in lieu thereof, with full continuation of benefits for the notice period. In the event of termination of either employee upon the occurrence of a Terminating Event, Ms. Witte is entitled to receive a lump sum representing three years salary, together with all benefits for a 24-month period and Mr. Burns is entitled to receive a lump sum representing two years salary, together with all benefits for the 24-month period. In addition, Ms. Witte and Mr. Burns will have the right for a period of six months from such Terminating Event to require the Company to purchase or arrange for the purchase of up to 2,000,000 common shares (in the case of Ms. Witte) and up to 50,000 common shares (in the case of Mr. Burns) held by them or their spouses or any corporation controlled by any of them, respectively, for a price per share equal to the simple average of the closing price of the common shares of the Company on The Toronto Stock Exchange for each of the business days on which there was a closing price falling not more than 20 business days prior to the receipt by the Company of the notice of exercise of the right herein described. If such right is not exercised and Ms. Witte or Mr. Burns, as the case may be, is then indebted to the Company, the outstanding principal amount of such loan will be forgiven by the Company. As of the date hereof, Mr. Burns is currently not indebted to the Company and Ms. Witte is indebted to the Company in the amount of US$700,000. See "Certain Relationships and Related Transactions." In the event that the employment of any one of the five Executives is terminated without cause, including a dismissal arising from or related to a change of ownership of Arctic or the Company, each is entitled to receive compensation tied to length of service. When termination occurs prior to the completion of 12 months of service, the employee is entitled to payment of an amount equal to one year's salary plus the cost to the Company of one year of benefits; where termination occurs after 12 months of service but before the completion of 48 months of service, the employee is entitled to 18 months' base salary plus the cost to the Company of 18 months of benefits; and where termination occurs any time after 48 months of service, the employee is entitled to 24 months' base salary including bonus, plus the cost to the Company of two years of benefits. In the event of a change of control of Arctic or the Company, the Executive is entitled upon dismissal to payments of any bonus earned but unpaid and has the immediate right to exercise all valid option agreements. Loans outstanding under the Agreements with the Executives are secured and must be repaid in 68 75 full within 120 days following termination of employment. Several of the Executives are indebted to Arctic. See "Certain Relationships and Related Transactions." Each of Ms. Witte, Mr. Burns and the Executives are participants in the Company's Retirement Plan. See "-- Retirement Plan." COMPENSATION OF DIRECTORS The directors of the Company are entitled to receive an annual fee of $8,000 plus $1,000 for each meeting of the Board of Directors or a committee thereof attended. The directors are also entitled to reimbursement from the Company for all reasonable out-of-pocket expenses incurred in connection with their attendance at meetings of the Board of Directors or a committee thereof. DESCRIPTION OF SHARE CAPITAL The attributes of the common and special shares of the Company are summarized below. SHARE CAPITAL The authorized capital of Royal Oak consists of an unlimited number of common shares and an unlimited number of special shares, issuable in series, of which, as of July 31, 1996, 138,319,263 common shares (excluding the 1,924,816 common shares owned by a wholly owned subsidiary of the Company, see "Certain Relationships and Related Transactions") and no special shares were issued and outstanding. COMMON SHARES Holders of common shares are entitled to one vote for each share held on all votes taken at meetings of the shareholders of Royal Oak (other than meetings at which only holders of another class or series of shares will be entitled to vote). Subject to the rights of holders of the special shares and other shares of Royal Oak ranking prior to the common shares, holders of common shares participate ratably in any dividend declared by the directors of Royal Oak on the common shares and the common shares carry the right to receive a proportionate share of the assets of Royal Oak available for distribution to holders of common shares in the event of the liquidation, dissolution or winding-up of Royal Oak. SPECIAL SHARES The special shares may be issued from time to time in one or more series with such rights, privileges, restrictions, conditions and designations attached thereto as are fixed by resolution of the board of directors of Royal Oak. Each series of special shares will rank on a parity with the special shares of every other series. The special shares as a class rank prior to the common shares and any other shares ranking junior to the special shares with respect to the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of Royal Oak. Except in limited circumstances, holders of the special shares will not be entitled to receive notice of any meeting of the shareholders of Royal Oak (except a meeting called for the purpose of authorizing the dissolution of Royal Oak or the sale of all or a substantial part of its undertaking) or to attend or vote thereat. 69 76 STOCK OPTIONS As of July 31, 1996, 3,745,500 common shares of the Company are reserved for issuance upon exercise of options to purchase such shares. The following table sets out information with respect to such options: EXECUTIVE OFFICERS (7)
MARKET PRICE ON NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE - ------------------------------------------- --------------- -------------- ------------------- 61,000.................................... $0.80 $0.80 September 6, 1996 40,000.................................... $1.40 $1.40 December 12, 1996 40,000.................................... $1.75 $1.60 May 14, 1997 30,000.................................... $1.70 $1.70 October 27, 1997 300,000.................................... $5.25 $4.90 September 19, 2000 200,000.................................... $5.50 $5.50 April 19, 2000 410,000.................................... $4.15 $4.50 December 18, 1999 200,000.................................... $4.10 US$3.15 February 16, 2000 420,000.................................... $4.85 $4.90 January 2, 2001 63,000.................................... n.a.(1) $2.67 May 10, 2000
DIRECTORS OTHER THAN EXECUTIVE OFFICERS (5)
MARKET PRICE ON NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE - ------------------------------------------- --------------- -------------- ------------------- 50,000.................................... $4.80 $3.95 April 5, 2000 40,000.................................... $4.45 $4.45 April 21, 2000 300,000.................................... $4.85 $4.90 January 2, 2001 15,000.................................... n.a.(1) $2.67 May 10, 2000
EMPLOYEES
MARKET PRICE ON NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE - ------------------------------------------- --------------- -------------- ------------------- 30,000.................................... $1.70 $1.70 October 27, 1997 27,500.................................... $4.45 $4.45 April 21, 1998 65,000.................................... $6.25 $6.25 October 18, 1998 50,000.................................... $6.00 $6.00 December 2, 1998 440,000.................................... $4.15 $4.50 December 18, 1999 60,000.................................... $4.10 $4.60 February 16, 2000 180,000.................................... $4.70 $5.13 September 6, 2000 40,000.................................... $4.70 US$3.85 September 6, 2000 55,000.................................... $5.50 US$4.00 November 20, 2000 24,000.................................... n.a.(1) $2.67 May 10, 2000 50,000.................................... $6.00 $6.00 January 31, 2001 20,000.................................... $6.75 $6.75 February 15, 2001 35,000.................................... $6.50 $6.38 February 15, 2001 40,000.................................... $6.50 $6.50 February 15, 2001 100,000.................................... $5.30 $5.30 July 30, 2001
OTHER
MARKET PRICE ON NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE - ------------------------------------------- --------------- -------------- ------------------- 300,000.................................... n.a.(1) $ 2.27 July 13, 1997
- --------------- (1) Outstanding options to purchase common shares of Geddes, converted to options to purchase shares of the Company upon the arrangement involving the Company, Geddes, El Condor and St. Philips becoming effective on January 11, 1996. 70 77 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Since January 1, 1995, the only transactions involving the Company, in which any director, executive officer or any member of their immediate family had any material interest are as set out below. Witteck Development Inc. ("Witteck"), a private Ontario, Canada corporation, was wholly-owned by Margaret K. Witte, a director and the Chairman, Chief Executive Officer and President of the Company. Ms. Witte was a director and the sole officer of Witteck. Witteck's only asset consisted of 1,924,816 common shares of the Company. Pursuant to the terms of an agreement dated April 28, 1995, the Company acquired all of the outstanding shares of Witteck in exchange for 1,924,816 common shares of the Company. The common shares of the Company owned by Witteck will be disposed of by Witteck within five years of the acquisition of Witteck by the Company in accordance with the requirements of the Business Corporations Act (Ontario). The shares of the Company owned by Witteck may not be voted for as long as the shares are owned by Witteck (and such shares are not considered to be outstanding for financial reporting purposes, including the calculation of the Company's earnings per share). All costs and expenses associated with the transaction were paid by Ms. Witte. In addition, Ms. Witte has agreed to indemnify the Company for any and all losses incurred by the Company as a result of the transaction, including any liabilities of Witteck and any costs incurred by the Company in connection with this transaction. The acquisition was approved by the shareholders of the Company on May 31, 1995. The aggregate amount of indebtedness to the Company or its subsidiaries incurred in connection with the purchase of securities of the Company by all present and former officers, directors and employees of the Company outstanding as at June 30, 1996 was US$31,525. The following table sets forth the indebtedness incurred by directors, senior officers and executive officers of the Company for the purchase of securities of the Company: INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS UNDER SECURITIES PURCHASE PROGRAMS
FINANCIALLY AMOUNT ASSISTED INVOLVEMENT LARGEST AMOUNT OUTSTANDING SECURITIES OF ISSUER OUTSTANDING AS OF PURCHASES NAME AND PRINCIPAL POSITION OR SUBSIDIARY(1) DURING 1995(1) JUNE 30, 1996 DURING 1995 - --------------------------------- ------------------ -------------- ------------- ------------- J.R. Smrke, Senior Loan by Subsidiary US$31,525 US$31,525 20,500 shares Vice-President.................
- --------------- (1) Arctic Precious Metals, Inc., a subsidiary of Royal Oak, provided loans to Mr. Smrke. The loans do not bear interest and will be secured by a mortgage on real property owned by Mr. Smrke. The loans are repayable from future bonus amounts earned by Mr. Smrke and from the aggregate net value of any stock options exercised by Mr. Smrke at the rate of one-half of the after-tax value to Mr. Smrke of such amounts. As of June 30, 1996, the aggregate amount of indebtedness to Royal Oak incurred, other than in connection with the purchase of securities of Royal Oak, by all current and former directors, officers and employees of Royal Oak was US$1,080,000. 71 78 The following table sets forth the indebtedness to Royal Oak incurred by the executive officers, senior officers and directors of Royal Oak, other than for the purchase of securities of the Royal Oak: INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS
LARGEST AMOUNT AMOUNT OUTSTANDING INVOLVEMENT OF ISSUER OUTSTANDING DURING AS OF JUNE 30, NAME AND PRINCIPAL POSITION OR SUBSIDIARY 1995 1996 - ---------------------------------------- --------------------- ------------------ ------------------ M.K. Witte.............................. Subsidiary(1) -- US$700,000 Chairman, President and Chief Executive Officer S. El-Alfy.............................. Subsidiary(2) US$100,000 US$97,182 Vice-President, Operations J. Wood................................. Subsidiary(3) US$75,000 US$66,300 Chief Financial Officer J.R. Smrke.............................. Subsidiary(4) US$31,400 US$23,000 Senior Vice-President
- --------------- (1) In 1996, loans were made to Ms. Witte by Arctic Precious Metals, Inc., a subsidiary of Royal Oak. The loans bear interest at prescribed rates, are repayable on demand, provided that the maximum amount repayable in any one year is one third of the principal amount of the loans and will be secured by a mortgage on real property owned by Ms. Witte. Ms. Witte's compensation will be increased to the extent that any interest is paid. (2) In February 1995, a housing loan was made to Mr. El-Alfy by Arctic Precious Metals, Inc., a subsidiary of Royal Oak. The loan does not bear interest and is secured against Mr. El-Alfy's residence. The loan is repayable over a maximum of 10 years from future bonus amounts earned by Mr. El-Alfy and from the aggregate net value of any stock options exercised by Mr. El-Alfy, at the rate of up to one-half of the after-tax value to Mr. El-Alfy of such amounts. (3) In May 1995, a housing loan was made to Mr. Wood by Arctic Precious Metals, Inc. The loan does not bear interest and is secured against Mr. Wood's residence. The loan is repayable over a maximum of ten years from future bonus amounts earned by Mr. Wood and from the aggregate net value of any stock options exercised by Mr. Wood, at the rate of one-half of the after-tax value to Mr. Wood of such amounts. (4) In January 1995, a loan was made to Mr. Smrke by Arctic Precious Metals, Inc. The loan does not bear interest and will be secured by a mortgage on real property owned by Mr. Smrke. The loan is repayable from future bonus amounts earned by Mr. Smrke and from the aggregate net value of any stock options exercised by Mr. Smrke, at the rate of one-half of the after-tax value to Mr. Smrke of such amounts. SECURITY OWNERSHIP To the knowledge of the directors and officers of the Company, no person or corporation beneficially owns, directly or indirectly, or exercises control or direction over shares carrying more than 5% of the voting rights attached to the Company's common shares. The Company's class of common shares is the only class of shares outstanding. DESCRIPTION OF CREDIT FACILITY Currently, the Company has a $28 million unsecured, revolving term credit facility (the "Credit Facility") with The Bank of Nova Scotia ("BNS"). As of August 27, 1996, the Company had outstanding under the Credit Facility letters of credit in the aggregate amount of $1,940,000. The Credit Facility was established for the Company's general corporate purposes, matures on February 14, 1997 and is renewable annually at the discretion of BNS. At the Company's option, loans under the Credit Facility will bear interest at either the lender's prime rate ("Prime Rate Loans"), the lender's base rate ("Base Rate Loans") or the lender's reserve adjusted LIBOR rate ("LIBOR Loans"), plus the applicable margin. The applicable margin for Base Rate Loans and LIBOR Loans is 1/2% and 3/4%, respectively. No margins are applicable to Prime Rate Loans. 72 79 The Credit Facility requires the Company to meet certain financial tests which, among other things, limit the incurrence of additional indebtedness. The Credit Facility contains customary representations, warranties, covenants and events of default, including payment defaults, incorrectness of representations and warranties, covenant defaults, cross-defaults to certain other indebtedness and certain events relating to bankruptcy and insolvency. DESCRIPTION OF EXCHANGE NOTES The Exchange Notes will be issued under the same Indenture, dated as of August 12, 1996, by and among the Company, the Guarantor and Mellon Bank, F.S.B., as Trustee (the "Trustee"), under which the Notes were issued. The following summary of certain provisions of the Indenture, the Exchange Notes and the Guarantee does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the United States Trust Indenture Act of 1939, as amended, (the "TIA") and to all of the provisions of the Indenture (a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part, and is incorporated by reference herein), including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA as in effect on the date of the Indenture. The definitions of certain capitalized terms used in the following summary are set forth under "-- Certain Definitions." The Exchange Notes will be issued in fully registered form only, without coupons, in denominations of US$1,000 and integral multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Exchange Notes. The Company will pay principal (and premium, if any) on the Exchange Notes at the Trustee's corporate office in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered addresses of holders. PRINCIPAL, MATURITY AND INTEREST The Exchange Notes will be general unsecured obligations of the Company limited in aggregate principal amount to US$175,000,000 and will mature on August 15, 2006. Interest on the Exchange Notes will accrue at the rate per annum set forth on the cover page of this Prospectus and will be payable semi-annually on each of February 15 and August 15 in each year commencing on February 15, 1997, to the persons who are registered holders thereof at the close of business on the February 1 and August 1 immediately preceding the applicable interest payment date. Interest on the Exchange Notes will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including the Issue Date. The Company will pay interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate of 2% per annum in excess of the rate shown on the cover page of this Prospectus. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. OPTIONAL REDEMPTION The Exchange Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after August 15, 2001, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on August 15 of the year set forth below, plus, in each case, accrued interest thereon to the date of redemption:
YEAR PERCENTAGE -------------------------------------------------------------------------- ---------- 2001...................................................................... 105.500% 2002...................................................................... 103.667% 2003...................................................................... 101.833% 2004 and thereafter....................................................... 100.000%
73 80 Notwithstanding the foregoing, at any time prior to August 15, 1999, the Company may redeem up to 35% of the aggregate principal amount of the Notes and the Exchange Notes with the net proceeds from one or more Public Equity Offerings of the Company at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on August 15 of the year set forth below, plus, in each case, accrued interest thereon to the date of redemption:
YEAR PERCENTAGE -------------------------------------------------------------------------- ---------- 1996...................................................................... 111.000% 1997...................................................................... 109.778% 1998...................................................................... 108.556%
Any such redemption must occur on or prior to 120 days after the receipt of such net proceeds. In addition, the Notes and the Exchange Notes are redeemable, as a whole but not in part, at the option of the Company at any time upon not less than 30 nor more than 60 days' notice at a redemption price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon to the date of redemption, if the Company has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Notes or Exchange Notes, any additional amounts ("Additional Amounts") as a result of any change in, or amendment to, the laws (or any regulations promulgated thereunder) of Canada (or any political subdivision or taxing authority thereof or therein), or any change in, or amendment to, any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after August 5, 1996. ADDITIONAL AMOUNTS The Indenture provides that if the Company is required to make any withholding or deduction for or on account of any Canadian taxes from any payment made under or with respect to the Exchange Notes, the Company will pay such Additional Amounts as may be necessary so that the net amount received by each holder of the Exchange Notes (including Additional Amounts) will not be less than the amount such holder would have received had such Canadian taxes not been withheld or deducted; provided that no Additional Amounts will be payable with respect to a payment made to a holder (an "Excluded Holder") (i) with which the Company does not deal at arm's length (within the meaning of the Income Tax Act (Canada)) at the time of making such payment, or (ii) which is subject to such Canadian taxes by reason of its being connected with Canada otherwise than by the mere holding of the Exchange Notes or the receipt of payments thereunder. The Company will also (i) make such withholding or deduction and (ii) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. The Company will furnish, within 30 days after the date the payment of any Canadian taxes is due pursuant to applicable law, to the holders of Exchange Notes that are outstanding on the date of the withholding or deduction copies of tax receipts evidencing that such payment has been made by the Company. The Company will indemnify and hold harmless each holder of Exchange Notes that are outstanding on the date of the withholding or deduction (other than an Excluded Holder) and upon written request reimburse each such holder for the amount of (i) any Canadian taxes so levied or imposed and paid by such holder as a result of payments made under or with respect to the Exchange Notes, (ii) any liability (including penalties, interest and expense) arising therefrom or with respect thereto, and (iii) any Canadian taxes imposed with respect to any reimbursement under clause (i) or (ii) above. At least 30 days prior to each date on which any payment under or with respect to the Exchange Notes is due and payable, if the Company becomes obligated to pay Additional Amounts with respect to such payment, the Company will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable, and the amounts so payable and will set forth such other information as is necessary to enable the Trustee to pay such Additional Amounts to the holders of Exchange Notes on the payment date. Whenever in the Indenture there is mentioned, in any context, (a) the payment of principal (and premium, if any), (b) purchase prices in connection with a repurchase of Exchange Notes, (c) interest, or (d) any other amount payable on or with respect to any of the Exchange Notes, such mention shall be deemed to include 74 81 mention of the payment of Additional Amounts provided for in this section to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. For a discussion of the exemption from Canadian withholding taxes applicable to payments under or with respect to the Exchange Notes, see "Certain Income Tax Considerations -- Certain Canadian Federal Income Tax Considerations." If, as a result of a change to Canadian withholding tax laws, the Company has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Notes or the Exchange Notes, any Additional Amounts, the Company may redeem all, but not less than all, the Notes and the Exchange Notes at a redemption price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon to the date of redemption. See "-- Optional Redemption." SINKING FUND There will be no mandatory sinking fund payments for the Exchange Notes. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Exchange Notes are to be redeemed at any time, selection of such Exchange Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Exchange Notes are listed or, if such Exchange Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Exchange Notes of a principal amount of US$1,000 or less shall be redeemed in part. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of Exchange Notes to be redeemed at its registered address. If any Exchange Note is to be redeemed in part only, the notice of redemption that relates to such Exchange Note shall state the portion of the principal amount thereof to be redeemed. A new Exchange Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Exchange Note. On and after the redemption date, interest will cease to accrue on Exchange Notes or portions thereof called for redemption. SUBORDINATION The payment of the principal of, premium, if any, and interest on, the Exchange Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Indebtedness, whether outstanding on the Issue Date or thereafter incurred, including, without limitation, any interest accruing subsequent to a bankruptcy or other similar proceeding whether or not such interest is an allowed claim enforceable against the Company in a bankruptcy case under applicable law. Upon any distribution of assets of the Company of any kind or character, whether in cash, property or securities upon any dissolution, winding up, total or partial liquidation or reorganization of the Company (including, without limitation, in bankruptcy, insolvency, or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of the Company's assets and liabilities), the holders of Senior Indebtedness shall first be entitled to receive payment in full of all amounts payable under Senior Indebtedness (including, without limitation, interest after the commencement of any such proceeding at the rate specified in the applicable Senior Indebtedness whether or not interest is an allowed claim enforceable against the Company in any such proceeding) before the holders will be entitled to receive any payment with respect to the Exchange Notes, and until all Obligations with respect to Senior Indebtedness are paid in full, any distribution to which the holders would be entitled shall be made to the holders of Senior Indebtedness. No direct or indirect payment by or on behalf of the Company of principal of, premium, if any, or interest on, the Exchange Notes whether pursuant to the terms of the Exchange Notes or upon acceleration or otherwise shall be made if, at the time of such payment, there exists a default in the payment of all or any portion of principal of, premium, if any, or interest on, any Senior Indebtedness with a principal amount in excess of US$5.0 million (and the Trustee has received written notice thereof), and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of Senior 75 82 Indebtedness. In addition, during the continuance of any other event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated, upon the occurrence of (a) receipt by the Trustee of written notice from the holders of a majority of the outstanding principal amount of the Designated Senior Indebtedness or their representative, or (b) if such event of default results from the acceleration of the Exchange Notes, the date of such acceleration, no such payment may be made by the Company upon or in respect of the Exchange Notes for a period ("Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 179 days thereafter (unless such Payment Blockage Period shall be terminated by written notice to the Trustee from the holders of a majority of the outstanding principal amount of such Designated Senior Indebtedness or their representative who delivered such notice). Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 179 days from the date on which such Payment Blockage Period was commenced. Not more than one Payment Blockage Period may be commenced with respect to the Exchange Notes during any period of 360 consecutive days. For all purposes of this paragraph, no event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the holders of such Designated Senior Indebtedness or their representative whether or not within a period of 360 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. In the event that, notwithstanding the foregoing, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the holders of the Exchange Notes or any Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment or distribution shall be segregated or held in trust) on account of principal of, premium, if any, or interest on, the Exchange Notes before all Senior Indebtedness is paid in full, such payment or distribution shall be received and held in trust by the Trustee or such holder or Paying Agent for the benefit of the holders of the Senior Indebtedness, or their respective representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, and shall be paid over or delivered to the holders of the Senior Indebtedness remaining unpaid to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid after giving effect to all concurrent payments and distributions to or for the holders of such Senior Indebtedness. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, holders of the Exchange Notes may recover less ratably than creditors of the Company who are holders of Senior Indebtedness or trade creditors. The Indenture limits, subject to certain financial tests, the amount of additional Indebtedness, including Senior Indebtedness, that the Company and its Subsidiaries can incur. See "-- Certain Covenants -- Limitation on Indebtedness." SUBSIDIARY GUARANTEE Each Guarantor unconditionally guarantees, jointly and severally, on a senior subordinated basis to each Holder and the Trustee, the full and prompt performance of the Company's obligations under the Indenture and the Exchange Notes, including the payment of principal of, and interest on, the Exchange Notes. As of the date of this Prospectus, there is a single Guarantor, Kemess Mines Inc., a wholly owned subsidiary of the Company. The obligations of each Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount, based on the net assets of each Guarantor, determined in accordance with GAAP. Each Guarantor may consolidate with or merge into or sell its assets to the Company or another Guarantor that is a wholly owned Restricted Subsidiary of the Company without limitation, or with other Persons upon the terms and conditions set forth in the Indenture. See "-- Certain Covenants -- Mergers, 76 83 Consolidations and Sale of Assets." In the event all of the capital stock of a Guarantor is sold by the Company and the sale complies with the provisions set forth in "-- Certain Covenants -- Limitation on Sale of Assets," the Guarantor's Guarantee will be released. Separate financial statements of the Guarantor are not included herein because the aggregate net assets, earnings and equity of the Guarantor and the Company are substantially equivalent to the net assets, earnings and equity of the Company on a consolidated basis. CHANGE OF CONTROL The Indenture provides that upon the occurrence of a Change of Control Triggering Event, the Company will be required to offer to repurchase (the "Change of Control Offer") all of the outstanding Notes and Exchange Notes pursuant to the offer described below, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. Within 30 days following the date upon which the Change of Control Triggering Event occurred, the Company must send, by first class mail, a notice to each holder of Exchange Notes, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice will state, among other things, the purchase date, which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). The Change of Control Offer is required to remain open for at least 20 Business Days and until the close of business on the Change of Control Payment Date. A Change of Control Triggering Event requires both the occurrence of a Change of Control and a Rating Event. A Rating Event will occur if the rating on the Notes or Exchange Notes is downgraded by one or more Gradations at any time within a specified 90-day period (subject to extension under certain circumstances). See "-- Certain Definitions -- Change of Control," "-- Certain Definitions -- Change of Control Triggering Event" and "-- Certain Definitions - -- Rating Event." If a Change of Control Triggering Event were to occur, there can be no assurance that the Company would have sufficient funds to pay the repurchase price for all Notes and Exchange Notes that the Company is required to repurchase. In the event that the Company were required to repurchase outstanding Notes and Exchange Notes pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its repurchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. If an offer is made to repurchase the Notes and Exchange Notes pursuant to a Change of Control Offer, the Company will comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. CERTAIN COVENANTS The Indenture contains, among others, the following covenants. Limitation on Indebtedness. (a) The Indenture provides that neither the Company nor any of its Restricted Subsidiaries will, directly or indirectly, Incur any Indebtedness, including, without limitation, any Acquired Indebtedness (other than Permitted Indebtedness). (b) Notwithstanding the foregoing limitations, in addition to Permitted Indebtedness, the Company may Incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may Incur Acquired Indebtedness, in each case, if (i) no Default or Event of Default shall have occurred and be continuing on the date of the proposed Incurrence thereof or would result as a consequence of such proposed Incurrence and (ii) immediately after giving effect to such proposed Incurrence, (x) the Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.0 to 1.0 if such proposed Incurrence is on or prior to December 31, 1998, at least equal to 2.5 to 1.0 if such proposed Incurrence is after December 31, 1998 and on or prior to December 31, 1999, and at least equal to 2.75 to 1.0 if such proposed 77 84 Incurrence occurs after December 31, 1999 and (y) the Adjusted Consolidated Net Tangible Assets of the Company are at least equal to 150% of the aggregate consolidated Indebtedness of the Company. (c) The Company will not, directly or indirectly, in any event Incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of the Company ranking pari passu with the Notes or the Exchange Notes unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Notes and the Exchange Notes to the same extent and in the same manner as such Indebtedness is subordinated to such pari passu Indebtedness pursuant to the subordination provisions that are most favorable to the holders of any such pari passu Indebtedness of the Company. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes, the Exchange Notes, the Indenture and the Guarantee; (ii) Commodity Agreements of the Company; provided, however, that such Commodity Agreements are entered into to reduce the exposure of the Company and its Restricted Subsidiaries to fluctuations in the prices of commodities, in each case consistent with past practice of the Company; (iii) Interest Swap Obligations and Foreign Exchange Obligations of the Company; provided, however, that such Interest Swap Obligations and Foreign Exchange Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest or exchange rates on Indebtedness Incurred in accordance with the Indenture to the extent the notional principal amount of such Interest Swap Obligation or Foreign Exchange Obligation does not exceed the principal amount of the Indebtedness to which such Obligation relates; and provided, further, that the Company may enter into Foreign Exchange Obligations to protect the Company and its Restricted Subsidiaries from fluctuations in exchange rates related to the operating costs of the Company and its Restricted Subsidiaries, in each case consistent with past practice of the Company; (iv) Indebtedness under the Working Capital Facility not to exceed $28 million, less any amounts repaid from Net Cash Proceeds pursuant to the "Limitation on Asset Sales" covenant; (v) Capitalized Lease Obligations and Purchase Money Obligations of the Company or any Restricted Subsidiary not to exceed US$20 million outstanding at any one time; (vi) additional Indebtedness Incurred by the Company not to exceed US$25 million outstanding at any time; (vii) Indebtedness of a direct or indirect Restricted Subsidiary of the Company to the Company or to a direct or indirect wholly owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a direct or indirect wholly owned Restricted Subsidiary of the Company in each case subject to no Lien held by a Person other than the Company or a direct or indirect wholly owned Restricted Subsidiary of the Company; provided that if as of any date any Person other than the Company or a direct or indirect wholly owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the Incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (viii) Indebtedness of the Company to a direct or indirect wholly owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a direct or indirect wholly owned Restricted Subsidiary of the company in each case subject to no Lien; provided that (a) any Indebtedness of the Company to any direct or indirect Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Indenture and the Exchange Notes, and (b) if as of any date any Person other than a direct or indirect wholly owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the Incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (viii) by the issuer of such Indebtedness; 78 85 (ix) guarantees by Restricted Subsidiaries of the Company of Indebtedness of the Company (other than Permitted Indebtedness) Incurred on or after the Issue Date; provided that such Indebtedness was Incurred in compliance with the covenant " -- Limitation on Indebtedness"; and (x) Refinancing Indebtedness. Limitation on Restricted Payments. The Indenture provides that neither the Company nor any of its Restricted Subsidiaries will, directly or indirectly (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable solely in Qualified Capital Stock of the Company) on shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company, or any warrants, rights or options to acquire shares of any class of such Capital Stock, other than through the exchange therefor solely of Qualified Capital Stock of the Company or warrants, rights or options to acquire Qualified Capital Stock of the Company, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes or the Exchange Notes or (d) make any Investment (other than Permitted Investments) in any Person (each of the foregoing prohibited actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such proposed Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default has occurred and is continuing or would result therefrom, or (ii) the Company is not able to Incur at least US$1.00 of additional Indebtedness in accordance with paragraph (b) of "-- Limitation on Indebtedness" above (as if such Restricted Payment had been made as of the last day of the Four Quarter Period), or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the board of directors of the Company) exceeds or would exceed the sum of: (x) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company during the period (treating such period as a single accounting period) subsequent to the Issue Date and prior to the date of the making of such Restricted Payment; and (y) 100% of the aggregate Net Equity Proceeds received by the Company from any Person (other than from a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (A) any Qualified Capital Stock of the Company paid as a dividend on any Capital Stock of the Company and (B) any Qualified Capital Stock of the Company with respect to which the purchase price thereof has been financed directly or indirectly using funds (i) borrowed from the Company or from any of its Subsidiaries, unless and until and to the extent such borrowing is repaid, or (ii) contributed, extended, guaranteed or advanced by the Company or by any of its Subsidiaries (including, without limitation, in respect of any employee stock ownership or benefit plan)). Notwithstanding the foregoing, these provisions do not prohibit: (1) the payment of any dividend or making of any distribution within 60 days after the date of its declaration if the dividend or distribution would have been permitted on the date of declaration; (2) the acquisition of Capital Stock of the Company or warrants, rights or options to acquire Capital Stock of the Company either (i) solely in exchange for shares of Qualified Capital Stock of the Company or warrants, rights or options to acquire Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company or warrants, rights or options to acquire Qualified Capital Stock of the Company; and (3) the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes and the Exchange Notes either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company or warrants, rights or options to acquire Qualified Capital Stock of the Company or (B) Refinancing Indebtedness; provided, however, that in the case of clauses (2) and (3) of this paragraph, no Default or Event of Default shall have occurred and be continuing at the time of such payment or as a result thereof. In determining the aggregate amount of Restricted Payments 79 86 made subsequent to the Issue Date, amounts expended pursuant to clauses (1) and (2) shall, in each case, be included in such calculation. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment complies with the Indenture and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon the Company's latest available internal quarterly financial statements. Limitation on Sale of Assets. Neither the Company nor any of its Restricted Subsidiaries will consummate any Asset Sale unless (i) such Asset Sale is for at least fair market value, (ii) at least 85% of the consideration therefrom received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents, and (iii) the Company or such Subsidiary shall apply the Net Cash Proceeds of such Asset Sale within 180 days of receipt thereof as follows: (a) to repay any Indebtedness secured by the assets involved in such Asset Sale together with a concomitant permanent reduction in the amount of such Indebtedness (including a permanent reduction in committed amounts therefor in the case of any revolving credit facility so repaid); and (b) with respect to any Net Cash Proceeds remaining after application pursuant to the preceding paragraph (a) (the "Available Proceeds Amount"), the Company shall make an offer to purchase (the "Asset Sale Offer") from all holders of Notes and Exchange Notes up to a maximum principal amount (expressed as an integral multiple of US$1,000) of Notes and Exchange Notes equal to the Available Proceeds Amount at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, that the Company will not be required to apply pursuant to this paragraph (b) Net Cash Proceeds received from any Asset Sale if, and only to the extent that, such Net Cash Proceeds are (i) applied to or invested in Mining Related Assets, within 180 days of such Asset Sale or (ii) applied on or prior to the date of such Asset Sale, to the purchase, redemption, payment or other permanent reduction of then outstanding Senior Indebtedness. If at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this "Limitation on Sale of Assets" covenant. The Company may defer the Asset Sale Offer until there is an aggregate unutilized Available Proceeds Amount equal to or in excess of US$10 million resulting from one or more Asset Sales (at which time, the entire unutilized Available Proceeds Amount, and not just the amount in excess of US$10 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "-- Mergers, Consolidations and Sale of Assets," the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Notice of an Asset Sale Offer will be mailed to the holders of Exchange Notes as shown on the register of such holders not less than 30 days nor more than 60 days before the payment date for the Asset Sale Offer, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Asset Sale Offer, such holders may elect to tender their Exchange Notes in whole or in part in integral multiples of US$1,000 principal amount at maturity in exchange for cash. To the extent holders thereof properly tender Exchange Notes and Notes in an amount exceeding the Available Proceeds Amount, Exchange Notes and Notes of such tendering holders will be repurchased on a pro rata basis (based on the aggregate amount tendered). An Asset Sale Offer shall remain open for a period of 20 Business Days or such longer periods as may be required by law. 80 87 Notwithstanding the foregoing, the Company shall not be obligated to purchase Notes or Exchange Notes pursuant to an Asset Sale Offer on or prior to the fifth anniversary of the Issue Date to the extent that such purchase would result in the aggregate of the principal amount of Exchange Notes and Notes purchased pursuant thereto or prior thereto being in excess of 25% of the principal amount of Notes originally issued; provided, however, that to the extent that the Available Proceeds Amount is not required to be applied to purchase Exchange Notes or Notes pursuant to an Asset Sale Offer, the Company shall apply such proceeds to make an Asset Sale Offer immediately after the fifth anniversary of the Issue Date. The Company has no present intention to trigger an Asset Sale Offer on or prior to the fifth anniversary of the Issue Date which would result in a purchase of the aggregate of the principal amount of Exchange Notes and Notes purchased pursuant thereto or prior thereto being in excess of 25% of the principal amount of Notes originally issued. If an offer is made to repurchase the Exchange Notes or Notes pursuant to an Asset Sale Offer, the Company will and will cause its Subsidiaries to comply with all tender offer rules under state and federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Indenture provides that neither the Company nor any of its Restricted Subsidiaries will, directly or indirectly, create or otherwise cause or permit or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock; (b) make loans or advances or pay any Indebtedness or other obligation owed to the Company or to any Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or to any Restricted Subsidiary of the Company (each such encumbrance or restriction in clause (a), (b), or (c) a "Payment Restriction"), except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment provisions of any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness Incurred in accordance with paragraph (b) of the covenant "-- Limitation on Indebtedness," provided that such encumbrance or restriction is not, and will not be, applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or asset of the Person, becoming a Restricted Subsidiary of the Company; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) restrictions imposed by Liens granted pursuant to clauses (v) and (vii) - (ix) of the definition of Permitted Liens solely to the extent such Liens encumber the transfer or other disposition of the assets subject to such Liens; (7) any restriction or encumbrance contained in contracts for the sale of assets to be consummated in accordance with the Indenture solely in respect of the assets to be sold pursuant to such contract; or (8) any encumbrance or restriction contained in Refinancing Indebtedness Incurred to Refinance the Indebtedness issued, assumed or Incurred pursuant to an agreement referred to in clause (2), (4) or (5) above; provided that the provisions relating to such encumbrance or restriction contained in any such Refinancing Indebtedness are no less favorable to the Company or to the holders of Exchange Notes and Notes in any material respect in the reasonable and good faith judgment of the board of directors of the Company than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4) or (5). Limitation on Preferred Stock of Restricted Subsidiaries. The Indenture provides that the Company will not cause or permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a wholly owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a wholly owned Restricted Subsidiary of the Company) to own or hold any Preferred Stock of any Restricted Subsidiary of the Company or any Lien or security interest therein. Limitation on Liens. The Indenture provides that the Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist or remain in effect any Liens (other than Permitted Liens) upon any properties or assets of the Company or of any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or on any income or profits therefrom, or assign or otherwise convey any right to receive income or profits thereon; provided that in addition to creating Permitted Liens on its properties or assets, (i) the Company may create any Lien upon any of its properties or assets (including, but not limited to, any Capital Stock of its 81 88 Subsidiaries) if the Notes and the Exchange Notes are equally and ratably secured thereby, and (ii) a Guarantor may create any Lien upon any of its properties or assets (including, but not limited to, any Capital Stock of its Subsidiaries) if its Subsidiary Guarantee is equally and ratably secured thereby; and provided, further, that if (a) the Company creates any Lien on its assets to secure any Indebtedness of the Company subordinated to the Notes and the Exchange Notes, the Lien securing such Indebtedness shall be subordinated and junior to the Lien securing the Notes and the Exchange Notes with the same or lesser priorities as the subordinated Indebtedness shall have with respect to the Notes and the Exchange Notes, and (b) a Guarantor creates any Lien on its assets to secure any Indebtedness of such Guarantor subordinated to the Notes and the Exchange Notes, the Lien securing such subordinated Indebtedness shall be subordinated and junior to the Lien securing the Guarantee of such Guarantor with the same or lesser priorities as the subordinated Indebtedness shall have with respect to the Guarantee. Mergers, Consolidations and Sale of Assets. The Indenture provides that the Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia or Canada or any province thereof and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the Exchange Notes and the performance of every covenant of the Notes and the Exchange Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness Incurred or anticipated to be Incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction and (2) shall be able to Incur at least US$1.00 of additional Indebtedness pursuant to paragraph (b) of " -- Limitation on Indebtedness"; provided that in determining the Consolidated Fixed Charge Coverage Ratio of the resulting, transferee or surviving Person, such ratio shall be calculated as if the transaction (including the Incurrence of any Indebtedness or Acquired Indebtedness) took place on the first day of the Four Quarter Period; (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness Incurred or anticipated to be Incurred and any Lien granted in connection with or in respect of the transaction), no Default and no Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied, which Opinion of Counsel may rely, as to factual matters, upon an Officer's Certificate. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. 82 89 Upon any such consolidation, merger, conveyance, lease or transfer in accordance with the foregoing, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under the Indenture, the Notes and the Exchange Notes. Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction complying with the provisions of " -- Limitation on Sale of Assets") will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantors unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor), or to which sale, lease, conveyance or other disposition shall have been made, is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia, or under the laws of Canada or any province thereof; (ii) such entity assumes by supplemental indenture all of the obligations of the Guarantor on the Guarantee; (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iv) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Company could satisfy the provisions of clause (ii) of the first paragraph of this covenant. Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a wholly owned Restricted Subsidiary of the Company need only comply with clause (iv) of the first paragraph of this covenant. Limitation on Transactions with Affiliates. The Indenture provides that neither the Company nor any Subsidiary of the Company will conduct any business or enter into any transaction or series of transactions with or for the benefit of any of their Affiliates (each an "Affiliate Transaction"), except in good faith and on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those that could have been obtained in a comparable transaction on an arm's-length basis from a Person not an Affiliate of the Company or such Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of US$5 million shall be approved by the board of directors of the Company, such approval to be evidenced by a Board Resolution stating that such board of directors has determined that such transaction complies with the foregoing provisions. If the Company or any Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than US$15 million, the Company or such Subsidiary shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to customary directors' fees, indemnification and similar arrangements. Additional Subsidiary Guarantees. The Indenture provides that in the event that any Subsidiary, directly or indirectly, guarantees any Indebtedness of the Company other than the Notes or the Exchange Notes (the "Other Indebtedness") the Company shall cause such Subsidiary (an "Additional Guarantor") to concurrently guarantee (an "Additional Guarantee") the Company's Obligations under the Indenture, the Notes and the Exchange Notes to the same extent that such Subsidiary guaranteed the Company's Obligations under the Other Indebtedness (including waiver of subrogation, if any); provided that if such Other Indebtedness is (i) Senior Indebtedness, the Additional Guarantee shall be subordinated in right of payment to the guarantee of such Other Indebtedness on the same basis that the Notes and the Exchange Notes are subordinated to such Other Indebtedness, (ii) pari passu Indebtedness, the Additional Guarantee shall be pari passu in right of payment to the guarantee of such Other Indebtedness or (iii) subordinated Indebtedness, the Additional Guarantee shall be senior in right of payment with respect to the guarantee of the Other Indebtedness, provided, however, that each Additional Guarantor will be automatically and 83 90 unconditionally released and discharged from its obligations under such Additional Guarantee upon the release or discharge of the guarantee of the Other Indebtedness that resulted in the creation of such Additional Guarantee, except (i) a discharge or release by, or as a result of, any payment under the guarantee of such Other Indebtedness by such Additional Guarantor or (ii) a discharge or release of an initial Guarantee. Limitation on Conduct of Business. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, engage in the conduct of any business other than the Mining Business on a basis congruent with the conduct of such business as conducted on the Issue Date. Senior Subordinated Indebtedness. The Company shall not incur or suffer to exist any Indebtedness that is senior in right of payment to the Exchange Notes and subordinate in right of payment to any other Indebtedness of the Company. Reports to Holders. The Company will file with the Commission all information, documents and reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company is then subject to such filing requirements. The Company will file with the Trustee, within 15 days after it files them with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company files with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Regardless of whether the Company is required to furnish such reports to its stockholders pursuant to the Exchange Act, the Company will cause its consolidated financial statements, comparable to that which would have been required to appear in annual or quarterly reports, to be delivered to the Trustee and the holders of the Exchange Notes. The Company will also make such reports available to prospective investors, securities analysts and broker-dealers upon their request. In addition, the Indenture requires that the Company provide on request to any holder of the Exchange Notes any information reasonably requested concerning the Company necessary to permit such holder to sell or transfer Exchange Notes in compliance with Rule 144A under the Securities Act. EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (i) the failure to pay interest on any Note or Exchange Note for a period of 30 days or more after such interest becomes due and payable; or (ii) the failure to pay the principal on any Note or Exchange Note, when such principal becomes due and payable, at maturity, upon redemption, pursuant to an Asset Sale Offer or a Change of Control Offer or otherwise; or (iii) (x) the failure of the Company or any Guarantor to comply with any of the terms or provisions described under "-- Certain Covenants -- Mergers, Consolidations and Sale of Assets" or (y) a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 30 days after the Company receives written notice specifying the default from the Trustee or from Holders of at least 25% in aggregate principal amount of outstanding Notes and Exchange Notes; or (iv) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or of any Restricted Subsidiary of the Company (or the payment of which is guaranteed by the Company or any Restricted Subsidiary of the Company) which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness after any applicable grace period provided in such Indebtedness on the date of such default (a "payment default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates US$10 million; or 84 91 (v) one or more judgments in an aggregate amount in excess of US$10 million (which are not covered by third-party insurance as to which a financially sound insurer has not disclaimed coverage) being rendered against the Company or any of its Subsidiaries and such judgments remain undischarged, or unstayed or unsatisfied for a period of 60 days after such judgment or judgments become final and non-appealable; or (vi) certain events of bankruptcy, insolvency or reorganization affecting the Company or any of its Restricted Subsidiaries; or (vii) any of the Guarantees cease to be in full force and effect or any of the Guarantees are declared to be null and void and unenforceable or any of the Guarantees are found to be invalid or any of the Guarantors denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture). If an Event of Default (other than an Event of Default specified in clause (vi) above with respect to the Company) occurs and is continuing, then and in every such case the Trustee or the holders of not less than 25% in aggregate principal amount of the then outstanding Notes and Exchange Notes may declare the unpaid principal of, premium, if any, and accrued and unpaid interest on, all the Notes and Exchange Notes then outstanding to be due and payable, by a notice in writing to the Company (and to the Trustee, if given by such holders) and upon such declaration such principal amount, premium, if any, and accrued and unpaid interest will become immediately due and payable. If an Event of Default with respect to the Company specified in clause (vi) above occurs, all unpaid principal of, and premium, if any, and accrued and unpaid interest on, the Notes and Exchange Notes then outstanding will ipso facto become due and payable without any declaration or other act on the part of the Trustee or any such holder. The holders of a majority in aggregate principal amount of the Notes and Exchange Notes then outstanding by notice to the Trustee may rescind an acceleration and its consequences if all existing Events of Default (other than the nonpayment of principal of and premium, if any, and interest on the Notes and Exchange Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The holders of a majority in aggregate principal amount of the Notes and Exchange Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a Default in the payment of the principal of or interest on any Notes or Exchange Notes or a Default in respect of any term or provision of the Notes or Exchange Notes or the Indenture that cannot be modified or amended without the consent of all holders. Holders of the Exchange Notes may not enforce the Indenture or the Exchange Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the holders of the Exchange Notes, unless such holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the holders of a majority in aggregate principal amount of the then outstanding Notes and Exchange Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. Under the Indenture, the Company is required to provide an Officers' Certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. DEFEASANCE The Indenture provides that the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors discharged in accordance with the provisions set forth below with respect to the Exchange Notes then outstanding. Such defeasance means that the Company shall be deemed to have 85 92 paid and discharged the entire indebtedness represented by such outstanding Exchange Notes and the Company and the Guarantors shall be deemed to have satisfied all their respective other obligations under the Exchange Notes, the Guarantees and the Indenture, except for (i) the rights of holders of such outstanding Exchange Notes to receive payments in respect of the principal of, premium, if any, and interest on such Exchange Notes when such payments are due, (ii) the Company's and the Guarantors' respective obligations with respect to the Exchange Notes concerning issuing temporary Exchange Notes, registration of Exchange Notes, mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the respective obligations of the Company and the Guarantors released with respect to certain covenants in the Indenture ("covenant defeasance"), and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Exchange Notes. In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes and Exchange Notes, cash in U.S. dollars, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on such outstanding Notes and Exchange Notes on the stated maturity of such principal and each installment of interest; (ii) in the case of defeasance, the Company shall have delivered to the Trustee an opinion of counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Notes and Exchange Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (iii) in the case of covenant defeasance, the Company shall have delivered to the Trustee an opinion of counsel to the effect that the holders of the outstanding Notes and Exchange Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (v) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, the Indenture or any other material agreement or instrument to which the Company is a party or by default under, the Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound; (vi) in the case of defeasance or covenant defeasance, the Company shall have delivered to the Trustee an opinion of counsel to the effect that, assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar law affecting creditors' rights generally and that such defeasance or covenant defeasance will not result in the Trustee or the trust arising from such deposit constituting an Investment Company as defined in the Investment Company Act of 1940, as amended; and (vii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent provided for relating to either the defeasance or the covenant defeasance, as the case may be, have been complied with. MODIFICATION OF THE INDENTURE From time to time, the Company and the Trustee, without the consent of the holders of the Notes or Exchange Notes, may amend the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any of such holders. In formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an Opinion of Counsel. Other modifications and amendments of the Indenture may be made with the consent of the holders of a majority in aggregate principal amount of the then outstanding Notes and Exchange Notes issued under the Indenture, except that, without the consent of each holder of Notes or Exchange Notes affected thereby, no amendment 86 93 may, directly or indirectly: (i) reduce the amount of Notes or Exchange Notes whose Holders must consent to an amendment; (ii) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Notes or Exchange Notes; (iii) reduce the principal of or change the fixed maturity of any Notes or Exchange Notes, or change the date on which any Notes or Exchange Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Notes or Exchange Notes payable in money other than that stated in such Notes or Exchange Notes; (v) make any change in provisions of the Indenture protecting the right of each holder of Notes or Exchange Notes to receive payment of principal of and interest on such Notes or Exchange Notes on or after the due date thereof or to bring suit to enforce such payment, or permitting holders of a majority in aggregate principal amount of the Notes and Exchange Notes to waive Defaults or Events of Default; (vi) amend, modify or change the obligation of the Company to make or consummate a Change of Control Offer, an Asset Sale Offer or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offers; (vii) adversely affect the ranking of the Notes, Exchange Notes or the corresponding Guarantees; or (viii) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the terms of the Indenture. GOVERNING LAW The Indenture provides that it and the Exchange Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person s own affairs. The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "Acquired Indebtedness" of any Person means Indebtedness of another Person and any of its Subsidiaries existing at the time such other Person becomes a Restricted Subsidiary of such Person or at the time it merges or consolidates with such Person or any of such Person's Restricted Subsidiaries or is assumed by such Person or any Restricted Subsidiary of such Person in connection with the acquisition of assets from such other Person and in each case not Incurred by such Person or any Restricted Subsidiary of such Person or such other Person in connection with, or in anticipation or contemplation of, such other Person becoming a Restricted Subsidiary of such Person or such acquisition, merger or consolidation, and which Indebtedness is without recourse to the Company or any of its Restricted Subsidiaries or to any of their respective properties or assets other than the Person or the assets to which such Indebtedness related prior to the time such Person becomes a Restricted Subsidiary of the Company or the time of such acquisition, merger or consolidation. "Adjusted Consolidated Net Tangible Assets" means the total amount of consolidated assets of the Company and its Restricted Subsidiaries (net of applicable depletion, depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups of capital assets (excluding write-ups in 87 94 connection with accounting for acquisitions in conformity with GAAP), after deducting therefrom (i) all current liabilities of the Company and its Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries, prepared in conformity with GAAP. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Affiliate Transaction" has the meaning set forth in "-- Certain Covenants - -- Limitation on Transactions with Affiliates." "Asset Acquisition" means (i) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or shall be merged with or into the Company or any Restricted Subsidiary of the Company or (ii) the acquisition by the Company or any Restricted Subsidiary of the Company of assets of any Person comprising a division or line of business of such Person. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease, assignment or other transfer for value by the Company or by any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than to the Company or to a direct or indirect wholly owned Restricted Subsidiary of the Company of (i) any Capital Stock of any Restricted Subsidiary of the Company or (ii) any other property or assets of the Company or of any Restricted Subsidiary of the Company, other than with respect to this clause (ii) any disposition of mineral products for value in the ordinary course of business. "Asset Sale Offer" has the meaning set forth in "-- Certain Covenants -- Limitation on Sale of Assets." "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the board of directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, Sunday or any other day on which banking institutions in the City of New York are required or authorized by law or other governmental action to be closed. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. The stated maturity of such obligations shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or Canadian Government or issued by any agency thereof and backed by the full faith and credit of the United States or Canada, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof or any province of Canada or any political subdivision of any such province or any public instrumentality thereof maturing within one year 88 95 from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or Canada or any province thereof or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than US$250 million; and (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above. "Change of Control" means the occurrence of one or more of the following events (whether or not approved by the board of directors of the Company): (i) the Company or any of its Restricted Subsidiaries, directly or indirectly, sells, assigns, conveys, transfers, leases or otherwise disposes of, in one transaction or a series of related transactions, all or substantially all of the property or assets of the Company and its Restricted Subsidiaries (determined on a consolidated basis) to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act other than the Company or a Person which is a Restricted Subsidiary (a "Group of Persons"); or (ii) the adoption of any plan of liquidation or dissolution of the Company; or (iii) any Person or Group of Persons is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the Voting Stock of the Company; or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. See "Risk Factors -- Change of Control." "Change of Control Triggering Event" means the occurrence of both a Change of Control and a Rating Event. "Commodity Agreement" of any Person means any option or futures contract or similar agreement or arrangement. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income plus (ii) to the extent that any of the following shall have been taken into account in determining Consolidated Net Income, (A) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or non-recurring gains or losses or taxes attributable to sales or dispositions of assets outside the ordinary course of business), Consolidated Interest Expense, amortization expense and depreciation expense, and (B) other non-cash items (other than non-cash interest) reducing Consolidated Net Income, other than any non-cash item which requires the accrual of or a reserve for cash charges for any future period and other than any non-cash charge constituting an extraordinary item of loss, less other non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in conformity with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction or event giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the Incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any Incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the Incurrence or repayment of Indebtedness in the ordinary course of business for 89 96 working capital purposes pursuant to working capital facilities, at any time subsequent to the first day of the Four Quarter Period and on or prior to the Transaction Date, as if such Incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of any such Asset Acquisition) Incurring, assuming or otherwise being liable for Acquired Indebtedness at any time subsequent to the first day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the Incurrence, assumption or liability for any such Indebtedness or Acquired Indebtedness) and also including any Consolidated EBITDA associated with such Asset Acquisition) occurred on the first day of the Four Quarter Period; provided that the Consolidated EBITDA of any Person acquired shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income." If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third person, the preceding sentence shall give effect to the Incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly Incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the Transaction Date (including Indebtedness actually Incurred on the Transaction Date) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense (including amortization or write-off of deferred financing costs of such Person and its consolidated Restricted Subsidiaries during such period and any premium or penalty paid in connection with redeeming or retiring Indebtedness of such Person and its consolidated Restricted Subsidiaries prior to the stated maturity thereof pursuant to the agreements governing such Indebtedness) and (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Common Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person for any period, the aggregate of the interest expense (without deduction of interest income) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP, and including (a) all amortization of original issue discount; (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period; (c) net cash costs under all Interest Swap Obligations (including amortization of fees); (d) all capitalized interest; and (e) the interest portion of any deferred payment obligations for such period. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains from Asset Sales or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or non-recurring gains, (c) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, (d) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a wholly owned Restricted 90 97 Subsidiary of the referent Person by such Person, (f) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), and (h) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person and its consolidated Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person. "Continuing Director" means, as of the date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for election or elected to such Board of Directors with the affirmative vote of a majority of the Continuing Directors who were members of such Board at the time of such election or nomination; provided, however, that in the event of a business combination involving the Company, by merger or consolidation or otherwise, from the time of effectiveness of such business combination until the next annual general meeting of the shareholders of the surviving entity, Continuing Directors shall only be directors of the Company not elected in anticipation of, or in connection with, any such transaction who are also directors of the surviving entity. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Designated Senior Debt" means Indebtedness constituting Senior Indebtedness which, at the time of designation, has an aggregate principal amount of at least US$25 million and is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company. "Disqualified Capital Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, in whole or in part, on or prior to the final maturity date of the Exchange Notes. "Events of Default" has the meaning set forth in "Events of Default." "Exchange Act" means the Securities Exchange Act of 1934, as amended or any successor statute or statutes thereto. "fair market value" or "fair value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between an informed and willing seller and an informed and willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the board of directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution delivered to the Trustee; provided, however, that if the aggregate non-cash consideration to be received by the Company or any of its Restricted Subsidiaries from any Asset Sale could be reasonably likely to exceed US$15 million the fair market value shall be determined by an Independent Financial Advisor. "Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable and good faith judgment of the board of directors of the Company, qualified to perform the task for which such firm has been engaged. "Foreign Exchange Obligations" means the obligations of any Person under any foreign currency future, option, swap or cap or other foreign currency hedge or arrangement. "Four Quarter Period" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio." 91 98 "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Gradation" means a gradation within a Rating Category, which shall be "+" and "-", in the case of S&P's current Rating Categories (e.g., a decline from BB+ to BB would constitute a decrease of one gradation); "1", "2" and "3", in the case of Moody's current Rating Categories (e.g., a decline from B1 to B2 would constitute a decrease of one gradation); or the equivalent in respect of successor Rating Categories of S&P or Moody's or Rating Categories used by Rating Agencies other than S&P and Moody's. "Guarantor" means (i) Kemess Mines Inc. and (ii) each of the Company's Subsidiaries that in the future executes a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture. "Holder" or "Noteholder" means the Person in whose name a Note or Exchange Note is registered on the Registrar's books. "Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the initial recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings correlative to the foregoing); provided, however, that (A) any Indebtedness assumed in connection with an acquisition of assets and any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the Company or at the time such Person is merged or consolidated with the Company or any Restricted Subsidiary of the Company shall be deemed to be Incurred at the time of the acquisition of such assets or by such Restricted Subsidiary at the time it becomes, or is merged or consolidated with, a Restricted Subsidiary of the Company or by the Company at the time of such merger or consolidation, as the case may be, and (B) any amendment, modification or waiver of any document pursuant to which Indebtedness was previously Incurred shall be deemed to be an Incurrence of Indebtedness unless such amendment, modification or waiver does not (i) increase the principal or premium thereof or interest rate thereon (including by way of original issue discount) or (ii) change to an earlier date the stated maturity thereof or the date of any scheduled or required principal payment thereon or the time or circumstances under which such Indebtedness shall be redeemed. "Indebtedness" means, with respect to any Person, any liability of such Person or such Person's Restricted Subsidiaries, without duplication, (i) for borrowed money, (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) for Capitalized Lease Obligations, (iv) issued or assumed as the deferred purchase price of property, all conditional sale obligations and under any title retention agreement (but excluding trade accounts payable and accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted), (v) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) for all Indebtedness of others (including all dividends of other Persons for the payment of which is) guaranteed, directly or indirectly, by such Person or its Restricted Subsidiaries or that is otherwise its legal liability or which such Person or its Restricted Subsidiaries has agreed to purchase or repurchase or in respect of which such Person or its Restricted Subsidiaries has agreed contingently to supply or advance funds, (vii) comprising net liabilities under Interest Swap Obligations and Commodity Agreements, (viii) for all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person or its Restricted Subsidiaries, whether or not such Indebtedness is assumed by such Person or its 92 99 Restricted Subsidiaries or is not otherwise such Person's or its Restricted Subsidiaries' legal liability; provided that if the Obligations so secured have not been assumed by such Person or its Restricted Subsidiaries or are otherwise not such Person's or its Restricted Subsidiaries' legal liability, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the fair market value of the assets or property securing such Lien, and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends if any. The amount of Indebtedness of any Person or its Restricted Subsidiaries at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Independent" means, when used with respect to any specified Person, such a Person who (a) is in fact independent, (b) does not have any direct financial interest or any material indirect financial interest in the Company or any of its Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries and (c) is not an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions for the Company or any of its Subsidiaries. Whenever it is provided in the Indenture that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by the Company and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning thereof. "Interest Swap Obligations" means the obligations of any Person under any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement. "Investment" by any Person means any direct or indirect (i) loan, advance or other extension of credit or capital contribution (by means of transfers of cash or other property (valued at the fair market value thereof as of the date of transfer) to others or payments for property or services for the account or use of others, or otherwise); (ii) purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person; (iii) guarantee or assumption of any Indebtedness or any other obligation of any other Person (except for an assumption of Indebtedness for which the assuming Person receives consideration at the time of such assumption in the form of property or assets with a fair market value at least equal to the principal amount of the Indebtedness assumed); and (iv) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. The amount of any Investment shall not be adjusted for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Subsidiary not sold or disposed of. "Issue Date" means the date of original issuance of the Notes. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any 93 100 jurisdiction other than to reflect ownership by a third party of property leased to the referent Person or any of its Subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement). "Mining Business" means (i) the acquisition, exploration, development, operation and disposition of mineral interests, (ii) the gathering, marketing, treating, processing, storage, selling and transporting of any production from such interests and (iii) ancillary activities that are directly related to, and necessary in connection with, the activities described in clauses (i) and (ii) above. "Mining Related Assets Investment" means any Investment or capital expenditure (but not including additions to working capital or repayments of any revolving credit or working capital borrowings) by the Company or any Restricted Subsidiary of the Company which is related to the business of the Company and its Restricted Subsidiaries as it is conducted on the date of the Asset Sale giving rise to the Net Cash Proceeds to be reinvested. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents (including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, brokerage, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable ((1) including, without limitation, income taxes reasonably estimated to be actually payable as a result of any disposition of property within two years of the date of disposition and (2) after taking into account any reduction in tax liability due to available tax credits or deductions and any tax sharing arrangements) and (c) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Net Equity Proceeds" means (a) in the case of any sale by the Company of Qualified Capital Stock of the Company, the aggregate net cash proceeds received by the Company, after payment of expenses, commissions and the like (including, without limitation, brokerage, legal, accounting and investment banking fees and commissions) incurred in connection therewith, and (b) in the case of any exchange, exercise, conversion or surrender of any outstanding Indebtedness of the Company or any Restricted Subsidiary issued after the Issue Date for or into shares of Qualified Capital Stock of the Company, the amount of such Indebtedness (or, if such Indebtedness was issued at an amount less than the stated principal amount thereof, the accrued amount thereof as determined in accordance with GAAP) as reflected in the consolidated financial statements of the Company prepared in accordance with GAAP as of the most recent date next preceding the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder of such Indebtedness to the Company or to any wholly owned Restricted Subsidiary of the Company upon such exchange, exercise, conversion or surrender and less any and all payments made to the holders of such Indebtedness, and all other expenses incurred by the Company in connection therewith), in each case (a) and (b) to the extent consummated after the Issue Date. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officers' Certificate" means a certificate signed by two officers of the Company. "Opinion of Counsel" means a written opinion from legal counsel which and who are acceptable to the Trustee. "Paying Agent" shall initially be Mellon Securities Trust Co., a New York chartered trust company, until a successor paying agent for the Notes is selected in accordance with the Indenture. "payment default" has the meaning set forth in "Events of Default." 94 101 "Permitted Investments" means (a) investments in cash and Cash Equivalents; (b) Investments by the Company or by any Restricted Subsidiary of the Company in any Person (i) that is or will become immediately after such Investment a direct or indirect Restricted Subsidiary of the Company, or (ii) such that such Investment, when combined with all other outstanding Investments of the Company permitted pursuant to this clause (ii) would not exceed, in the aggregate, 5% of the Company's Adjusted Consolidated Net Tangible Assets; (c) any Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations in respect of the Notes and the Indenture; and (d) Investments made by the Company or by its Restricted Subsidiaries as a result of an Asset Sale made in compliance with the covenant described under "-- Certain Covenants -- Limitation on Sale of Assets". "Permitted Liens" means (i) Liens on assets or property of the Company that secure Senior Indebtedness of the Company and Liens on assets or property of a Restricted Subsidiary that secure Senior Indebtedness of such Restricted Subsidiary, in each case to the extent such Senior Indebtedness is permitted under paragraph (b) of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness" or clause (vi) of the definition of Permitted Indebtedness; (ii) Liens securing Indebtedness permitted under clause (iv) of the definition of Permitted Indebtedness; (iii) Liens securing Indebtedness of a Person existing at the time that such Person is merged into or consolidated with the Company or a Restricted Subsidiary, provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of such Person; (iv) Liens on property acquired by the Company or a Restricted Subsidiary, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other property; (v) Liens relating to royalty payments to be made by the Company to the British Columbia provincial government in respect of copper extracted and processed from the Kemess South property; (vi) Liens in respect of Interest Swap Obligations, Commodity Agreements, Capitalized Lease Obligations or Purchase Money Obligations, in each case permitted under the Indenture; (vii) Liens in favor of the Company or any Restricted Wholly Owned Subsidiary; (viii) Liens incurred, or pledges and deposits in connection with, workers' compensation, unemployment insurance and other social security benefits, and leases, appeal bonds and other obligations of like nature incurred by the Company or any Restricted Subsidiary in the ordinary course of business; (ix) Liens imposed by law, including, without limitation, mechanics', carriers', warehousemen's, materialmen's, suppliers' and vendors' Liens, incurred by the Company or any Restricted Subsidiary in the ordinary course of business; and (x) Liens for ad valorem, income or property taxes or assessments and similar charges which either are not delinquent or are being contested in good faith by appropriate proceedings for which the Company has set aside on its books reserves to the extent required by GAAP. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Public Equity Offering" means a public offering of Common Stock of the Company resulting in net proceeds to the Company in excess of US$20 million. "Purchase Money Obligations" means Indebtedness of the Company and its Restricted Subsidiaries incurred in connection with the purchase of property or assets of the business of the Company; provided that any Lien so created in connection with such incurrence is limited solely to the property or assets so purchased. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Rating Agencies" mean (i) S&P and (ii) Moody's or (iii) if S&P or Moody's or both of them are not making publicly available ratings of the Notes, a nationally recognized U.S. rating agency or agencies, as the case may be, selected by the Company, which will be substituted for S&P or Moody's or both, as the case may be. "Rating Category" means (i) with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the 95 102 following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such categories of S&P or Moody's used by another Rating Agency, if applicable. "Rating Event" means that at any time within 90 days (which period shall be extended so long as the rating of the Notes or the Exchange Notes is under publicly announced consideration for possible downgrade or for review without indication of direction by any Rating Agency) after the earlier of the date of public notice of a Change of Control or of the intention of the Company or of any Person to effect a Change of Control, the rating of the Notes is decreased by any Rating Agency by one or more Gradations. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company of Indebtedness Incurred in accordance with "-- Certain Covenants -- Limitation on Indebtedness" (other than pursuant to clause (iv), (v), (vi), (vii) or (viii) of the definition of Permitted Indebtedness), in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company in connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company, and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes and the Exchange Notes, then such Refinancing Indebtedness shall be subordinate to the Notes and the Exchange Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Registrar" shall initially mean the Trustee, as the registration agent for the Exchange Notes, until a successor registrar for the Exchange Notes is appointed in accordance with the Indenture. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "S&P" means Standard & Poor's Corporation and its successors. "Senior Indebtedness" means any Indebtedness of the Company (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law), whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Exchange Notes. Notwithstanding the foregoing, Senior Indebtedness shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary (including, without limitation, amounts owed for compensation), (iii) Indebtedness and other amounts incurred in connection with obtaining goods, materials or services owing to trade creditors, (iv) Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of the covenant described in "-- Certain Covenants -- Limitation on Indebtedness" and (vii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Subsidiary", with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. 96 103 "Unrestricted Subsidiary" means any Subsidiary of the Company designated as an Unrestricted Subsidiary by the Board of Directors of the Company; provided, however, that (i) the Subsidiary to be so designated (x) (I) has total assets with a fair market value at the time of such designation of US$1,000 or less or (II) is being so designated prior to the acquisition by the Company of such Subsidiary by merger or consolidation with an Unrestricted Subsidiary, and (y) does not own any Capital Stock of the Company or any Restricted Subsidiary, (ii) if such Subsidiary is acquired by the Company, such Subsidiary is designated as an Unrestricted Subsidiary prior to the consummation of such acquisition, (iii) no Default or Event of Default shall have occurred and be continuing, (iv) no portion of any Indebtedness or any other obligation (contingent or otherwise) of such Subsidiary (a) is guaranteed by, or is otherwise the subject of credit support provided by the Company or any of its Restricted Subsidiaries, (b) is recourse to or obligates the Company or any of its Restricted Subsidiaries in any way, or (c) subjects any property or asset of the Company or any of its Restricted Subsidiaries directly or indirectly, contingently or otherwise, to the satisfaction of such Indebtedness or other obligation, (v) neither the Company nor any of its Restricted Subsidiaries has any contract, agreement, arrangement or understanding with such Subsidiary other than on terms as favorable to the Company or such Restricted Subsidiary as those that might be obtained at the time from Persons that are not Affiliates of the Company, and (vi) neither the Company nor any of its Restricted Subsidiaries has any obligations (a) to subscribe for additional shares of Capital Stock of such Subsidiary, or (b) to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Company's Board of Directors shall be evidenced to the Trustee by filing with the trustee a certified certificate stating that such designation complies with the foregoing conditions. The Company's Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing, including, without limitation, under the covenants described under "-- Certain Covenants -- Limitation on Indebtedness" and "-- Certain Covenants -- Limitation on Liens," assuming the incurrence by the Company and its Restricted Subsidiaries at the time of such designation of all existing Indebtedness and Liens of the Unrestricted Subsidiary to be so designated as a Restricted Subsidiary. In the event of any Disposition involving the Company in which the Company is not the Surviving Person, the Board of Directors of the Surviving Person may (x) prior to such Disposition, designate any of its Subsidiaries, and any of the Company's Subsidiaries being acquired pursuant to such Disposition that are not Restricted Subsidiaries, as Unrestricted Subsidiaries, and (y) after such Disposition, designate any of its direct or indirect Subsidiaries as an Unrestricted Subsidiary under the same conditions and in the same manner as the Company under the terms of the Indenture. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the total of the product obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "wholly owned Subsidiary" of any Person means any Subsidiary of such Person of which all the outstanding voting securities (other than directors' qualifying shares or similar legally required de minimis holdings) which normally have the right to vote in the election of directors are owned by such Person or any wholly owned Subsidiary of such Person. "Working Capital Facility" means the existing working capital facility provided to the Company pursuant to a credit agreement between BNS and the Company dated February 15, 1996, and any agreement, as the same may be amended from time to time, and any agreement evidencing the refinancing, modification, replacement, renewal, restatement, refunding, deferral, extension, substitution, supplement, reissuance or resale thereof. 97 104 DESCRIPTION OF NOTES The Notes evidence the same indebtedness as that which will be evidenced by the Exchange Notes and are entitled to the benefits of the Indenture. The form and terms of the Notes are the same as the form and terms of the Exchange Notes (which replace the Notes) except that none of the Notes (or the related guarantees) was registered under the Securities Act. Therefore, the Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes bear legends restricting the transfer thereof. In addition, with certain exceptions, the Notes may not be sold or transferred to, or acquired on behalf of, any pension or welfare plan (as described in Section 3 of the Employee Retirement Income Security Act of 1974). For a description of the terms of the Exchange Notes, see "Description of Exchange Notes." EXCHANGE OFFER AND REGISTRATION RIGHTS The Company, the Guarantor and the Initial Purchasers entered into the Registration Rights Agreement on August 12, 1996 pursuant to which each of the Company and the Guarantor agreed, for the benefit of the Holders, that it would, at its own cost (i) within 45 days after the Issue Date (September 26, 1996), file a registration statement under the Securities Act with the Commission with respect to the Exchange Notes (which obligation has been satisfied by the filing of the Registration Statement of which this Prospectus is a part) and (ii) use its best efforts to cause such registration statement to be declared effective under the Securities Act within 120 days after the Issue Date (December 10, 1996). Upon the Registration Statement being declared effective, the Company and the Guarantor will offer the Exchange Notes (and the related guarantees) in exchange for surrender of the Notes and the related guarantees. The Company and the Guarantor will keep the Exchange Offer open for not less than 20 business days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the Holders of the Notes. For each of the Notes surrendered pursuant to the Exchange Offer, the Holder who has surrendered such Note will receive an Exchange Note having a principal amount equal to that of the surrendered Note and a related guarantee. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the Note surrendered in exchange therefor or, if no interest has been paid on such Note, from the original issue date of the Note. Under existing Commission interpretations, the Exchange Notes (and the related guarantees) would be freely transferable by Holders thereof, other than affiliates of the Company and the Guarantor, after the Exchange Offer, without further registration under the Securities Act, if the Holder of the Exchange Notes represents that it is acquiring the Exchange Notes in the ordinary course of business, that it has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes and that it is not an affiliate of any of the Company and the Guarantor, as such terms are interpreted by the Commission; provided that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer will have a prospectus delivery requirement with respect to resales of such Exchange Notes. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) with the prospectus contained in the Registration Statement. The Company and the Guarantor have agreed for a period of 180 days after consummation of the Exchange Offer (or such longer period as may be required under the Securities Act) to make available a prospectus meeting requirements of the Securities Act to Participating Broker-Dealers and other persons, if any, with similar prospectus delivery requirements for use in connection with any resale of such Exchange Notes. Each Holder who wishes to exchange its Notes for Exchange Notes in the Exchange Offer will be required to represent that any Exchange Notes to be received by it will be acquired in the ordinary course of its business and that at the time of the commencement of the Exchange Offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and that it is not an affiliate of any of the Company or the Guarantor. If the Holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the applicable Exchange Notes. If the Holder is a broker-dealer that 98 105 will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. In the event that applicable interpretations of the staff of the Commission do not permit the Company and the Guarantor to effect such an Exchange Offer, or if for any other reason the Exchange Offer is not consummated within 180 days after the original issue date of the Notes (February 8, 1997), or, under certain circumstances, if the Initial Purchasers shall so request, each of the Company and the Guarantor, jointly and severally, will, at its cost, (a) as promptly as practicable, file a shelf registration statement covering resales of the Notes (a "Shelf Registration Statement"), (b) use its best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act and (c) use its best efforts to keep effective such Shelf Registration Statement until the earlier of three years after the Issue Date and such time as all of the applicable Notes have been sold thereunder. The Company will, in the event of the filing of a Shelf Registration Statement, provide to each Holder of the Notes copies of the prospectus which is a part of such Shelf Registration Statement, notify each such Holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Notes (and the related guarantees). A Holder that sells its Notes pursuant to a Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such Holder (including certain indemnification obligations). Although the Company and the Guarantor have filed the registration statement described above, there can be no assurance that such registration statement will become effective. If the Company and the Guarantor fail to comply with the above provisions or if such registration statement fails to become effective, then the Company shall pay, as liquidated damages, additional interest ("Liquidated Damages"), to the Holders of the Notes as follows: (i) if the Registration Statement or Shelf Registration Statement is not filed within 45 days following the Issue Date (which requirement has been satisfied by the filing with the Commission of the Registration Statement of which this Prospectus is a part), Liquidated Damages shall accrue at a rate of 0.50% per annum of the principal amount of the Notes for the first 90 days commencing on the 46th day after the Issue Date, such Liquidated Damages rate increasing by an additional 0.50% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; (ii) if the Registration Statement or Shelf Registration Statement is not declared effective within 120 days following the Issue Date, then, commencing on the 121st day after the Issue Date, Liquidated Damages shall accrue at a rate of 0.50% per annum of the principal amount of the Notes for the first 90 days immediately following the 121st day after the Issue Date, such Liquidated Damages rate increasing by an additional 0.50% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; or (iii) if (A) the Company and the Guarantor have not exchanged Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to 180 days after the Issue Date or (B) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the time prior to the third anniversary of the Issue Date (unless all the Notes have been sold thereunder), then Liquidated Damages shall accrue at a rate of 0.50% per annum of the principal amount of the Notes for the first 90 days commencing on (x) the 181st day after the Issue Date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective in the case of (B) above, such Liquidated Damages rate increasing by an additional 0.50% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; provided, however, that the Liquidated Damages rate may not exceed in the aggregate 2.0% per annum of the principal amount of the Notes; and provided, further, that (1) upon the filing of the Registration Statement or Shelf Registration Statement (in the case of clause (i) above), (2) upon the effectiveness of the Registration 99 106 Statement or Shelf Registration Statement (in the case of (ii) above), or (3) upon the exchange of Notes for all Notes tendered (in the case of clause (iii)(A) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (iii)(B) above), Liquidated Damages as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. Any amounts of Liquidated Damages due pursuant to clauses (i), (ii) or (iii) above will be payable in cash, on the same original interest payment dates as the Notes. The amount of Liquidated Damages will be determined by multiplying the applicable Liquidated Damages rate by the principal amount of the Notes multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of 12 30-day months), and the denominator of which is 360. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, all the provisions of the Registration Rights Agreement, a copy of which will be available upon request to the Company. CERTAIN INCOME TAX CONSIDERATIONS THE DISCUSSION BELOW IS INTENDED TO BE A GENERAL DESCRIPTION OF THE CANADIAN AND UNITED STATES TAX CONSIDERATIONS MATERIAL TO AN INVESTMENT IN THE EXCHANGE NOTES AND THE NOTES. IT DOES NOT TAKE INTO ACCOUNT THE INDIVIDUAL CIRCUMSTANCES OF ANY PARTICULAR INVESTOR. THEREFORE, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES. FOR INFORMATION WITH RESPECT TO THE TAX CONSEQUENCES OF THE EXCHANGE OFFER, SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER." CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of the principal Canadian federal income tax considerations generally applicable to a person (a "United States holder") who becomes a beneficial owner of Exchange Notes pursuant to this Exchange Offer (or who acquired Notes in the Offering) and who, for the purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and at all relevant times, is not resident in Canada, deals at arm's length with the Company and does not use or hold (and is not deemed or considered to use or hold) the Notes or Exchange Notes in carrying on a business in Canada. Special rules which are not discussed in this summary, may apply to a United States holder that is an insurer that carries on an insurance business in Canada and elsewhere. For purposes of the Canadian Tax Act, related persons (as therein defined) are deemed not to deal at arm's length and it is a question of fact whether persons not related to each other deal at arm's length. This summary is based on the current provisions of the Canadian Tax Act, the regulations thereunder (the "Canadian Regulations") in force on the date hereof, all specific proposals to amend the Canadian Tax Act and the Canadian Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof and counsel's understanding of the published administrative practices of Revenue Canada, Customs, Excise & Taxation ("Revenue Canada"). This summary does not take into account or anticipate any other changes in law or administrative practice, whether by legislative, governmental or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations. Under the Canadian Tax Act, payments by the Company to a United States holder of interest, principal or premium, if any, on the Notes should not be subject to Canadian withholding tax. Under the Canadian Tax Act, payments by the Company to a United States holder of interest, principal or premium, if any, on the Exchange Notes will not be subject to Canadian withholding tax. No other taxes on income (including taxable capital gains) will be payable by a United States holder solely as a consequence of the ownership, acquisition or disposition of the Exchange Notes. 100 107 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of the material United States federal income tax consequences of the acquisition, ownership and disposition of the Notes or the Exchange Notes by a United States Holder (as defined below). This summary deals only with United States Holders that will hold the Notes or the Exchange Notes as capital assets. The discussion does not cover all aspects of federal taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of the Notes or the Exchange Notes by particular investors, and does not address state, local, foreign or other tax laws. In particular, this summary does not discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the federal income tax laws (such as banks, insurance companies, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organizations, dealers in securities or currencies, investors that will hold the Notes or the Exchange Notes as part of straddles, hedging transactions or conversion transactions for federal tax purposes or investors whose functional currency is not the United States Dollars). As used herein, the term "United States Holder" means a beneficial owner of the Notes or the Exchange Notes that is (i) a citizen or resident of the United States for United States federal income tax purposes, (ii) a corporation created or organized under the laws of the United States or any State thereof, (iii) a person or entity that is otherwise subject to United States federal income tax on a net income basis in respect of income derived from the Notes or the Exchange Notes, or (iv) a partnership to the extent the interest therein is owned by a person who is described in clause (i), (ii) or (iii) of this paragraph. The following discussion assumes that the payment of Additional Amounts or Liquidated Damages are remote contingencies, which the Company believes to be the case. The summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations thereunder, published rulings and court decisions, all as currently in effect and all subject to change at any time, perhaps with retroactive effect. INTEREST Interest (including any Additional Amounts and any Liquidated Damages) paid on a Note or an Exchange Note will be taxable to a United States Holder as ordinary income at the time it is received or accrued, depending on the holder's method of accounting for tax purposes. Interest paid by the Company on the Notes or the Exchange Notes generally will constitute income from sources outside the United States. Prospective investors should consult their tax advisers concerning the applicability of the source of income rules to income attributable to the Notes or the Exchange Notes. ACQUISITION PREMIUM If a United States Holder acquires an Exchange Note or has acquired a Note, in each case, for an amount more than its redemption price, the Holder may elect to amortize such bond premium on a yield to maturity basis. EFFECT OF CANADIAN WITHHOLDING TAXES For United States federal income tax purposes, if payments on the Notes or the Exchange Notes were subject to Canadian withholding taxes, United States Holders will be treated as having actually received the amount of Canadian taxes withheld by the Company with respect to a Note or an Exchange Note, as the case may be, and then having paid over such withheld taxes to the Canadian taxing authorities. Such treatment will be required regardless of whether the Company is required to pay Additional Amounts so that the amount of Canadian withholding taxes does not reduce the net amount actually received by the holder of such Note or Exchange Note. As a result of this rule, the amount of interest income included in gross income for United States federal income tax purposes by a United States Holder with respect to a payment of interest may be greater than the amount of cash actually received (or receivable) by the United States Holder from the Company with respect to such payment. 101 108 Subject to certain limitations, a United States Holder will generally be entitled to a credit against the United States federal income tax liability, or a deduction in computing its United States federal taxable income, for Canadian income taxes withheld by the Company (which, as described above, will include Additional Amounts paid by the Company with respect to such taxes). Prospective participants should consult their tax advisors as to the United States federal income tax consequences of Canadian withholding taxes and the availability of a foreign tax credit or deduction. PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE EXCHANGE NOTES In general, a United States Holder's tax basis in an Exchange Note will equal the price paid for the Note for which such Exchange Note was exchanged pursuant to the Exchange Offer. A United States Holder generally will recognize gain or loss on the sale, exchange, retirement, redemption or other disposition of a Note or an Exchange Note (or portion therof) equal to the difference between the amount realized on such disposition and the United States Holder's tax basis in the Note or the Exchange Note (or portion thereof). Except to the extent attributable to accrued but unpaid interest, gain or loss recognized on such disposition of a Note or an Exchange Note will be capital gain or loss and will be longterm capital gain or loss if such Note or Exchange Note was held for more than one year. Any such gain will generally be United States source gain. A purchase of an Exchange Note or Note in a subsequent resale may be affected by the market discount provisions of the Code. These rules generally provide that subject to a statutorily defined de minimis exception, if a United States Holder purchases an Exchange Note (or purchased a Note) at a "market discount," as defined below, and thereafter recognizes gain upon a disposition of the Exchange Note (including dispositions by gift or redemption), the lesser of such gain (or appreciation, in the case of gift) or the portion of the market discount that has accrued ("accrued market discount") while the Exchange Note (and its predecessor Note, if any) was held by such United States Holder will be treated as ordinary interest income at the time of disposition rather than as capital gain. For an Exchange Note or a Note, "market discount" is the excess of the stated redemption price at maturity over the tax basis immediately after its acquisition by a United States Holder. Market discount generally will accrue ratably during the period from the date of acquisition to the maturity date of the Exchange Note, unless the United States Holder elects to accrue such discount on the basis of the constant yield method. In lieu of including the accrued market discount in income at the time of disposition, a United States Holder of an Exchange Note acquired at a market discount (or acquired in exchange for a Note acquired at a market discount) may elect to include the accrued market discount in income currently either ratably or using the constant yield method. Once made, such an election applies to all other obligations that the United States Holder purchases at a market discount during the taxable year for which the election is made and in all subsequent taxable years of the United States Holder, unless the Internal Revenue Service consents to a revocation of the election. If an election is made to include accrued market discount in income currently, the basis of an Exchange Note in the hands of the United States Holder will be increased by the accrued market discount thereon as it is includible in income. BACKUP WITHHOLDING AND INFORMATION REPORTING Payments of interest (including any Additional Amounts and any Liquidated Damages) and principal on, and the proceeds of sale or other disposition of the Notes or the Exchange Notes payable to a United States Holder may be subject to information reporting requirements, and backup withholding at a rate of 31% will apply to such payments if the United States Holder fails to provide an accurate taxpayer identification number or to report all interest and dividends required to be shown on its federal income tax returns. Certain United States Holders (including, among others, corporations) are not subject to backup withholding. United States Holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such an exemption. 102 109 BOOK-ENTRY; DELIVERY AND FORM The Exchange Notes issued in exchange for the Notes (and the related guarantees) initially will be represented by a single permanent global certificate in definitive, fully registered form (the "Global Exchange Note"). Notwithstanding the foregoing, Notes held in certificated form, if any, will be exchanged solely for Exchange Notes in certificated form. As of the date of this Prospectus, no Notes were held in certificated form. The Global Exchange Note will be deposited upon issuance with, or on behalf of, the Depository Trust Company, New York, New York and registered in the name of a nominee of DTC. The Global Exchange Note will be subject to certain restrictions on transfer set forth therein. The Global Exchange Note. The Company expects that pursuant to procedures established by DTC (i) upon the issuance of the Global Exchange Note, DTC or its custodian will credit, on its internal system, the principal amount of Notes of the individual beneficial interests represented by such Global Exchange Note to the respective accounts of persons who have accounts with such depositary and (ii) ownership of beneficial interests in the Global Exchange Note will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). So long as DTC, or its nominee, is the registered owner or holder of the Exchange Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Exchange Notes represented by such Global Exchange Note for all purposes under the Indenture. No beneficial owner of an interest in the Global Exchange Note will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the Indenture with respect to the Exchange Notes. Payments of the principal of, premium, if any, interest, Additional Amounts and Liquidated Damages, if any, on the Global Exchange Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Exchange Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, interest, Additional Amounts or Liquidated Damages, if any, in respect of the Global Exchange Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Exchange Note as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interests in the Global Exchange Note held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in same-day funds. If a holder requires physical delivery in definitive form of a Security for any reason, including to sell Exchange Notes to persons in states which require physical delivery of the Exchange Notes, or to pledge such securities, such holder must transfer its interest in the Global Exchange Note, in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture. DTC has advised the Company that it will take any action permitted to be taken by a holder of Exchange Notes (including the presentation of Exchange Notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the Global Exchange Note are credited and only in respect of such portion of the aggregate principal amount of Exchange Notes as to which such participant has or participants have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the Global Exchange Note for Certificated Securities, which it will distribute to its participants. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the 103 110 meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Exchange Notes among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Securities. If DTC is at any time unwilling or unable to continue as a depositary for the Global Exchange Note and a successor depositary is not appointed by the Company within 90 days, certificated securities will be issued in exchange for the Global Exchange Note. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Prospectus, as it may be amended or supplemented from time to time, may be used by any person subject to the prospectus delivery requirements of the Securities Act, including a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired as a result of market-making activities or other trading activities. The Company and the Guarantor have agreed that, for a period of 180 days after the Expiration Date, they will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1996 (90 days after commencement of the Exchange Offer), all dealers effecting transactions in the Exchange Notes may be required to deliver a Prospectus. Neither the Company nor the Guarantor will receive any proceeds from any sales of the Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to the purchaser or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells the Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, the Company or the Guarantor will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company and the Guarantor have agreed to pay certain expenses incident to the Exchange Offer, other than commission or concessions of any brokers or dealers, and will indemnify the holders of the Exchange Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 104 111 By acceptance of this Exchange Offer, each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer agrees that, upon receipt of notice from the Company or the Guarantor of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company and the Guarantor agree to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company or the Guarantor have amended or supplemented the Prospectus to correct such misstatement or omission and have furnished copies of the amended or supplemental Prospectus to such broker-dealer. VALIDITY OF EXCHANGE NOTES Certain legal matters relating to validity of the Exchange Notes will be passed upon for the Company by Lang Michener, Toronto, Ontario with respect to matters of Canadian law and by Wachtell, Lipton, Rosen & Katz, New York, New York with respect to matters of United States law. William J.V. Sheridan, a director and the Secretary of the Company, is a partner of Lang Michener. EXPERTS The financial statements for each of the three fiscal years in the period ended December 31, 1995 included in this Prospectus have been audited by Arthur Andersen & Co., independent chartered accountants, as stated in their report herein with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving such report. 105 112 GLOSSARY OF CERTAIN MINING TERMS ASSAY -- The testing of a rock sample to determine its mineral content. CASH COST PER OUNCE -- Includes all site operating expenses but excludes capital and exploration expenditures, depreciation, post-closure restoration accruals, finance and corporate administrative expenses; divided by units produced. Cash costs has the same meaning, except not on a unit production basis. CHALCOPYRITE -- A sulphide mineral of copper and iron, a common ore of copper. CIP -- Carbon-in-pulp. CONCENTRATE -- A fine powdery product containing the valuable metal from which most of the waste material in the ore has been eliminated and discarded. CONTAINED OUNCES -- Reserves are estimated to encompass a stated number of ounces of gold in place. The number of ounces ultimately recovered and available depends upon mining efficiency and processing efficiency. CONTANGO -- Contango on gold is the positive difference between the spot market gold price and the forward market gold price. It is often expressed as an interest rate and is the difference between inter-bank deposit rates and gold lending rates. CYANIDATION -- A method of extracting gold or silver by dissolving it in a weak solution of sodium or potassium cyanide. DECLINE -- A sloping underground opening for machine access from level to level or from surface; also called a "ramp." DILUTION -- The effect of waste or low grade ore being included and removed along with the ore in the mining process, subsequently lowering the grade of the ore. DORE -- Unrefined gold consisting of 60% to 90% gold which will be further refined to almost pure gold by a smelter or refinery. DRILLING -- Blasthole: Drilling holes deep into rock to place an explosive charge that breaks up the rock. Diamond: Drilling with a hollow bit with a diamond cutting rim to produce a cylindrical core that is used for geological study and assays. Used in mine exploration. DYKE -- A tabular intrusive igneous rock that cuts across or along pre-existing country rock. EN ECHELON -- Refers to geological features that are in an overlapping or staggered arrangement and collectively form a linear zone. FELDSPAR -- A group of abundant rock-forming minerals of the general formula, M Al (Al, Si3) where M can be K, Na, Ca, Ba or Fe. Feldspars are the most widespread of any mineral group and constitute 60% of the earth's crust. FLOTATION -- A milling process by which some mineral particles are induced to become attached to bubbles of froth and float, and others to sink so that the valuable minerals are concentrated and separated from the worthless gangue. FLUID BED ROASTER -- The use of a rising current of hot air (or other gas) to suspend finely ground particles of concentrate. The hot gases react with the material to oxidize sulphide mineralization. FOOTWALL -- The mass of rock beneath a geological structure (ore body, fault, etc.). FORWARD SELLING -- An agreement to sell a certain quantity of future production at a set future date at a predetermined price. GANGUE -- Valueless rock or mineral aggregates in an ore that cannot be avoided in mining. 106 113 GRADE -- The amount of valuable mineral in each ton of ore, expressed as troy ounces per ton for precious metals and as a percentage for other metals. Cut-off grade: The minimum content level at which an ore body can be economically mined. HEAP LEACHING -- A low-cost process in which ore is placed in a large heap on an impermeable pad. A weak cyanide solution is sprinkled or dripped over the heap and is collected at the bottom after percolating through the ore and dissolving the metals. HYPOGENE ZONE -- Ores, or mineralized material, formed by an upward moving enrichment process, typically found beneath the supergene. JURASSIC -- A geological period which identifies the formation date of the strata. Jurassic is in the Mesozoic era. MILL -- A plant where ore is ground fine and undergoes physical or chemical treatment to extract the valuable metals. MILL FEED GRADES -- The average grade of ore processed in a mill over a given period of time. MINEABLE ORE RESERVES -- Ore reserves which include allowances for dilution in mining and take into account losses which are likely to occur in mining. All ore reserves reported by Royal Oak are mineable ore reserves. MINERAL DEPOSIT -- A deposit of mineralization which may or may not be ore, the determination of which requires a comprehensive feasibility study. MINERALIZATION -- Rock containing minerals or metals of economic interest. MINERALIZED MATERIAL -- A natural aggregate of one or more minerals which either is not sufficiently delineated as to size, tonnage and grade or, even if so delineated, cannot be economically extracted at the time of the reserve determination and, accordingly, cannot be classified as mineable ore reserves. NET PROFIT INTEREST -- The excess of gross income from the sale of minerals over all expenses properly incurred with respect to production of such mineral products in accordance with GAAP, excluding taxes on income. NET SMELTER RETURN -- Cash or actual metal recoveries per ton of concentrate delivered to the smelter net of metallurgical recovery losses, transportation costs and smelter treatment-refining charges and deductions. ORE -- Mineralization that can be mined at a profit. ORE BODY -- A mineral deposit that can be mined at a profit under existing economic conditions. ORE RESERVES -- The tonnage and grade of an economically and legally extractable ore body. PORPHYRY -- An igneous rock in which a number of mineral crystals are conspicuously much larger than the majority of the crystals which make up the rock. These large crystals are often of the mineral feldspar. Porphyry copper and gold deposits are mineral deposits hosted in large intrusive igneous bodies made up of porphyritic rock. These deposits usually contain very fine disseminations of minerals containing gold and copper. PROBABLE ORE RESERVES -- Ore reserves that have reasonable geologic continuity but cannot be considered proven because inspection and measurement locations are not detailed enough to estimate accurately the size, shape, and mineral content of the body. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. PROVEN ORE RESERVES -- Ore reserves that can be accurately estimated by establishing the size, shape, and mineral content of an ore body by inspection and closely spaced samples. PYRITE -- A common sulfide mineral, shiny and yellow in color and composed of sulphur and iron, sometimes known as "fool's gold." 107 114 RAISE -- A vertical hole between mine levels used to move ore or waste rock or to provide ventilation. RAMP -- An inclined underground tunnel which provides access for exploration or a connection between levels or a mine. REFINING -- The final stage of metal production in which impurities are removed from the molten metal. RESOURCE -- Mineralization based on geological evidence and assumed continuity. May or may not be supported by samples but is supported by geological, geochemical, geophysical or other data. REVERSE CIRCULATION DRILLING -- A process that uses a drill with a dual-wall pipe through which compressed air travels down the outside channel, returning bit-cut chips up the interior channel for sampling. SAG OR SEMI-AUTOGENOUS GRINDING MILL -- A large diameter grinding mill utilizing steel balls and large rock pieces to grind ore from a coarse feed size to a relatively small particle size. SHAFT -- A vertical or steeply inclined opening providing access to a mine for equipment, personnel and supplies and to hoist out ore and waste. It can also be used for ventilation and as an auxiliary exit from the mine. SPOT DEFERRED CONTRACT -- A spot deferred contract is like a forward sale except Royal Oak has the option to extend the contract (roll it over). The ultimate delivery date and sale price are not fixed on the contract. It is rolled over, the new contract price is based on the price at maturity in the old contract plus a contango premium on the rollover date. STOPE -- An excavation in a mine from which ore is being, or has been, extracted. STRIP RATIO -- The ratio of waste tons mined to total tons mined. SULPHIDES -- Compounds of sulphur with other metallic elements. SUPERGENE -- Ores or mineralized material formed by downward moving enrichment process. TAILINGS -- The material that remains after all metals considered economical have been removed from ore during milling. TONNE -- One metric ton or 2,204.62 pounds. TONS -- Short tons. Two thousand pounds. WASTE ROCK -- Barren rock in a mine, or mineralized material, that is too low in grade to be economically mined and milled. 108 115 ROYAL OAK MINES INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Chartered Accountants........................................... F-2 Audited Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-3 Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1993, 1994 and 1995.......................................................... F-4 Consolidated Statements of Cash Flow for the years ended December 31, 1993, 1994 and 1995............................................................................. F-5 Notes to the Annual Consolidated Financial Statements............................... F-6 Unaudited Consolidated Financial Statements (except for the December 31, 1995 Consolidated Balance Sheet, which has been audited): Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995............... F-22 Consolidated Statements of Income and Retained Earnings for the periods ended June 30, 1996 and 1995................................................................ F-23 Consolidated Statements of Cash Flow for the periods ended June 30, 1996 and 1995... F-24 Notes to the Unaudited Consolidated Financial Statements............................ F-25
F-1 116 REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS To the Shareholders of Royal Oak Mines Inc.: We have audited the consolidated balance sheets of Royal Oak Mines Inc. as at December 31, 1995 and 1994 and the consolidated statements of income and retained earnings and cash flow for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1995 and 1994 and the results of its operations and its cash flows for the years ended December 31, 1995, 1994 and 1993 in accordance with generally accepted accounting principles. Arthur Andersen & Co. Chartered Accountants Vancouver, British Columbia February 16, 1996 (except as to note 14(b), which is as of February 27, 1996) F-2 117 ROYAL OAK MINES INC. CONSOLIDATED BALANCE SHEETS (in thousands of Canadian dollars)
DECEMBER 31 --------------------- 1995 1994 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents............................................ $139,410 $148,524 Short-term investments (note 2)...................................... 2,971 30,413 Receivables.......................................................... 7,138 6,842 Inventories (note 3)................................................. 46,136 36,250 Prepaid expenses..................................................... 5,620 4,821 -------- -------- 201,275 226,850 PROPERTY, PLANT AND EQUIPMENT (note 4)................................. 191,381 137,954 LONG-TERM INVESTMENTS (note 5)......................................... 36,307 19,270 -------- -------- $428,963 $384,074 ======== ======== LIABILITIES CURRENT LIABILITIES Accounts payable..................................................... $ 13,640 $ 12,654 Accrued payroll costs................................................ 5,267 5,650 Deferred revenue (note 6)............................................ 4,523 1,282 Income taxes payable (note 8)........................................ 3,350 2,415 Other current liabilities............................................ 15,654 13,799 -------- -------- 42,434 35,800 DEFERRED REVENUE AND OTHER LIABILITIES (note 6)........................ 40,800 39,742 DEFERRED INCOME TAXES (note 8)......................................... 5,064 5,064 MINORITY INTEREST IN SUBSIDIARY COMPANIES.............................. 170 737 -------- -------- 88,468 81,343 -------- -------- CONTINGENCIES AND COMMITMENTS (note 11) SHAREHOLDERS' EQUITY CAPITAL STOCK (note 7) Common stock Authorized -- unlimited Outstanding -- 119,118,714; (1994 -- 114,494,747)................. 261,957 247,362 RETAINED EARNINGS...................................................... 78,538 55,369 -------- -------- 340,495 302,731 -------- -------- $428,963 $384,074 ======== ========
The accompanying notes are an integral part of the Consolidated Financial Statements. F-3 118 ROYAL OAK MINES INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (in thousands of Canadian dollars except per share amounts)
YEAR ENDED DECEMBER 31 ---------------------------------- 1995 1994 1993 -------- -------- -------- REVENUE.................................................... $208,311 $162,111 $135,326 -------- -------- -------- EXPENSES Operating................................................ 182,214 117,790 110,258 Royalties and marketing.................................. 2,535 2,490 1,248 Administrative and corporate............................. 8,549 5,271 3,411 Depreciation and amortization............................ 14,895 8,525 4,998 Provision for (Recovery of) loss on foreign currency contracts (note 6(b))................................. (5,244) 15,267 -- -------- -------- -------- 202,949 149,343 119,915 -------- -------- -------- OPERATING INCOME........................................... 5,362 12,768 15,411 OTHER INCOME (EXPENSES) Interest and other income, net (note 9).................. 20,902 7,074 2,289 Write-down of resource properties and other assets....... (891) -- (388) Gain on issuance of shares by associated company (note 5).................................................... -- 3,020 -- Other.................................................... (619) (85) (1,508) -------- -------- -------- NET INCOME BEFORE UNDERNOTED............................... 24,754 22,777 15,804 Income taxes (note 8).................................... (1,542) (636) (215) Minority interest........................................ 594 -- 136 Equity in income (loss) of associated companies.......... (637) 25 (102) -------- -------- -------- NET INCOME................................................. 23,169 22,166 15,623 RETAINED EARNINGS -- BEGINNING OF YEAR..................... 55,369 33,203 17,580 -------- -------- -------- RETAINED EARNINGS -- END OF YEAR........................... $ 78,538 $ 55,369 $ 33,203 ======== ======== ======== EARNINGS PER SHARE -- BASIC (note 7)....................... $ 0.20 $ 0.22 $ 0.19 ======== ======== ======== EARNINGS PER SHARE -- FULLY DILUTED........................ $ 0.20 $ 0.22 $ 0.18 ======== ======== ========
The accompanying notes are an integral part of the Consolidated Financial Statements. F-4 119 ROYAL OAK MINES INC. CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands of Canadian dollars)
YEAR ENDED DECEMBER 31 ---------------------------------- 1995 1994 1993 -------- -------- -------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income for the year.................................... $ 23,169 $ 22,166 $ 15,623 Items not affecting cash: Depreciation and amortization............................ 14,895 8,525 4,998 Provision for (Recovery of) loss on foreign currency contracts............................................. (5,244) 15,267 -- Write-down of resource properties and other assets....... 891 -- 388 Gain on issuance of shares by associated company......... -- (3,020) -- Other.................................................... 43 187 (595) -------- -------- ------- 33,754 43,125 20,414 Net change in non-cash working capital (note 12)........... (7,588) (9,914) (1,571) -------- -------- ------- CASH FLOW FROM OPERATIONS.................................. 26,166 33,211 18,843 -------- -------- ------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: Increase in deferred revenue, net........................ 5,593 22,768 78 Issue of common shares (note 7(a))....................... 14,595 95,203 87,804 Accrued reclamation on acquisition (note 4).............. 3,000 -- -- Other.................................................... (300) 1,037 -- -------- -------- ------- 22,888 119,008 87,882 -------- -------- ------- CASH USED IN INVESTING ACTIVITIES: Net additions to property, plant and equipment........... (66,018) (52,461) (26,803) Investments, net of sales................................ (19,025) (415) (12,746) Other.................................................... (567) (50) (251) -------- -------- ------- (85,610) (52,926) (39,800) -------- -------- ------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS DURING THE YEAR.......................................... (36,556) 99,293 66,925 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR....... 178,937 79,644 12,719 -------- -------- ------- CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR............. $142,381 $178,937 $ 79,644 ======== ======== ======= Cash paid for: Income taxes............................................. $ 1,542 $ 636 $ 215 Interest expense......................................... $ 298 $ 62 $ 97
The accompanying notes are an integral part of the Consolidated Financial Statements. F-5 120 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of Royal Oak Mines Inc. (the "Company"), amalgamated under the laws of Ontario, have been prepared by management in Canadian dollars in accordance with accounting principles generally accepted in Canada. In all material respects, these accounting policies are in conformity with accounting policies generally accepted in the United States except as disclosed in note 13. Basis of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company's principal subsidiaries include: Arctic Precious Metals, Inc., Beaverhouse Resources Ltd., 934962 Ontario Inc. and Witteck Development Inc. (all 100% owned); Ronnoco Gold Mines Limited (87% owned). Joint ventures are accounted for on the proportionate consolidation method. Cash equivalents The Company defines cash equivalents as highly liquid financial instruments purchased with a maturity of ninety days or less. Short-term investments Short-term investments are recorded at the lower of cost or quoted market value. Inventories Bullion which is in process but not yet in deliverable form is recorded at estimated realizable value. Stores and operating supplies are recorded at the lower of average cost or replacement cost. Property, plant and equipment (i) Plant and equipment and mining properties are recorded at cost. (ii) For underground operations, development expenditures incurred to expose ore, increase production or extend the life of a mine which is currently in production are capitalized. (iii) For open pit operations, mining costs are deferred when the ratio of waste tons mined to ore tons mined exceeds the estimated life-of-mine strip ratio. These deferred costs are charged to operating costs when the actual ratio is below the life-of-mine strip ratio. (iv) Exploration, development and other pre-production expenditures incurred on projects under development are capitalized. (v) Costs relating to the acquisition and exploration of non-producing properties on which economically recoverable ore reserves have yet to be identified are capitalized. The ultimate recovery of these costs depends upon the discovery and development of economic ore reserves or the sale of the mineral rights. When it has been established that a mineral property has development potential, the exploration costs incurred are reclassified to the category of mining properties. If an exploration property is abandoned, the capitalized costs for that property are charged to income. The amounts shown for non-producing properties do not necessarily reflect present or future values. F-6 121 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) (vi) Depreciation and amortization of plant and equipment, mining properties and capitalized expenditures are provided on the unit-of-production method based upon estimated total mineral inventory. (vii) Reviews are undertaken regularly to evaluate the carrying values of operating mines and development properties. If it is determined that the net recoverable amount is significantly less than the carrying value and the impairment in value is permanent, a write-down is made with a charge to income. Investments in associated companies Investments in associated companies in which the Company has significant influence are accounted for by the equity method. Reclamation and site restoration costs Estimated reclamation and site restoration costs are charged against income on the unit-of-production method based upon estimated total mineral inventory. Ongoing reclamation activities are charged against income as incurred. Revenue recognition Revenue from gold production is recognized when the ore is mined and processed at the on-site facility. Revenue is subject to adjustment on final settlement to reflect changes in metal prices, weights and assays. Hedging transactions Hedging transactions include spot deferred contracts, forward sale contracts and option contracts. Contracted prices on spot deferred and forward sales contracts are recognized in revenue as production is delivered against the commitment. If actual delivery is not made against a particular spot deferred contract at the time of maturity, losses, if any, are recognized at that time. Gains arising from the early liquidation of hedges are deferred and are recognized in revenue when the original contract would have matured. Net proceeds realized on the sale of options are deferred and are recognized in revenue on the expiry date for options which expire or are repurchased, or on the delivery date for options which have been exercised and for which the settlement of the underlying ounces has been deferred. Income taxes The Company follows the deferral method of applying the tax allocation basis of accounting for income taxes. Under this method, timing differences between the period when income or expenses are reported for tax purposes and the period when they are recorded for accounting purposes result in provisions or recoveries of deferred income taxes. Foreign currency translation Financial statements of the Company's principal United States subsidiary, Arctic Precious Metals, Inc., are translated into Canadian dollars using the temporal method. Under this method, monetary assets and liabilities are translated at the year-end exchange rate and non-monetary assets and liabilities and operating results are translated at the historical exchange rate prevailing at the date of the transaction. Gains and losses arising from the translation of the financial statements are included in the results of operations. F-7 122 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) Segmented information The Company operates within one dominant industry segment, gold mining, carried out in the Northwest Territories, Newfoundland, and Ontario, Canada. Comparative figures Certain of prior years' amounts have been reclassified to conform with the current year's presentation. 2. FAIR VALUES OF CERTAIN FINANCIAL INSTRUMENTS The carrying amount and fair value of the following financial instruments are:
DECEMBER 31 -------------------------------------------- 1995 1994 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Cash and cash equivalents......................... $139,410 $139,410 $148,524 $148,524 Short-term investments............................ $ 2,971 $ 4,536 $ 30,413 $ 30,594
The fair value of short-term investments is based on quoted market values. 3. INVENTORIES
DECEMBER 31 ------------------- 1995 1994 ------- ------- Bullion in process..................................................... $18,574 $16,386 Stores and operating supplies.......................................... 27,562 19,864 ------- ------- $46,136 $36,250 ======= =======
4. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31 -------------------- 1995 1994 ----------------------------------- -------- NET NET ACCUMULATED BOOK BOOK COST AMORTIZATION VALUE VALUE -------- ----------- -------- -------- Plant and Equipment............................... $ 75,391 $ 14,570 $ 60,821 $ 53,500 Mining Properties and Deferred Development........ 127,058 22,061 104,997 62,732 Exploration Costs and other Non-producing Properties...................................... 25,563 -- 25,563 21,722 -------- ------- -------- -------- $228,012 $ 36,631 $191,381 $137,954 ======== ======= ======== ========
Mining Properties and Deferred Development includes $20,890,000 (1994 -- $5,898,000) which comprises mining properties that are under development and are expected to be put into production over the next five years. Depreciation and amortization of these costs will be provided in the future based on the unit- of-production method. F-8 123 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) The following is a summary of the net book value of the Property, Plant and Equipment by location:
MINING PROPERTIES DECEMBER 31 PLANT AND AND DEFERRED EXPLORATION -------------------- EQUIPMENT DEVELOPMENT AND OTHER 1995 1994 --------- ------------ ----------- -------- -------- Division NWT -- Giant......................... $18,258 $ 17,458 $14,220 $ 49,936 $ 38,384 NWT -- Colomac....................... 15,630 29,692 596 45,918 44,121 Ontario.............................. 13,376 39,735 4,106 57,217 33,881 Newfoundland......................... 8,420 9,228 2,049 19,697 18,983 British Columbia..................... 850 8,884 996 10,730 -- U.S.................................. 4,287 -- 3,596 7,883 2,585 ------- -------- ------- -------- -------- $60,821 $104,997 $25,563 $191,381 $137,954 ======= ======== ======= ======== ========
During fiscal 1995, the Company acquired 100% of the Red Mountain property located in northwestern British Columbia for $1. The Company assumed the environmental liabilities, estimated at $3.0 million, as part of this purchase. The Company is committed to spend $3.0 million in exploration and development on the Red Mountain property over three years. The vendor will receive a 1% net smelter return royalty on all production from the property and on production over 1.85 million ounces, an additional $10.00 per ounce is payable. 5. LONG-TERM INVESTMENTS
DECEMBER 31 ------------------ 1995 1994 ------- ------- Partially-owned companies fully acquired subsequent to year end (note 14): Geddes Resources Limited............................................... $12,143 $ 9,769 El Condor Resources Ltd................................................ 7,408 -- St. Philips Resources Inc.............................................. 7,331 -- ------- ------- 26,882 9,769 Mountain Minerals Co. Ltd................................................ 7,056 6,419 Other.................................................................... 2,369 3,082 ------- ------- $36,307 $19,270 ======= =======
In 1994, Mountain Minerals Co. Ltd. ("Mountain Minerals") issued additional share capital which reduced the Company's equity interest from 51% to 41%. As a result of this share issuance by Mountain Minerals, the Company recorded a gain on dilution of $3,020,000. During 1995, the Company increased its interest in Mountain Minerals to 45% by way of open market purchases. F-9 124 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) 6. DEFERRED REVENUE AND OTHER LIABILITIES
DECEMBER 31 ------------------ 1995 1994 ------- ------- Deferred revenue......................................................... $29,711 $24,118 Provision for loss on foreign currency contracts......................... 10,023 15,267 Accrued reclamation costs................................................ 4,852 602 Other.................................................................... 737 1,037 ------- ------- 45,323 41,024 Less current portion..................................................... 4,523 1,282 ------- ------- $40,800 $39,742 ======= =======
(a) Deferred Revenue The following table summarizes the years in which the deferred revenue is expected to be recorded in income.
YEAR AMOUNT ---------------------------------------------------------- ------- 1996...................................................... $ 4,523 1997...................................................... 7,293 1998...................................................... 7,612 1999...................................................... 10,283 ------- $29,711 =======
(b) Provision for loss on foreign currency contracts In prior years, to protect the Company from foreign currency fluctuations and to provide a minimum Canadian dollar conversion rate for its U.S. dollar gold sales revenue, the Company entered into foreign currency contracts for conversion into Canadian dollars. These contracts were associated with the Company's contractual obligation to deliver future gold production at specified prices in U.S. dollars. At the end of 1995, the Company had contracts to deliver approximately US$116 million (1994 -- US$119 million) at an average exchange rate of 1.2806 (1994 -- 1.2744) Cdn $/US$. In 1994, the Company began marking to market these foreign currency contracts because of the significant weakening of the Canadian dollar since the time these contracts had first been entered into. The Company follows a policy of rolling forward these contracts as they mature and expects to delay delivery of U.S. dollars against these contracts. 7. CAPITAL STOCK (a) Changes in Capital Stock Authorized: An unlimited number of special shares issuable in series and an unlimited number of common shares. Issued, outstanding and fully paid -- special: nil (1994 -- nil) F-10 125 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) Issued, outstanding and fully paid -- common:
NUMBER OF SHARES AMOUNT ---------- -------- BALANCE, DECEMBER 31, 1992......................................... 69,946,751 $ 64,355 Issued via special warrants........................................ 9,000,000 25,200 Acquisition of Colomac Mine........................................ 3,500,000 7,875 Acquisition of gross production royalty on Colomac property........ 1,000,000 4,000 Issued via unit offering........................................... 6,000,000 42,000 Exercise of warrants -- Series 1................................... 6,941,393 11,453 Exercise of warrants -- Series 2................................... 5,000 16 Employee gain sharing program...................................... 78,102 152 Issued for share purchase options.................................. 484,967 600 Share issue costs.................................................. (3,492) ----------- -------- BALANCE, DECEMBER 31, 1993......................................... 96,956,213 152,159 Issued via public offering......................................... 17,400,000 100,050 Exercise of warrants -- Series 2................................... 19,000 61 Issued for share purchase options.................................. 119,534 132 Share issue costs.................................................. -- (5,040) ----------- -------- BALANCE, DECEMBER 31, 1994......................................... 114,494,747 247,362 Exercise of warrants -- Series 2................................... 4,475,300 14,545 Issued for share purchase options.................................. 148,667 190 Issued to acquire Witteck Development Inc.......................... 1,924,816 8,854 Share issue costs.................................................. -- (140) ----------- -------- BALANCE, DECEMBER 31, 1995 Issued and outstanding............................................. 121,043,530 270,811 Company shares held by Witteck Development Inc. (note 7(b))........ (1,924,816) (8,854) ----------- -------- Balance, December 31, 1995 for financial reporting purposes........ 119,118,714 $261,957 =========== ========
(b) Acquisition of Witteck Development Inc. During 1995, the Board of Directors and the shareholders approved the acquisition of all of the shares of Witteck Development Inc. ("Witteck") whose sole asset is an investment in the Company of 1,924,816 shares. This investment has been recorded as a reduction of capital stock on the balance sheet. Consequently, the shares of the Company that are held by Witteck have been excluded from the determination of earnings per share information. (c) Warrants During the year, 4,475,300 Series 2 warrants were exercised and converted into common shares at a price of $3.25 per share. At December 31, 1995, the Company had 3,000,000 Series 3 warrants outstanding which were issued in 1993. Each warrant entitles the holder to purchase one common share of the Company at a price of $8.75 per share until May 30, 1996. F-11 126 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) (d) Weighted Average Number of Common Shares Earnings per share has been calculated on the basis of the weighted average number of common shares outstanding for the year which was 117,900,306 shares (1994 -- 101,399,347; 1993 -- 84,073,179). (e) Stock Options The Company grants stock options to employees and directors in recognition of their service to the Company. The following table outlines activity with respect to the Company's stock options:
NUMBER OF SHARES PRICE PER SHARE ---------------- --------------- OUTSTANDING, DECEMBER 31, 1992............................... 1,103,834 $0.48 - $2.04 Granted...................................................... 1,360,000 Exercised.................................................... (484,967) $0.48 - $3.95 Cancelled/Expired............................................ (572,500) --------- OUTSTANDING, DECEMBER 31, 1993............................... 1,406,367 $0.48 - $6.25 Granted...................................................... 1,100,000 Exercised.................................................... (119,534) $0.48 - $2.85 Cancelled/Expired............................................ (166,000) --------- OUTSTANDING, DECEMBER 31, 1994............................... 2,220,833 $0.48 - $6.25 Granted...................................................... 605,000 Exercised.................................................... (148,667) $0.90 - $2.85 Cancelled/Expired............................................ (215,000) --------- OUTSTANDING, DECEMBER 31, 1995............................... 2,462,166 $0.48 - $6.25 =========
F-12 127 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) 8. INCOME TAXES The provisions for income tax are analyzed in the following table to show the taxes that would be payable by applying statutory tax rates to the Company's pre-tax earnings, and the taxes actually provided in the accounts:
DECEMBER 31 ------------------------------- 1995 1994 1993 ------- ------- ------- Pre-tax income, as reported................................. $24,754 $22,777 $15,804 Combined statutory tax rates................................ 43% 43% 44% Tax at combined statutory rates............................. $10,644 $ 9,794 $ 6,954 Adjust for tax effect of: Resource allowance........................................ (771) (3,782) (2,233) Non-taxable portion of capital gains...................... (829) (547) -- Deductible financing costs................................ (1,152) (860) (393) Other..................................................... 43 -- -- Utilization of previously unrecognized deferred tax assets and net adjustment to deferred taxes...................... (7,157) (4,605) (4,328) Foreign earnings subject to different tax rates............. (117) -- -- Large corporation capital tax............................... 639 336 215 Corporate minimum tax....................................... 242 300 -- ------- ------- ------- $ 1,542 $ 636 $ 215 ======= ======= =======
For income tax purposes, the Company has tax deductions available to be utilized in future years totalling $167 million. When claimed, a substantial portion of these tax deductions will result in the creation of deferred income tax liabilities. The Company also has $16 million of earned depletion and mining exploration depletion base carry forward available to be deducted against certain future resource profits. Because of reorganizations undertaken by the Company, utilization of tax deductions and earned depletion base may be restricted. 9. INTEREST AND OTHER INCOME, NET Interest and other income is comprised of:
DECEMBER 31 ----------------------------- 1995 1994 1993 ------- ------ ------ Interest income............................................... $10,640 $4,078 $2,194 Gain on sale of securities.................................... 8,309 1,290 19 Other, net.................................................... 1,953 1,706 76 ------- ------ ------ $20,902 $7,074 $2,289 ======= ====== ======
10. EMPLOYEE BENEFIT PLANS The Company has defined benefit and defined contribution pension plans covering substantially all of its regular full-time employees. Pension benefits are based, in defined benefit plans, on employees' earnings and F-13 128 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) years of service. Most of the plans are funded currently by contributions from the Company, based on periodic actuarial valuations. Contributions to its defined contribution plan are based on a specific percentage of base earnings. The market related value of the defined benefit pension plans' assets was $35,359,000 at December 31, 1995 (1994 -- $32,226,000) and the actuarial present value of accrued pension benefits was $31,321,000 at December 31, 1995 (1994 -- $30,789,000). The total pension expense for the year was $1,324,000 (1994 -- $1,163,000; 1993 -- $908,000). 11. CONTINGENCIES AND COMMITMENTS (a) Legal Claim On September 18, 1992, nine miners were murdered in an underground explosion at the Company's Giant Mine. A member of the union which was on strike at the time was charged and convicted of nine counts of second degree murder. In September, 1994, dependents of the deceased miners sued the Company and two of its officers and directors, along with 23 other named defendants including Procon Miners Inc., Pinkerton's of Canada Limited, the Government of the Northwest Territories, and National Automobile, Aerospace and Agricultural Implement Workers Union of Canada, for losses allegedly suffered as a result of the explosion. The claim against the Company and all defendants but one, totals approximately $10.8 million plus taxes, interest and costs. The claim against the two officers and directors and all other defendants, excluding the Company, totals approximately $33.65 million plus taxes, interest and costs. The claim is being vigorously defended. Counsel for the Company's insurer has stated that, based on allegations in the amended Statement of Claim -- being the only pleading filed to date -- any liability that might be imposed would be within the Company's liability insurance coverage. The Company believes that the claim is without merit. (b) Laws and Regulations The Company's current and proposed mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect its employees, the general public and the environment and believes its operations are in compliance with all applicable laws and regulations, in all material respects. The Company has made, and expects to make in the future, submissions and expenditures to comply with such laws and regulations. Where estimated reclamation and closure costs are reasonably determinable, the Company has recorded a provision for environmental liabilities based on management's estimate of these costs. Such estimates are subject to adjustment based on changes in laws and regulations and as new information becomes available. The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. The Company is also subject to reassessment for income and mining taxes for certain years. It does not believe that adverse decisions in any potential tax reassessments or any amount which it may be required to pay by reason thereof will have a material adverse effect on the financial condition or future results of operations of the Company. (c) Forward Sales and Hedging Contracts The Company engages in hedging transactions to minimize the impact of fluctuations in gold, oil and foreign currency prices. F-14 129 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) The credit risk related to hedging activities is limited to the unrealized gains on outstanding contracts based on current market prices. The Company believes it has minimized credit risk by dealing with large credit-worthy institutions and by limiting credit exposure to each. (i) At December 31, 1995 the Company had contractual arrangements, in U.S. and Canadian dollars, to deliver the following ounces of gold:
GOLD FORWARD SALES PRICE OF FORWARD SALES YEAR (OZ.) (PER OZ.) ----------------------------------------------- ------------------ ---------------------- 1996........................................... 39,028 US$385 1997........................................... 140,000 Cdn $614 1998........................................... 140,000 Cdn $629 1999........................................... 140,000 Cdn $654 2000........................................... -- -- ------- 459,028 =======
Delivery under these contracts can be deferred at the Company's option for up to five years depending on the individual contract. (ii) The Company's call option position as at December 31, 1995 was as follows:
GOLD CALL OPTIONS SOLD STRIKE PRICE YEAR (OZ.) (PER OZ.) ----------------------------------------------------------- ------------ ------------ 1996....................................................... 305,000 US$410 1997....................................................... 187,792 Cdn $624 1998....................................................... 200,000 Cdn $639 1999....................................................... 200,000 Cdn $664 2000....................................................... -- -- ------- 892,792 =======
If called, the Company has the ability to delay delivery of these ounces by entering into fixed forward or spot deferred contracts originating with the same number of ounces and strike prices as in the exercised option. (iii) At December 31, 1995, the Company's obligations to sell U.S. dollars were as follows:
EXCHANGE U.S. DOLLARS RATE (CDN CARRYING FAIR YEAR (000'S) $/US$) AMOUNT VALUE ------------------------------------ ------------ ----------- -------- -------- 1996................................ US$ 106,229 1.2807 $ (9,190) $ (9,190) 1997................................ US$ 9,636 1.2801 (833) (833) 1998-2000........................... -- -- -- -- ---------- ------ -------- -------- US$ 115,865 1.2806 $(10,023) $(10,023) ========== ====== ======== ========
F-15 130 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) The Company marks to market these contracts based on the applicable exchange rate at the date of the balance sheet. See note 6(b). (iv) At December 31, 1995 the Company had oil swap agreements to hedge the cost of Western Texas Intermediate ("WTI") crude oil to be used for the operations of the Colomac Mine. These agreements call for settlement as follows:
YEAR BARRELS OF WTI PURCHASED PRICE PER BARREL --------------------------------------------- ------------------------ ---------------- 1996......................................... 200,000 US$17.40 1997......................................... 200,000 US$16.85 1998-2000.................................... -- -- ------- 400,000 =======
(d) Operating Royalties (i) Under the terms of the Hope Brook Mine Asset Purchase Agreement, the Company is obligated to pay an operating royalty when the average price of gold exceeds US$380 per ounce. Amounts payable vary between $1,300,000 and $3,300,000 annually depending on the average price of gold. In respect of 1995, the Company was obligated to pay $1,300,000 (1994 -- $1,300,000; 1993 -- nil). Obligations under this agreement expire in 1996. (ii) Under the terms of the Colomac Mine Asset Purchase Agreement, the Company is obligated to pay an operating royalty when the average price of gold exceeds US$400 per ounce. Amounts payable vary between $1.0 million and $2.0 million annually depending on the average price of gold. In respect of 1995, no amount was payable under this royalty (1994 -- nil; 1993 -- nil). Obligations under this agreement are expected to expire in 1999. 12. NET CHANGE IN NON-CASH WORKING CAPITAL
DECEMBER 31 -------------------------------- 1995 1994 1993 ------- -------- ------- Cash provided by (used for): Receivables.............................................. $ (296) $ (3,905) $ 2,973 Inventories.............................................. (9,886) (17,530) (6,862) Prepaid expenses......................................... (799) (1,533) (427) Accounts payable......................................... 986 (1,498) 2,922 Accrued payroll costs.................................... (383) 1,717 (63) Income taxes payable..................................... 935 802 (115) Other current liabilities................................ 1,855 12,071 1 Mountain Minerals deconsolidation........................ -- (38) -- ------- ------- ------- $(7,588) $ (9,914) $(1,571) ======= ======= =======
F-16 131 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) 13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Reconciliation of net income in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") to net income in accordance with United States generally accepted accounting principles ("U.S. GAAP") is as follows:
DECEMBER 31 ----------------------------- 1995 1994 1993 ------- ------- ------- Net income in accordance with Canadian GAAP.................... $23,169 $22,166 $15,623 Decrease: Depreciation and amortization................................ (5,633) (2,188) (1,683) Employee benefit plans....................................... (359) -- -- ------- ------- ------- Net income in accordance with U.S. GAAP........................ $17,177 $19,978 $13,940 ======= ======= ======= Earnings per share in accordance with U.S. GAAP: Primary earnings............................................. $ 0.15 $ 0.19 $ 0.17 Fully diluted earnings....................................... $ 0.15 $ 0.19 $ 0.16
The effects on the balance sheets of the Company at December 31, prepared in accordance with U.S. GAAP, are:
DECEMBER 31 --------------------------- 1995 1994 1993 ------- ------ ------ Decrease: Property, plant and equipment.................................. $11,794 $6,161 $3,973 Prepaid expenses (pension asset)............................... 359 -- -- ------- ------ ------ Retained earnings.............................................. $12,153 $6,161 $3,973 ======= ====== ======
(a) Depreciation and Amortization Under U.S. GAAP, depreciation and amortization are calculated on the unit-of-production method based upon proven and probable reserves, whereas under Canadian GAAP, total mineral inventory may be used in the calculations. (b) Employee Benefit Plans Under U.S. GAAP, for defined benefit pension plans, the projected benefit obligation should be discounted using interest rates at which the obligation could be effectively settled whereas under Canadian GAAP, the projected benefit obligation may be discounted using interest rates which are consistent with long-term assumptions. Also, under U.S. GAAP, experience gains and losses as well as adjustments arising from changes in assumptions must be amortized only if it exceeds a specified range. Under Canadian GAAP, these amounts must be amortized over the expected average remaining service life of the employee group regardless of the amount. Pension expense is determined each year based on actuarial recommendations. The actuarial assumptions applied in determining the expense in accordance with U.S. GAAP include a discount rate on the benefit obligation, rate of compensation increases and long-term rate of return on the plan assets of 8.5%, 7.0% and 8.5%, respectively. Assets of the plans are held in a range of investments, which include fixed-income securities, equities and money market securities. At January 1, 1987, as a result of an actuarial valuation of the plans, a surplus was identified which is being amortized over the estimated average remaining service lives of the employees (EARSL) which, for the Company's defined benefit pension plans, ranges from 12 to 18 years. F-17 132 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) The components of pension expense, for the Company's defined benefit pension plans, calculated in accordance with U.S. GAAP are as follows:
DECEMBER 31 ----------------------------- 1995 1994 1993 ------- ------- ------- Service cost -- benefits earned during the year................ $ 1,374 $ 1,292 $ 944 Interest cost on projected benefit obligation.................. 2,541 2,445 2,267 Return on assets............................................... (4,999) (169) (2,448) Other.......................................................... 2,575 (2,586) (92) ------- ------- ------- $ 1,491 $ 982 $ 671 ======= ======= =======
The funded status and differences between amounts expensed and amounts funded calculated under U.S. GAAP for the Company's defined benefit pension plans are as follows:
DECEMBER 31 ----------------------------------------------------------------- 1995 1994 ------------------------------- ------------------------------- PLANS WHERE PLAN WHERE PLANS WHERE PLAN WHERE ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED BENEFITS ASSETS BENEFITS ASSETS ------------- --------------- ------------- --------------- Plans' assets at market value.................. $29,912 $ 8,743 $27,070 $ 7,657 ------- ------ ------- ------ Projected benefits based on: Employment service to date and present pay levels Vested.................................... 20,144 8,787 18,731 8,323 Non-vested................................ 68 42 983 40 Additional amount related to compensation increases................................. 3,246 -- 2,712 -- ------- ------ ------- ------ Projected benefit obligations.................. 23,458 8,829 22,426 8,363 ------- ------ ------- ------ Plans' assets in excess of (less than) projected benefit obligations................ 6,454 (86) 4,644 (706) Unamortized January 1, 1987 surplus, net....... (1,932) (774) (2,148) (863) Unamortized net experience (gains) losses...... (3,055) 1,029 (1,243) 1,320 Unamortized prior service cost................. -- 1,408 -- 1,515 ------- ------ ------- ------ $ 1,467 $ 1,577 $ 1,253 $ 1,266 ======= ====== ======= ====== Difference between amounts charged to operations and amounts funded................ $3,044 $2,519 ------- ------- ------- -------
In addition to the defined benefit pension plans noted above, the Company maintains a defined contribution pension plan for certain of its hourly employees. Under this plan, the Company contributes 2.5% of each member's base earnings to the pension plan. The pension expense for the year under this pension plan was $192,000 (1994 -- $181,000; 1993 -- $237,000). F-18 133 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) (c) Income Taxes In accordance with the Financial Accounting Standards Board Statement No. 109 ("SFAS 109"), U.S. GAAP requires that income taxes be accounted for by the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement reporting and the tax bases of the assets and liabilities and are measured at the enacted tax rates that will be in effect when the differences are expected to reverse. Such differences principally arise from the timing of income and expense recognition for accounting and tax purposes. The application of SFAS 109 would have no material effect on the assets, liabilities or operations for the years presented in these consolidated financial statements as additional deferred tax assets arising from the table of reconciling items have been offset by the recording of an additional valuation allowance. The following additional disclosures with respect to income taxes are required by U.S. GAAP:
DECEMBER 31 ------------------------------- 1995 1994 1993 ------- ------- ------- Deferred Tax Liabilities: Exploration expenditures................................... $ 4,643 $ 5,519 $ 5,985 Mining properties and deferred development................. 6,979 941 (835) Pension asset.............................................. 985 997 957 Investments................................................ 1,057 1,057 -- Other...................................................... -- 58 -- ------- ------- ------- $13,664 $ 8,572 $ 6,107 ======= ======= ======= Deferred Tax Assets: Provision for loss on foreign currency contracts........... $ 3,567 $ 5,343 $ -- Operating losses........................................... -- -- 1,043 Property, plant and equipment.............................. 7,670 6,126 10,569 Accrued reclamation costs.................................. 648 163 49 Other...................................................... 1,030 571 595 Valuation allowance........................................ (2,134) (4,838) (9,034) ------- ------- ------- $10,781 $ 7,365 $ 3,222 ======= ======= =======
The net change in the valuation allowance from 1994 to 1995 was a decrease of $2,704,000. The Company decreased its beginning-of-the-year balance of the valuation allowance by approximately $3,063,000 to reflect changes in circumstances. 14. SUBSEQUENT ACQUISITIONS (a) Acquisition of Geddes Resources Limited, El Condor Resources Ltd. and St. Philips Resources Inc. On January 11, 1996, the Company acquired all of the outstanding shares of Geddes Resources Limited ("Geddes"), El Condor Resources Ltd. ("El Condor") and St. Philips Resources Inc. ("St. Philips") not already owned by the Company pursuant to a series of signed agreements (the "Plan of Arrangement") on the following terms: Geddes: 0.30 shares of the Company for each share of Geddes. El Condor: 0.95 shares of the Company plus $2.00 cash for each share of El Condor. St. Philips: $3.40 cash for each share of St. Philips. F-19 134 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) The Company issued 19,011,883 common shares and paid approximately $56 million in cash pursuant to the Plan of Arrangement. The January 11, 1996 closing price on the Toronto Stock Exchange for the Company's common shares was $6.00. This price was used to value the common shares issued under the Plan of Arrangement. The following outlines the details of the purchase price and its allocation to the assets and liabilities acquired:
GEDDES EL CONDOR ST. PHILIPS TOTAL ------- --------- ----------- -------- Purchase price: Cash paid, including open market purchases....... $ 3,220 $ 34,222 $38,562 $ 76,004 Issue of common shares........................... 37,650 76,421 -- 114,071 ------- -------- ------- -------- $40,870 $ 110,643 $38,562 $190,075 ======= ======== ======= ======== Allocated to: Cash and cash equivalents........................ $ 561 $ 1 $ 378 $ 940 Property, plant and equipment.................... 40,619 111,407 38,336 190,362 Other assets..................................... 31 151 9 191 Total liabilities................................ (341) (916) (161) (1,418) ------- -------- ------- -------- $40,870 $ 110,643 $38,562 $190,075 ======= ======== ======= ========
The Company incurred transaction and other costs totaling $3,649,000. In May 1993, the Company had purchased an approximate 39% interest in Geddes. See note 5 for the year-end carrying amount. These transaction and other costs together with the carrying amount of the initial purchase of Geddes have been allocated to property, plant and equipment. The following is a condensed consolidated balance sheet of the Company as at January 11, 1996, after giving effect to the acquisitions:
JANUARY 11, DECEMBER 31, 1996 1995 ----------- ------------ Cash and cash equivalents........................................... $ 79,982 $139,410 Other current assets................................................ 62,057 61,865 -------- -------- 142,039 201,275 Property, plant and equipment....................................... 394,583 191,381 Long-term investments............................................... 9,445 36,307 -------- -------- 546,067 428,963 ======== ======== Current liabilities................................................. $ 43,852 $ 42,434 Long-term liabilities and other..................................... 47,649 46,034 -------- -------- 91,501 88,468 Capital stock (Outstanding: January 11, 1996 -- 138,130,597).................... 376,028 261,957 Retained earnings(a)................................................ 78,538 78,538 -------- -------- $ 546,067 $428,963 ======== ========
F-20 135 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (tabular amounts in thousands of Canadian dollars unless otherwise stated) (a) Income for the interim period has been ignored for the purposes of this comparative balance sheet. These acquisitions were linked to the resolution of the claim for compensation from the Government of British Columbia (the "B.C. Government") which, in 1993, appropriated the Windy Craggy property from Geddes and declared the area a provincial park. Under the terms of an agreement among the B.C. Government, the Company and Geddes, the B.C. Government has agreed to an economic assistance package and compensation valued at $166 million. The majority of these funds are payable to the Company over the next three years. (b) Offer to Purchase Consolidated Professor Mines Limited On February 5, 1996, the Company made a public offer to purchase all of the outstanding common shares of Consolidated Professor Mines Limited ("Consolidated Professor") at a cash price of $0.80 per share for a total purchase price of approximately $16 million. On February 27, 1996 the Company acquired 16,135,891 common shares of Consolidated Professor representing 81.2% of the outstanding common shares and extended its offer to purchase all of the common shares until March 29, 1996. F-21 136 ROYAL OAK MINES INC. CONSOLIDATED BALANCE SHEETS (unaudited -- Cdn$ 000s)
JUNE 30, DECEMBER 31, 1996 1995 -------- ------------ ASSETS Current Assets Cash and cash equivalents.......................................... $ 14,797 $139,410 Short-term investments............................................. 24,886 2,971 Receivables........................................................ 7,505 7,138 Inventories (note 4)............................................... 72,829 46,136 Prepaid expenses................................................... 8,525 5,620 -------- -------- Total Current Assets............................................ 128,542 201,275 Property, Plant and Equipment, net................................... 435,690 191,381 Long-term Investments................................................ 15,886 36,307 -------- -------- TOTAL ASSETS......................................................... $580,118 $428,963 ======== ======== LIABILITIES Current Liabilities Accounts payable................................................... $ 9,585 $ 13,640 Accrued payroll.................................................... 3,870 5,267 Current portion of deferred revenue................................ 16,491 4,523 Income taxes payable............................................... 3,751 3,350 Other current liabilities.......................................... 23,537 15,654 -------- -------- Total Current Liabilities....................................... 57,234 42,434 Deferred Revenue..................................................... 38,318 25,188 Other Liabilities.................................................... 17,397 15,612 Deferred Income Taxes................................................ 7,070 5,064 Minority Interest in Subsidiary Companies............................ 140 170 -------- -------- TOTAL LIABILITIES.................................................... 120,159 88,468 -------- -------- SHAREHOLDERS' EQUITY Capital Stock (note 11) Common stock Authorized -- unlimited Outstanding -- 138,218,430 (Dec. 31, 1995 -- 119,118,714)....... 376,316 261,957 Retained Earnings.................................................... 83,643 78,538 -------- -------- TOTAL SHAREHOLDERS' EQUITY........................................... 459,959 340,495 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $580,118 $428,963 ======== ========
The accompanying notes are an integral part of the Consolidated Financial Statements. F-22 137 ROYAL OAK MINES INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (unaudited -- Cdn$ 000s except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------- -------------------- 1996 1995 1996 1995 -------- ------- -------- -------- REVENUE............................................ $ 54,797 $53,453 $105,846 $100,839 ------- ------- -------- -------- EXPENSES Operating........................................ 39,354 45,650 81,383 89,714 Royalties and marketing.......................... 846 889 1,408 1,108 Administrative and corporate..................... 2,712 3,323 4,861 4,945 Depreciation and amortization.................... 6,131 2,988 11,366 6,270 Exploration...................................... 1,449 141 2,409 254 Recovery of loss on foreign currency contracts... (209) (3,772) (976) (3,772) ------- ------- -------- -------- Total operating expenses...................... 50,283 49,219 100,451 98,519 ------- ------- -------- -------- OPERATING INCOME................................... 4,514 4,234 5,395 2,320 Interest and other income, net (note 3)............ 1,119 6,357 2,462 12,135 ------- ------- -------- -------- NET INCOME BEFORE UNDERNOTED....................... 5,633 10,591 7,857 14,455 Income and mining taxes -- current............... (368) (653) (723) (969) Income and mining taxes -- deferred.............. (1,466) -- (2,006) -- Minority interest................................ (80) 9 (53) 9 Equity in income (loss) of associated companies..................................... 30 (199) 30 (244) ------- ------- -------- -------- NET INCOME......................................... 3,749 9,748 5,105 13,251 RETAINED EARNINGS -- BEGINNING OF PERIOD........... 79,894 58,872 78,538 55,369 ------- ------- -------- -------- RETAINED EARNINGS -- END OF PERIOD................. $ 83,643 $68,620 $ 83,643 $ 68,620 ======= ======= ======== ======== EARNINGS PER SHARE................................. $0.03 $0.08 $0.04 $0.11 ======= ======= ======== ======== Weighted average number of common shares outstanding (000s)............................... 138,196 119,021 135,006 116,754 ======= ======= ======== ========
The accompanying notes are an integral part of the Consolidated Financial Statements. F-23 138 ROYAL OAK MINES INC. CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited -- Cdn$ 000s)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- --------------------- 1996 1995 1996 1995 -------- -------- --------- -------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Consolidated net income for the period.......... $ 3,749 $ 9,748 $ 5,105 $ 13,251 Items not affecting cash: Depreciation and amortization................ 6,131 2,988 11,366 6,270 Deferred income tax.......................... 1,466 -- 2,006 -- Recovery of loss on foreign currency contracts.................................. (209) (3,772) (976) (3,772) Other........................................ 51 596 169 235 -------- -------- --------- -------- CASH FLOW......................................... 11,188 9,560 17,670 15,984 Net change in non-cash working capital (note 5)... (10,999) (3,265) (27,132) (8,302) -------- -------- --------- -------- Net cash provided by (used in) operating activities...................................... 189 6,295 (9,462) 7,682 -------- -------- --------- -------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Increase in deferred revenue, net............... 19,112 2,267 25,097 6,692 Issue of common shares (note 11)................ 359 69 114,359 14,575 Other........................................... 994 (74) 2,424 (146) -------- -------- --------- -------- Net cash provided by financing activities......... 20,465 2,262 141,880 21,121 -------- -------- --------- -------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES Investment in Kemess capital assets through purchase of companies (note 8)............... -- -- (201,976) -- Decrease in long-term investments (note 8)...... -- -- 26,882 -- Investment in capital assets through purchase of Consolidated Professor Mines Limited (note 9)........................................... (2,592) -- (15,844) -- Investment in other capital assets, net......... (12,788) (9,591) (32,216) (17,288) Investment in exploration and non-producing properties, net.............................. (3,626) (3,432) (5,692) (5,655) Change in other assets.......................... (3,027) (1,364) (6,270) (1,684) -------- -------- --------- -------- Net cash used in investing activities............. (22,033) (14,387) (235,116) (24,627) -------- -------- --------- -------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS DURING PERIOD....................... (1,379) (5,830) (102,698) 4,176 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD.......................................... 41,062 188,943 142,381 178,937 -------- -------- --------- -------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD.......................................... $ 39,683 $183,113 $ 39,683 $183,113 ======== ======== ========= ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest..................................... $47 $44 $86 $96 Income taxes................................. $175 $110 $530 $426
Cash consists of cash and short-term investments. The accompanying notes are an integral part of the Consolidated Financial Statements. F-24 139 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (tabular amounts in thousands of Canadian dollars unless otherwise stated) 1. INTERIM FINANCIAL STATEMENTS ACCOUNTING POLICIES The accompanying unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") which, in the case of Royal Oak Mines Inc. (the "Company"), differ in certain material respects from United States generally accepted accounting principles ("U.S. GAAP"), as described in Note 7. Also, such statements do not include all of the disclosures required by generally accepted accounting principles for annual statements. In the opinion of management all adjustments considered necessary for fair presentation have been included in these statements. Operating results for the three and six months ended June 30, 1996, are not necessarily indicative of the results that may be expected for the full year ending December 31, 1996. For further information, see the Company's Consolidated Financial Statements, including the accounting policies and notes thereto, included in the Annual Report to Shareholders and Annual Report on Form 10-K for the year ended December 31, 1995. The calculations of net earnings per share are based upon the weighted average number of common shares of the Company outstanding during each period (except as set forth in Note 11(b)). When outstanding convertible instruments materially dilute earnings per share, fully diluted earnings per share are disclosed. 2. PRESENTATION Certain amounts for 1995 have been reclassified to conform with the current year's presentation. 3. INTEREST AND OTHER INCOME, NET
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 ---------------- ----------------- 1996 1995 1996 1995 ------ ------ ------ ------- Interest income.......................................... $ 336 $2,470 $1,360 $ 4,988 Gain on sale of securities and other..................... 783 3,887 1,102 7,147 ------ ------ ------ ------- Interest and other income, net........................... $1,119 $6,357 $2,462 $12,135 ====== ====== ====== =======
4. INVENTORIES
JUNE 30, DECEMBER 31, 1996 1995 ------- ----------- Bullion in process.................................................... $20,879 $ 18,574 Stores and operating supplies......................................... 51,950 27,562 ------- Inventories........................................................... $72,829 $ 46,136 ======= ===========
The increase in stores and operating supplies resulted from the need to bring in up to one year's supply of operating and maintenance materials over a winter road to the Colomac mine site during the first quarter. Due to the remote nature of the Colomac mine, the most effective way to manage the stores and operating supplies inventory is to transport them over a winter ice road from January to March. The freight costs associated with this inventory have been included in the cost of the inventory and will be charged to operations throughout the year as the inventory is utilized. F-25 140 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (unaudited) (tabular amounts in thousands of Canadian dollars unless otherwise stated) 5. NET CHANGE IN NON-CASH WORKING CAPITAL
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Cash provided by (used in): Receivables..................................... $ (96) $ 1,763 $ (366) $ 1,727 Inventories..................................... 1,733 10,368 (26,693) (14,670) Prepaid expenses................................ (2,059) (1,198) (2,904) (1,819) Accounts payable, accrued payroll and other current liabilities.......................... (10,815) (15,461) 2,431 5,410 Income taxes payable............................ 238 1,263 400 1,050 -------- -------- -------- -------- Net change in non-cash working capital............ $(10,999) $ (3,265) $(27,132) $ (8,302) ======== ======== ======== ========
6. RECLAMATION AND ENVIRONMENTAL REMEDIATION The Company's current and proposed mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect its employees, the general public and the environment and believes its operations are in compliance with all applicable laws and regulations, in all material respects. The Company has, and expects to in the future, comply with such laws and regulations, including making all required expenditures. Where estimated reclamation and closure costs are reasonably determinable, the Company has recorded a provision for environmental liabilities, using the unit-of-production method, based on management's estimate of these costs. Such estimates are subject to adjustment based on changes in laws and regulations and as new information becomes available. 7. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Reconciliation of net income in accordance with Canadian GAAP to net income in accordance with U.S. GAAP is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------ ------------------ 1996 1995 1996 1995 ------- ------- ------- ------- Net income in accordance with Canadian GAAP........... $ 3,749 $ 9,748 $ 5,105 $13,251 Adjustments: Depreciation and amortization....................... (1,517) (2,547) (2,233) (3,489) Income taxes........................................ 531 -- 782 -- ------- ------- ------- ------- Net income in accordance with U.S. GAAP............... $ 2,763 $ 7,201 $ 3,654 $ 9,762 ======= ======= ======= ======= Earnings per share in accordance with U.S. GAAP....... $ 0.02 $ 0.06 $ 0.03 $ 0.08 ======= ======= ======= =======
F-26 141 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (unaudited) (tabular amounts in thousands of Canadian dollars unless otherwise stated) The effects on the balance sheets of the Company at June 30, prepared in accordance with U.S. GAAP, are:
JUNE 30 -------------------- 1996 1995 -------- ------- Increase (decrease): Property, plant and equipment........................................ $ 66,877 $(9,650) Prepaid expenses (pension asset)..................................... $ (359) -- Deferred income taxes................................................ $ 80,122 -- Retained earnings.................................................... $(13,604) $(9,650)
Statement of Financial Accounting Standards No. 109 requires that a deferred tax liability be recognized for differences between the assigned values and the tax bases of the assets and liabilities recognized in a business combination involving a purchase of stock. Canadian GAAP does not require similar recognition. Accordingly, during the six months ended June 30, 1996, a difference between U.S. GAAP and Canadian GAAP arose for the deferred tax liabilities associated with the excess of the assigned values and the tax bases of assets acquired in the acquisition of Geddes Resources Limited ("Geddes"), El Condor Resources Ltd. ("El Condor"), St. Philips Resources Inc. ("St. Philips") and Consolidated Professor Mines Limited ("Consolidated Professor"). The effect of these differences is to increase property, plant and equipment and deferred income taxes by $80.9 million as of June 30, 1996. 8. ACQUISITION OF GEDDES RESOURCES LIMITED, EL CONDOR RESOURCES LTD. AND ST. PHILIPS RESOURCES INC. On January 11, 1996, the Company acquired all of the outstanding shares of Geddes, El Condor and St. Philips not already owned by the Company pursuant to an agreement (the "Plan of Arrangement") on the following terms: Geddes: 0.30 shares of the Company for each share of Geddes. El Condor: 0.95 shares of the Company plus $2.00 cash for each share of El Condor. St. Philips: $3.40 cash for each share of St. Philips.
As a result of these transactions, the Company issued 19,011,883 common shares of the Company and paid approximately $56 million in cash pursuant to the Plan of Arrangement. The January 11, 1996 closing price on The Toronto Stock Exchange for the Company's common shares was $6.00. This price was used to value the common shares issued under the Plan of Arrangement. At the time of acquisition, St. Philips, with its wholly owned subsidiary, and El Condor jointly owned the Kemess South property. El Condor owned 100% of the Kemess North property. As at December 31, 1995, the Company's investment in Geddes, El Condor and St. Philips amounted to approximately $26.9 million and was included in long-term investments. F-27 142 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (unaudited) (tabular amounts in thousands of Canadian dollars unless otherwise stated) The following outlines the details of the purchase price and its allocation to the assets and liabilities acquired:
GEDDES EL CONDOR ST. PHILIPS TOTAL ------- --------- ----------- -------- Purchase price: Cash paid, including open market purchases....... $ 3,220 $ 34,222 $38,562 $ 76,004 Issue of common shares........................... 37,650 76,421 -- 114,071 ------- -------- ------- -------- 40,870 110,643 38,562 190,075 Initial carrying value of Geddes................. 9,192 -- -- 9,192 Transaction and other costs...................... 2,290 680 679 3,649 ------- -------- ------- -------- 52,352 111,323 39,241 202,916 Cash and cash equivalents acquired from companies..................................... (561) (1) (378) (940) ------- -------- ------- -------- Total.............................................. $51,791 $ 111,322 $38,863 $201,976 ======= ======== ======= ======== Allocated to: Property, plant and equipment.................... $52,101 $ 112,087 $39,015 $203,203 Other assets..................................... 31 151 9 191 Total liabilities................................ (341) (916) (161) (1,418) ------- -------- ------- -------- Total.............................................. $51,791 $ 111,322 $38,863 $201,976 ======= ======== ======= ========
These transactions were linked to the resolution of the claim by Geddes for compensation from the Government of British Columbia (the "B.C. Government") which, in 1993, declared the area, including the Windy Craggy property, a provincial park. Under the terms of an agreement among the B.C. Government, the Company and Geddes, the B.C. Government has agreed to an economic assistance and investment package and to compensation valued, in the aggregate, at up to $166 million. The majority of these funds are payable to the Company over the next three years. The following shows pro forma what the results of operations would have been if the acquisition had occurred at the beginning of the period:
SIX MONTHS ENDED JUNE 30 ---------------------- 1996 1995 -------- -------- Revenue.............................................................. $105,846 $100,839 Net income........................................................... $ 5,105 $ 10,976 Earnings per share -- basic.......................................... $ 0.04 $ 0.08 Earnings per share -- fully diluted.................................. $ 0.04 $ 0.08
On April 29, 1996, the Project Approval Certificate (formerly known as the Mine Development Certificate) for the Kemess South project was received from the B.C. Government following resolution of provincial environmental assessment matters. Federal approval under the Environmental Assessment Act (Canada) and the Fisheries Act (Canada) is expected shortly and will facilitate completion of all infrastructure impacting on viable lakes and streams in the project area. The Kemess South gold-copper project in north central British Columbia is scheduled to commence production in the first half of 1998. The mineable ore reserves at year-end 1995 at Kemess South contained approximately 4.1 million ounces of gold and one billion pounds of copper. F-28 143 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (unaudited) (tabular amounts in thousands of Canadian dollars unless otherwise stated) The Company is proceeding with the development and construction of the Kemess South project. Engineering on the project is estimated to be 65% complete. Certain of the construction contracts for the plant and infrastructure facilities have been awarded and the remainder are expected to be awarded in the next few months. Construction on the project commenced in early July. As of July 31, 1996, approximately $122.0 million has been committed on the project. The capital cost of the Kemess South project has been estimated at $390 million, including contingency and start-up costs but excluding the cost of acquisition of the property. Financing for the Kemess South project will include up to $166 million by way of an economic assistance and investment package and compensation from the B.C. Government. The Company's wholly owned subsidiary, Kemess Mines Inc. (formerly Geddes Resources Limited) has already received the first of two equal payments of compensation from the B.C. Government in the sum of $14.5 million in April 1996, the final compensation payment being due in April 1997. The Company will fund the balance of the capital cost from cash in treasury, future operating cash flow and debt. At this time, the Company has no plans to issue any new equity in connection with this project. The Company will apply for and seek to obtain all necessary permits, licences, approvals and other authorizations for the Kemess South project as project development continues. 9. ACQUISITION OF CONSOLIDATED PROFESSOR MINES LIMITED On February 5, 1996, the Company made a public offer to purchase all of the outstanding common shares of Consolidated Professor consisting of approximately 20 million common shares, at a cash price of $0.80 per share. By June 30, 1996, the Company had purchased all shares tendered and acquired all remaining shares in accordance with compulsory acquisition procedures, for a total purchase price of $16.2 million. The purchase price, net of cash acquired on the acquisition of $0.3 million, has been assigned as follows:
(MILLION) Capital assets............................................ $15.8 Miscellaneous net assets.................................. 0.1 ----- Purchase price, net of cash acquired...................... $15.9 =====
The acquisition is part of the Company's strategic plan to increase ore reserves and production at its Ontario Division. Consolidated Professor has a 100% interest in the Duport Gold project in the Kenora mining district in northwestern Ontario. The Company intends to review production plans and continue the mine permitting process initiated by the former owners of Consolidated Professor. 10. CREDIT LINE The Company entered into a $28 million unsecured, revolving line of credit with a major Canadian bank in the first quarter of 1996. This line will be used as necessary to finance working capital for current operations. At June 30, 1996, no amounts were outstanding under this facility. F-29 144 ROYAL OAK MINES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (unaudited) (tabular amounts in thousands of Canadian dollars unless otherwise stated) 11. CAPITAL STOCK (a) Changes in capital
NUMBER OF SHARES AMOUNT ---------- -------- Balance, December 31, 1994............................................ 114,494,747 $247,362 Exercise of warrants Series 2......................................... 4,475,300 14,545 Issued for share purchase options..................................... 50,667 78 Share issue and other related costs................................... -- (48) ----------- -------- Balance, June 30, 1995 issued and outstanding......................... 119,020,714 $261,937 =========== ======== Balance, December 31, 1995............................................ 121,043,530 $270,811 Issued to acquire Geddes and El Condor (See note 8)................... 19,011,883 114,071 Issued for share purchase options..................................... 87,833 288 ----------- -------- Balance, June 30, 1996 issued and outstanding......................... 140,143,246 385,170 Company shares held by Witteck Development Inc. (see note 11(b))...... (1,924,816) (8,854) ----------- -------- Balance, June 30, 1996 for financial reporting purposes............... 138,218,430 $376,316 =========== ========
(B) COMPANY SHARES HELD BY WITTECK DEVELOPMENT INC. During 1995, the Board of Directors and the shareholders approved the acquisition of all of the shares of Witteck Development Inc. ("Witteck") whose sole asset is an investment in the Company of 1,924,816 common shares of the Company. This investment has been recorded as a reduction of capital stock on the balance sheet. Consequently, the common shares of the Company that are held by Witteck may not be voted and have been excluded from the determination of earnings per share information. F-30 145 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AS AMENDED OR SUPPLEMENTED AT THE TIME OF DELIVERY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ROYAL OAK MINES INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION NOR TO ANY PERSON WHO HAS NOT RECEIVED A COPY OF EACH CURRENT AMENDMENT OR SUPPLEMENT HERETO. NEITHER THE DELIVERY OF THIS PROSPECTUS OR OF ANY AMENDMENT OR SUPPLEMENT HERETO, NOR ANY SALE MADE HEREUNDER AND THEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ROYAL OAK MINES INC. SINCE SUCH RESPECTIVE DATES. ------------------ TABLE OF CONTENTS
PAGE ------ Available Information.................. 2 Information Incorporated by Reference............................ 3 Exchange Rate Data..................... 3 Prospectus Summary..................... 4 Risk Factors........................... 16 The Exchange Offer..................... 23 Certain Federal Income Tax Consequences of the Exchange Offer................ 30 Capitalization......................... 31 Selected Historical Consolidated Financial and Operating Data......... 32 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 34 Business............................... 42 Management............................. 63 Description of Share Capital........... 69 Certain Relationships and Related Transactions......................... 71 Security Ownership..................... 72 Description of Credit Facility......... 72 Description of Exchange Notes.......... 73 Description of Notes................... 98 Exchange Offer and Registration Rights............................... 98 Certain Income Tax Considerations...... 100 Book-Entry; Delivery and Form.......... 103 Plan of Distribution................... 104 Validity of Exchange Notes............. 105 Independent Chartered Accountants...... 105 Glossary of Certain Mining Terms....... 106 Index to Consolidated Financial Statements........................... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ ROYAL OAK MINES INC. OFFER TO EXCHANGE US$175,000,000 11% SENIOR SUBORDINATED NOTES DUE 2006 FOR SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2006 LOGO - ------------------------------------------------------ - ------------------------------------------------------ 146 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under the Ontario Business Corporations Act, each of the Company and the Guarantor may indemnify a present or former director or officer or a person who acts or acted at such corporation's request as a director or officer of another corporation of which the Company or the Guarantor, as the case may be, 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 his position with the Company or the Guarantor, as the case may be, and provided that the director or officer acted honestly and in good faith with a view to the best interests of the Company or the Guarantor, as the case may be, and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his conduct was lawful. Such indemnification may be made in connection with a derivative action only with court approval. A director or officer is entitled to indemnification from the Company or the Guarantor as a matter of right if he was substantially successful on the merits and fulfilled the conditions set forth above. In accordance with the Ontario Business Corporations Act, the By-laws of each of the Company and the Guarantor provide for indemnification of a director or officer, a former director or officer, or a person who acts or acted at such corporation's request as a director or officer of a corporation of which Company or the Guarantor, as the case may be, 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 proceeding to which he is made a party by reason of being or having been a director or officer of the Company or the Guarantor or such other corporation if he acted honestly and in good faith with a view to the best interests of the Company or the Guarantor, as the case may be, or, in the case of a criminal or administrative action or proceeding that is enforced by monetary penalty, he had reasonable grounds in believing that his conduct was lawful. A policy of directors' and officers' liability insurance is maintained by the Company which insures the directors and officers of the Company and its subsidiaries, including the Guarantor, for losses as a result of claims based upon the acts or omissions of such individuals as directors and officers of the Company or its subsidiaries (including the Guarantor), including liabilities arising under the Securities Act, and also reimburses the Company for payments made pursuant to the indemnity provisions under the Ontario Business Corporations Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company or the Guarantor pursuant to the foregoing provision, the Company and the Guarantor have been informed that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. 3.1 Certificate of Amalgamation of the Company dated January 1, 1992 (incorporated by reference to the Company's Form 20-F for the year ended December 31, 1991). 3.2 General By-Law No. 3 of the Company dated July 23, 1991 (incorporated by reference to the Company's Form 20-F for the year ended December 31, 1991). 4.1 Indenture, dated as of August 12, 1996, by and among the Company, the Guarantor and Mellon Bank, F.S.B. 4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit B thereto). 5.1 Opinion of Wachtell, Lipton, Rosen & Katz.*
II-1 147 5.2 Opinion of Lang Michener* 10.1 Registration Rights Agreement, dated as of August 12, 1996, by and among the Company, the Guarantor, BT Securities Corporation and Scotia Capital Markets (USA) Inc. 10.2 Credit Agreement, dated as of February 15, 1996 by and between the Company and The Bank of Nova Scotia. 10.3 Amending Agreement, dated as of August 5, 1996, by and between the Company and The Bank of Nova Scotia. 10.4 Employment Agreement, dated as of July 21, 1995, between Margaret K. Witte, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.5 Employment Agreement, dated as of July 21, 1995, between Ross F. Burns, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.6 Employment Agreement, dated as of July 21, 1995, between J. Graham Eacott, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1996 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995) 10.7 Employment Agreement, dated as of July 21, 1995, between Sadek E. El-Alfy, Artic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1995 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.8 Employment Agreement, dated as of July 21, 1995, between John R. Smrke, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1995 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.9 Employment Agreement, dated as of July 21, 1995, between Edmund Szol, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1995 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.10 Employment Agreement, dated as of July 21, 1995, between James H. Wood, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1995 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 12.1 Statements re computation of ratios. 21.1 Subsidiaries of the Company. 23.1 Consent of Arthur Andersen & Co. 23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).* 23.3 Consent of Lang Michener (contained in Exhibit 5.2).* 24.1 Powers of Attorney of Directors and Officers of Royal Oak Mines Inc. (included in the signature pages in Part II of the Registration Statement). 24.2 Powers of Attorney of Directors and Officers of Kemess Mines Inc. (included in the signature pages in Part II of the Registration Statement). 25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of Mellon Bank, F.S.B. under the Trust Indenture Act of 1939. 99.1 Form of Letter of Transmittal for the 11% Senior Subordinated Notes due 2006. 99.2 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
- --------------- *To be filed by amendment. II-2 148 22. UNDERTAKINGS. 1. The undersigned Registrant hereby undertakes: (a)(1) 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 most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent 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 in the registration statement. (2) 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. (3) 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. (b) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. 2. 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 an 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. II-3 149 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kirkland, State of Washington, on August 30, 1996. ROYAL OAK MINES INC. By: /s/ MARGARET K. WITTE Margaret K. Witte, President and Chief Executive Officer Each person whose signature appears below constitutes and appoints Margaret K. Witte and William J.V. Sheridan, his or her true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all Amendments (including post-effective Amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities on August 30, 1996.
SIGNATURES TITLE - --------------------------------------------- ---------------------------------------------- /s/ ROSS F. Director and Vice President, Exploration BURNS - --------------------------------------------- Ross F. Burns /s/ MATTHEW GAASENBEEK Director - --------------------------------------------- Matthew Gaasenbeek /s/ J. CONRAD Director LAVIGNE - --------------------------------------------- J. Conrad Lavigne /s/ JOHN L. Director MAY - --------------------------------------------- John L. May /s/ GEORGE W. OUGHTRED Director - --------------------------------------------- George W. Oughtred /s/ WILLIAM J.V. Director and Secretary SHERIDAN - --------------------------------------------- William J.V. Sheridan
II-4 150
SIGNATURES TITLE - --------------------------------------------- ---------------------------------------------- /s/ MARGARET K. WITTE Director, Chairman of the Board, President and - --------------------------------------------- Chief Executive Officer Margaret K. Witte /s/ JAMES H. Chief Financial Officer (principal financial WOOD and accounting officer) - --------------------------------------------- James H. Wood
II-5 151 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kirkland, State of Washington, on August 30, 1996. KEMESS MINES INC. By: /s/ MARGARET K. WITTE Margaret K. Witte, Chairman and Chief Executive Officer Each person whose signature appears below constitutes and appoints Margaret K. Witte and William J.V. Sheridan, his true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all Amendments (including post-effective Amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities on August 30, 1996.
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- /s/ ROSS F. Vice President, Exploration BURNS - --------------------------------------------- Ross F. Burns /s/ NANCY Director DESHAW - --------------------------------------------- Nancy Deshaw /s/ WILLIAM J.V. Director and Secretary SHERIDAN - --------------------------------------------- William J.V. Sheridan /s/ JOHN R. President SMRKE - --------------------------------------------- John R. Smrke /s/ MARGARET K. WITTE Director, Chairman of the Board and Chief - --------------------------------------------- Executive Officer Margaret K. Witte /s/ JAMES H. Chief Financial Officer (principal financial WOOD and accounting officer) - --------------------------------------------- James H. Wood
II-6 152 Pursuant to the requirements of the Securities Act of 1933, the undersigned has signed this registration statement solely in the capacity of the duly authorized representative of each of Royal Oak Mines Inc. and Kemess Mines Inc. in the United States, in the City of Toronto, Country of Canada on August 30, 1996. ARCTIC PRECIOUS METALS INC. By: /s/ WILLIAM J.V. SHERIDAN William J.V. Sheridan Director II-7 153 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ----- --------------------------------------------------------------------------- 3.1 Certificate of Amalgamation of the Company dated January 1, 1992 (incorporated by reference to the Company's Form 20-F for the year ended December 31, 1991). 3.2 General By-Law No. 3 of the Company dated July 23, 1991 (incorporated by reference to the Company's Form 20-F for the year ended December 31, 1991). 4.1 Indenture, dated as of August 12, 1996, by and among the Company, the Guarantor and Mellon Bank, F.S.B. 4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit B thereto). 5.1 Opinion of Wachtell, Lipton, Rosen & Katz.* 5.2 Opinion of Lang Michener.* 10.1 Registration Rights Agreement, dated as of August 12, 1996, by and among the Company, the Guarantor, BT Securities Corporation and Scotia Capital Markets (USA) Inc. 10.2 Credit Agreement, dated as of February 15, 1996, by and between the Company and The Bank of Nova Scotia. 10.3 Amending Agreement, dated as of August 5, 1996, by and between the Company and The Bank of Nova Scotia. 10.4 Employment Agreement, dated as of July 21, 1995, between Margaret K. Witte, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.5 Employment Agreement, dated as of July 21, 1995, between Ross F. Burns, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.6 Employment Agreement, dated as of July 21, 1995, between J. Graham Eacott, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1996 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.7 Employment Agreement, dated as of July 21, 1995, between Sadek E. El-Alfy, Artic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1995 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.8 Employment Agreement, dated as of July 21, 1995, between John R. Smrke, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1995 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.9 Employment Agreement, dated as of July 21, 1995, between Edmund Szol, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1995 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 10.10 Employment Agreement, dated as of July 21, 1995, between James H. Wood, Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16, 1995 (incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995). 12.1 Statements re computation of ratios. 21.1 Subsidiaries of the Company. 23.1 Consent of Arthur Andersen & Co. 23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).* 23.3 Consent of Lang Michener (contained in Exhibit 5.2).*
154
EXHIBIT NUMBER DESCRIPTION ----- --------------------------------------------------------------------------- 24.1 Powers of Attorney of Directors and Officers of Royal Oak Mines Inc. (included in the signature pages in Part II of the Registration Statement). 24.2 Powers of Attorney of Directors and Officers of Kemess Mines Inc. (included in the signature pages in Part II of the Registration Statement). 25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of Mellon Bank, F.S.B. under the Trust Indenture Act of 1939. 99.1 Form of Letter of Transmittal for the 11% Senior Subordinated Notes due 2006. 99.2 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
- --------------- *To be filed by amendment. EX-4.1 2 INDENTURE 1 Exhibit 4.1 ROYAL OAK MINES INC., as Issuer and KEMESS MINES INC., as Guarantor and MELLON BANK, F.S.B., as Trustee INDENTURE Dated as of August 12, 1996 $175,000,000 11% Senior Subordinated Notes due 2006 and Series B 11% Senior Subordinated Notes due 2006 2 CROSS-REFERENCE TABLE
TIA Indenture Section Section ------- --------- 310 (a)(1) ............................ 7.10 (a)(2) ............................ 7.10 (a)(3) ............................ N.A. (a)(4) ............................ N.A. (a)(5) ............................ 7.08; 7.10 (b) ............................ 7.08; 7.10; 13.02 (c) ............................ N.A. 311 (a) ............................ 7.11 (b) ............................ 7.11 (c) ............................ N.A. 312 (a) ............................ 2.05 (b) ............................ 13.03 (c) ............................ 13.03 313 (a) ............................ 7.06 (b)(1) ............................ N.A. (b)(2) ............................ 7.06 (c) ............................ 7.06; 13.02 (d) ............................ 7.06 314 (a) ............................ 4.07; 4.08; 13.02 (b) ............................ N.A. (c)(1) ............................ 13.04 (c)(2) ............................ 13.04 (c)(3) ............................ N.A. (d) ............................ N.A. (e) ............................ 13.05 (f) ............................ N.A. 315 (a) ............................ 7.01(b) (b) ............................ 7.05; 13.02 (c) ............................ 7.01(a) (d) ............................ 7.01(c) (e) ............................ 6.11 316 (a)(last sentence) ............... 2.09 (a)(1)(A) ........................ 6.05 (a)(1)(B) ........................ 6.04 (a)(2) ........................ N.A. (b) ............................ 6.07 (c) ............................ 9.05 317 (a)(1) ............................ 6.08 (a)(2) ............................ 6.09 (b) ............................ 2.04 318 (a) ............................ 13.01 (c) ............................ 13.01
______________________ N.A. means Not Applicable. NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions ...................................... 1 Section 1.02 Incorporation by Reference of TIA ............................................ 27 Section 1.03 Rules of Construction ............................ 27 ARTICLE TWO THE NOTES Section 2.01 Form and Dating .................................. 28 Section 2.02 Execution and Authentication; Aggregate Principal Amount ............................... 29 Section 2.03 Registrar and Paying Agent ....................... 30 Section 2.04 Paying Agent To Hold Assets in Trust .......................................... 31 Section 2.05 Noteholder Lists ................................. 31 Section 2.06 Transfer and Exchange ............................ 32 Section 2.07 Replacement Notes ................................ 33 Section 2.08 Outstanding Notes ................................ 33 Section 2.09 Treasury Notes ................................... 34 Section 2.10 Temporary Notes .................................. 34 Section 2.11 Cancellation ..................................... 34 Section 2.12 Defaulted Interest ............................... 35 Section 2.13 CUSIP Number ..................................... 35 Section 2.14 Deposit of Moneys ................................ 35 Section 2.15 Restrictive Legends .............................. 36 Section 2.16 Book-Entry Provisions for Global Security ....................................... 38 Section 2.17 Special Transfer Provisions ...................... 39 ARTICLE THREE REDEMPTION Section 3.01 Notices to Trustee ............................... 42 Section 3.02 Selection of Notes To Be Redeemed ................ 42 Section 3.03 Notice of Redemption ............................. 43 Section 3.04 Effect of Notice of Redemption ................... 44 Section 3.05 Deposit of Redemption Price ...................... 45 Section 3.06 Notes Redeemed in Part ........................... 45
-i- 4
Page ---- ARTICLE FOUR COVENANTS Section 4.01 Payment of Notes ................................. 45 Section 4.02 Maintenance of Office or Agency .................. 47 Section 4.03 Corporate Existence .............................. 47 Section 4.04 Payment of Taxes and Other Claims ................ 47 Section 4.05 Maintenance of Properties and Insurance ...................................... 48 Section 4.06 Compliance Certificate; Notice of Default ........................................ 48 Section 4.07 Compliance with Laws ............................. 49 Section 4.08 SEC Reports ...................................... 50 Section 4.09 Waiver of Stay, Extension or Usury Laws ........................................... 51 Section 4.10 Limitation on Restricted Payments ................ 51 Section 4.11 Limitation on Transactions with Affiliates ..................................... 53 Section 4.12 Limitation on Indebtedness ....................... 54 Section 4.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries ................................... 56 Section 4.14 Prohibition on Incurrence of Senior Subordinated Indebtedness ...................... 57 Section 4.15 Change of Control ................................ 57 Section 4.16 Limitation on Sale of Assets ..................... 60 Section 4.17 Limitation on Preferred Stock of Restricted Subsidiaries ........................ 63 Section 4.18 Limitation on Liens .............................. 63 Section 4.19 Conduct of Business .............................. 64 Section 4.20 Additional Subsidiary Guarantees ................. 64 ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01 Merger, Consolidation and Sale of Assets ......................................... 65 Section 5.02 Successor Corporation Substituted ................ 67 ARTICLE SIX DEFAULT AND REMEDIES Section 6.01 Events of Default ................................ 68 Section 6.02 Acceleration ..................................... 70
-ii- 5
Page ---- Section 6.03 Other Remedies ................................... 71 Section 6.04 Waiver of Past Defaults .......................... 71 Section 6.05 Control by Majority .............................. 71 Section 6.06 Limitation on Suits .............................. 72 Section 6.07 Rights of Holders To Receive Payment ............. 72 Section 6.08 Collection Suit by Trustee ....................... 73 Section 6.09 Trustee May File Proofs of Claim ................. 73 Section 6.10 Priorities ....................................... 74 Section 6.11 Undertaking for Costs ............................ 74 ARTICLE SEVEN TRUSTEE Section 7.01 Duties of Trustee ................................ 75 Section 7.02 Rights of Trustee ................................ 76 Section 7.03 Individual Rights of Trustee ..................... 78 Section 7.04 Trustee's Disclaimer ............................. 78 Section 7.05 Notice of Default ................................ 78 Section 7.06 Reports by Trustee to Holders .................... 78 Section 7.07 Compensation and Indemnity ....................... 79 Section 7.08 Replacement of Trustee ........................... 80 Section 7.09 Successor Trustee by Merger, Etc. ................ 81 Section 7.10 Eligibility; Disqualification .................... 81 Section 7.11 Preferential Collection of Claims Against Company ................................ 82 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE Section 8.01 Termination of the Company's Obligations .......................... 82 Section 8.02 Legal Defeasance and Covenant Defeasance ..................................... 84 Section 8.03 Conditions to Legal Defeasance or Covenant Defeasance ............................ 85 Section 8.04 Application of Trust Money ....................... 87 Section 8.05 Repayment to the Company or the Guarantors .............................. 88 Section 8.06 Reinstatement .................................... 89 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.01 Without Consent of Holders ...................... 89 -iii-
6
Page ---- Section 9.02 With Consent of Holders ......................... 90 Section 9.03 Effect on Senior Indebtedness and Guarantor Senior Indebtedness .................. 92 Section 9.04 Compliance with TIA .............................. 92 Section 9.05 Revocation and Effect of Consents ................ 92 Section 9.06 Notation on or Exchange of Notes ................. 93 Section 9.07 Trustee To Sign Amendments, Etc. ................. 94 ARTICLE TEN SUBORDINATION Section 10.01 Notes Subordinated to Senior Indebtedness ............................ 94 Section 10.02 No Payment on Notes in Certain Circumstances .......................... 95 Section 10.03 Payment Over of Proceeds upon Dissolution, Etc. .............................. 96 Section 10.04 Payments May Be Paid Prior to Dissolution .................................... 98 Section 10.05 Subrogation ...................................... 99 Section 10.06 Obligations of the Company Unconditional .................................. 99 Section 10.07 Notice to Trustee ................................ 100 Section 10.08 Reliance on Judicial Order or Certificate of Liquidating Agent ............... 100 Section 10.09 Trustee's Relation to Senior Indebtedness ................................... 101 Section 10.10 Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness .............. 101 Section 10.11 Noteholders Authorize Trustee To Effectuate Subordination of Notes .............. 102 Section 10.12 This Article Ten Not To Prevent Events of Default .............................. 103 Section 10.13 Trustee's Compensation Not Prejudiced ..................................... 103 ARTICLE ELEVEN GUARANTEE Section 11.01 Unconditional Guarantee .......................... 103 Section 11.02 Subordination of Guarantee ...................................... 104 Section 11.03 Severability ..................................... 104 Section 11.04 Release of a Guarantor ........................... 105
-iv- 7
Page ---- Section 11.05 Limitation of Subsidiary Guarantor's Liability ...................................... 105 Section 11.06 Guarantors May Consolidate, Etc., on Certain Terms .................................. 106 Section 11.07 Contribution ..................................... 107 Section 11.08 Waiver of Subrogation ............................ 107 Section 11.09 Execution of Guarantee ........................... 108 Section 11.10 Waiver of Stay, Extension or Usury Laws ........................................... 109 ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS Section 12.01 Guarantee Obligations Subordinated to Guarantor Senior Indebtedness ................................... 109 Section 12.02 No Payment on Notes in Certain Circumstances .................................. 110 Section 12.03 Payment Over of Proceeds upon Dissolution, Etc. .............................. 112 Section 12.04 Payments May Be Paid Prior to Dissolution .................................... 113 Section 12.05 Subrogation ...................................... 114 Section 12.06 Obligations of the Subsidiary Guarantors Unconditional ....................... 114 Section 12.07 Notice to Trustee ................................ 115 Section 12.08 Reliance on Judicial Order or Certificate of Liquidating Agent ............... 116 Section 12.09 Trustee's Relation to Guarantor Senior Indebtedness ............................ 116 Section 12.10 Subordination Rights Not Impaired by Acts or Omissions of the Subsidiary Guarantors or Holders of Guarantor Senior Indebtedness ............................ 117 Section 12.11 Noteholders Authorize Trustee To Effectuate Subordination of Guarantee Obligations .......................... 117 Section 12.12 This Article Twelve Not To Prevent Events of Default .............................. 118 Section 12.13 Trustee's Compensation Not Prejudiced ..................................... 118
-v- 8
Page ---- ARTICLE THIRTEEN MISCELLANEOUS Section 13.01 TIA Controls ..................................... 118 Section 13.02 Notices .......................................... 119 Section 13.03 Communications by Holders with Other Holders ........................................ 120 Section 13.04 Certificate and Opinion as to Conditions Precedent ........................... 120 Section 13.05 Statements Required in Certificate or Opinion ..................................... 121 Section 13.06 Rules by Trustee, Paying Agent, Registrar ...................................... 121 Section 13.07 Legal Holidays ................................... 121 Section 13.08 Governing Law .................................... 122 Section 13.09 No Adverse Interpretation of Other Agreements ..................................... 122 Section 13.10 No Recourse Against Others ....................... 122 Section 13.11 Successors ....................................... 122 Section 13.12 Duplicate Originals .............................. 122 Section 13.13 Severability ..................................... 122 Signatures ..................................................... 124 Exhibit A - Form of Initial Note with Guarantee Exhibit B - Form of Exchange Note with Guarantee Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S
Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -vi- 9 INDENTURE, dated as of August 12, 1996, by and among Royal Oak Mines Inc., an Ontario, Canada corporation (the "Company"), Kemess Mines Inc., an Ontario, Canada corporation (the "Guarantor"), and Mellon Bank, F.S.B., a federal savings bank with trust powers, as Trustee (the "Trustee"). The Company has duly authorized the creation of an issue of 11% Senior Subordinated Notes due 2006 (the "Initial Notes") and Series B 11% Senior Subordinated Notes due 2006 (the "Exchange Notes," and together with the Initial Notes, the "Notes") and, to provide therefor, the Company and the Guarantor have duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when duly issued and executed by the Company, and authenticated and delivered hereunder, the valid obligations of the Company and the Guarantor, and to make this Indenture a valid and binding agreement of the Company and the Guarantor, have been done. Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Notes. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions. "Acquired Indebtedness" of any Person means Indebtedness of another Person and any of its Subsidiaries existing at the time such other Person becomes a Restricted Subsidiary of such Person or at the time it merges or consolidates with such Person or any of such Person's Restricted Subsidiaries or is assumed by such Person or any Restricted Subsidiary of such Person in connection with the acquisition of assets from such other Person and in each case not Incurred by such Person or any Restricted Subsidiary of such Person or such other Person in connection with, or in anticipation or contemplation of, such other Person becoming a Restricted Subsidiary of such Person or such acquisition, merger or consolidation, and which Indebtedness is without recourse to the Company or any of its Restricted Subsidiaries or to any of their respective properties or assets other than the Person or the assets to which such Indebtedness related prior to the time such Person becomes a Restricted Subsidiary of the Company or the time of such acquisition, merger or consolidation. 10 -2- "Additional Amounts" has the meaning set forth in Section 6(c) of Exhibit A hereto. Whenever in this Indenture there is mentioned, in any context, (a) the payment of principal (and premium, if any), (b) purchase prices in connection with a repurchase of Notes, (c) interest, or (d) any other amount payable on or with respect to any of the Notes, such mention shall be deemed to include mention of the payment of Additional Amounts provided for in Section 4.01 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. "Adjusted Consolidated Net Tangible Assets" means the total amount of consolidated assets of the Company and its Restricted Subsidiaries (net of applicable depletion, depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups of capital assets (excluding write-ups in connection with accounting for acquisitions in conformity with GAAP), after deducting therefrom (i) all current liabilities of the Company and its Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries, prepared in conformity with GAAP. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct or cause the direction of management or policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Affiliate Transaction" has the meaning set forth in Section 4.11. "Agent" means any Registrar, Paying Agent, co-Registrar or Authenticating Agent. "Agent Members" has the meaning provided in Section 2.16. "all or substantially all" shall have the meaning given such phrase in the Revised Model Business Corporation Act of 1984, as amended. 11 -3- "Asset Acquisition" means (i) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or shall be merged with or into the Company or any Restricted Subsidiary of the Company or (ii) the acquisition by the Company or any Restricted Subsidiary of the Company of assets of any Person comprising a division or line of business of such Person. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease, assignment or other transfer for value by the Company or by any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than to the Company or to a direct or indirect wholly owned Restricted Subsidiary of the Company of (i) any Capital Stock of any Restricted Subsidiary of the Company or (ii) any other property or assets of the Company or of any Restricted Subsidiary of the Company, other than with respect to this clause (ii) any disposition of mineral products for value in the ordinary course of business. "Asset Sale Offer" has the meaning set forth in Section 4.16. "Authenticating Agent" has the meaning provided in Section 2.02. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the board of directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, Sunday or any other day on which banking institutions in the City of New York are required or authorized by law or other governmental action to be closed. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of 12 -4- corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. The stated maturity of such obligations shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or Canadian Government or issued by any agency thereof and backed by the full faith and credit of the United States or Canada, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof or any province of Canada or any political subdivision of any such province or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or Canada or any province thereof or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than US$250 million; and (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above. "Change of Control" means the occurrence of one or more of the following events (whether or not approved by the board of directors of the Company): (i) the Company or any of its Restricted Subsidiaries, directly or indirectly, sells, assigns, conveys, transfers, leases or otherwise disposes of, in one 13 -5- transaction or a series of related transactions, all or substantially all of the property or assets of the Company and its Restricted Subsidiaries (determined on a consolidated basis) to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act other than the Company or a Person which is a Restricted Subsidiary (a "Group of Persons"); or (ii) the adoption of any plan of liquidation or dissolution of the Company; or (iii) any Person or Group of Persons is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the Voting Stock of the Company; or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Change of Control Offer" has the meaning provided in Section 4.15. "Change of Control Payment Date" has the meaning provided in Section 4.15. "Change of Control Triggering Event" means the occurrence of both a Change of Control and a Rating Event. "Commodity Agreement" of any Person means any option or futures contract or similar agreement or arrangement. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income plus (ii) to the extent that any of the following shall have been taken into account in determining Consolidated Net Income, (A) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or non-recurring gains or losses or taxes attributable to sales or dispositions of assets outside the ordinary course of business), Consolidated Interest Expense, amortization expense and depreciation expense, and (B) other non-cash items (other than non-cash interest) reducing Consolidated Net Income, other than any 14 -6- non-cash item which requires the accrual of or a reserve for cash charges for any future period and other than any non-cash charge constituting an extraordinary item of loss, less other non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in conformity with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction or event giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the Incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any Incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the Incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, at any time subsequent to the first day of the Four Quarter Period and on or prior to the Transaction Date, as if such Incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of any such Asset Acquisition) Incurring, assuming or otherwise being liable for Acquired Indebtedness at any time subsequent to the first day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the Incurrence, assumption or liability for any such Indebtedness or Acquired Indebtedness) and also including any Consolidated EBITDA associated with such Asset Acquisition) occurred on the first day of the Four Quarter Period; provided that the Consolidated EBITDA of any Person acquired shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income." If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the Incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly Incurred or 15 -7- otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the Transaction Date (including Indebtedness actually Incurred on the Transaction Date) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense (including amortization or write-off of deferred financing costs of such Person and its consolidated Restricted Subsidiaries during such period and any premium or penalty paid in connection with redeeming or retiring Indebtedness of such Person and its consolidated Restricted Subsidiaries prior to the stated maturity thereof pursuant to the agreements governing such Indebtedness) and (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Common Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person for any period, the aggregate of the interest expense (without deduction of interest income) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP, and including (a) all amortization of original issue discount; (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period; (c) net cash costs under all Interest Swap Obligations (including amortization of fees); (d) all capitalized interest; and (e) the interest portion of any deferred payment obligations for such period. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a 16 -8- consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains from Asset Sales or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or non-recurring gains, (c) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, (d) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a wholly owned Restricted Subsidiary of the referent Person by such Person, (f) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), and (h) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person and its consolidated Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person. "Continuing Director" means, as of the date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to such Board of Directors with the affirmative vote of a majority of the Continuing Directors who were members of such Board at the time of such election or nomination; provided, however, that in the event of a business combination involving the Company, by merger or consolidation or otherwise, from the time of effectiveness of such business combination until the next annual general meeting of the shareholders of the surviving entity, Continuing Directors shall only be directors of the Company not elected in anticipation of, or in connection with, any such transaction who are also directors of the surviving entity. 17 -9- "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Default Notice" has the meaning provided in Section 10.02. "Depositary" means The Depository Trust Company, its nominees and successors. "Designated Senior Debt" means Indebtedness constituting Senior Indebtedness which, at the time of designation, has an aggregate principal amount of at least US$25 million and is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company. "Disqualified Capital Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, in whole or in part, on or prior to the final maturity date of the Notes. "Events of Default" has the meaning set forth in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended or any successor statute or statutes thereto. "Exchange Notes" has the meaning provided in the preamble to this Indenture. "Exchange Offer" means the registration by the Company and the Guarantors under the Securities Act pursuant to a registration statement of the offer by the Company and the Guarantors to each Holder of the Initial Notes to exchange all the Initial Notes held by such Holder for the Exchange Notes in an aggregate principal amount equal to the aggregate principal amount 18 -10- of the Initial Notes held by such Holder, all in accordance with the terms and conditions of the Registration Rights Agreement. "fair market value" or "fair value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between an informed and willing seller and an informed and willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the board of directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution delivered to the Trustee; provided, however, that if the aggregate non-cash consideration to be received by the Company or any of its Restricted Subsidiaries from any Asset Sale could be reasonably likely to exceed US$15 million the fair market value shall be determined by an Independent Financial Advisor. "Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable and good faith judgment of the board of directors of the Company, qualified to perform the task for which such firm has been engaged. "Fiscal Year" has the meaning set forth in Section 4.06(a). "Foreign Exchange Obligations" means the obligations of any Person under any foreign currency future, option, swap or cap or other foreign currency hedge or arrangement. "Four Quarter Period" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio." "Funding Guarantor" has the meaning provided in Section 11.07. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Global Note" has the meaning provided in Section 2.01. 19 -11- "Gradation" means a gradation within a Rating Category, which shall be "+" and "-", in the case of S&P's current Rating Categories (e.g., a decline from BB+ to BB would constitute a decrease of one gradation); "1", "2" and "3", in the case of Moody's current Rating Categories (e.g., a decline from B1 to B2 would constitute a decrease of one gradation); or the equivalent in respect of successor Rating Categories of S&P or Moody's or Rating Categories used by Rating Agencies other than S&P and Moody's. "Guarantee" means the guarantee of each Guarantor set forth in Article Eleven and any additional guarantee of the Notes executed by any Subsidiary of the Company. "Guarantor" or "Guarantors" means (i) Kemess Mines Inc. and (ii) each of the Company's Subsidiaries that in the future executes a supplemental indenture in which such Subsidiary agrees to be bound by the terms of this Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of this Indenture. "Guarantor Senior Indebtedness" means any Indebtedness of any Guarantor (including any interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law), whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of such Guarantor. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not include (i) any Indebtedness of such Guarantor to a Subsidiary of such Guarantor or to a Subsidiary of the Company, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of such Guarantor or any Subsidiary of such Guarantor (including, without limitation, amounts owed for compensation), (iii) Indebtedness and other amounts incurred in connection with obtaining goods, materials or services owing to trade creditors, (iv) Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (vi) Indebtedness incurred in violation of the covenant described in Section 4.12 and (vii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor. "Holder" or "Noteholder" means the Person in whose name a Note is registered in the Registrar's books. 20 -12- "Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the initial recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings correlative to the foregoing); provided, however, that (A) any Indebtedness assumed in connection with an acquisition of assets and any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the Company or at the time such Person is merged or consolidated with the Company or any Restricted Subsidiary of the Company shall be deemed to be Incurred at the time of the acquisition of such assets or by such Restricted Subsidiary at the time it becomes, or is merged or consolidated with, a Restricted Subsidiary of the Company or by the Company at the time of such merger or consolidation, as the case may be, and (B) any amendment, modification or waiver of any document pursuant to which Indebtedness was previously Incurred shall be deemed to be an Incurrence of Indebtedness unless such amendment, modification or waiver does not (i) increase the principal or premium thereof or interest rate thereon (including by way of original issue discount) or (ii) change to an earlier date the stated maturity thereof or the date of any scheduled or required principal payment thereon or the time or circumstances under which such Indebtedness shall be redeemed. "Indebtedness" means with respect to any Person, any liability of such Person or such Person's Restricted Subsidiaries, without duplication, (i) for borrowed money, (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) for Capitalized Lease Obligations, (iv) issued or assumed as the deferred purchase price of property, all conditional sale obligations and under any title retention agreement (but excluding trade accounts payable and accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted), (v) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) for all Indebtedness of others (including all dividends of other Persons for the payment of which is) guaranteed, directly or indirectly, by such Person or its Restricted Subsidiaries or that is otherwise its legal liability or which such Person or its Restricted Subsidiaries has agreed to purchase or repurchase or in respect of which such Person or its Restricted Subsidiaries has agreed contingently to supply or advance funds, (vii) comprising net liabilities under Interest 21 -13- Swap Obligations and Commodity Agreements, (viii) for all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person or its Restricted Subsidiaries, whether or not such Indebtedness is assumed by such Person or its Restricted Subsidiaries or is not otherwise such Person's or its Restricted Subsidiaries' legal liability; provided that if the Obligations so secured have not been assumed by such Person or its Restricted Subsidiaries or are otherwise not such Person's or its Restricted Subsidiaries' legal liability, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the fair market value of the assets or property securing such Lien, and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends if any. The amount of Indebtedness of any Person or its Restricted Subsidiaries at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent," when used with respect to any specified Person, means such a Person who (a) is in fact independent, (b) does not have any direct financial interest or any material indirect financial interest in the Company or any of its Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries, and (c) is not an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions for the Company or any of its Subsidiaries. Whenever it is provided in this Indenture that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by the Company and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning thereof. 22 -14- "Initial Notes" has the meaning provided in the preamble to this Indenture. "Initial Purchasers" means BT Securities Corporation and Scotia Capital Markets "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means the stated maturity of an installment of interest on the Notes. "Interest Swap Obligations" means the obligations of any Person under any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter. "Investment" by any Person means any direct or indirect (i) loan, advance or other extension of credit or capital contribution (by means of transfers of cash or other property (valued at the fair market value thereof as of the date of transfer) to others or payments for property or services for the account or use of others, or otherwise); (ii) purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person; (iii) guarantee or assumption of any Indebtedness or any other obligation of any other Person (except for an assumption of Indebtedness for which the assuming Person receives consideration at the time of such assumption in the form of property or assets with a fair market value at least equal to the principal amount of the Indebtedness assumed); and (iv) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. The amount of any Investment shall not be adjusted for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such 23 -15- sale or disposition equal to the fair market value of the Common Stock of such Subsidiary not sold or disposed of. "Issue Date" means the date of original issuance of the Notes. "Kemess South" means that portion of the Kemess gold-copper ore body (located in British Columbia and the acquisition of which was completed by the Company in January 1996) upon which construction of an open-pit mine and processing facility began in July, 1996. "Legal Holiday" has the meaning provided in Section 13.07. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction other than to reflect ownership by a third party of property leased to the referent Person or any of its Subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement). "Maturity Date" means August 15, 2006. "Mining Business" means (i) the acquisition, exploration, development, operation and disposition of mineral interests, (ii) the gathering, marketing, treating, processing, storage, selling and transporting of any production from such interests and (iii) ancillary activities that are directly related to, and necessary in connection with, the activities described in clauses (i) and (ii) above. "Mining Related Assets Investment" means any Investment or capital expenditure (but not including additions to working capital or repayments of any revolving credit or working capital borrowings) by the Company or any Restricted Subsidiary of the Company which is related to the business of the Company and its Restricted Subsidiaries as it is conducted on the date of the Asset Sale giving rise to the Net Cash Proceeds to be reinvested. 24 -16- "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents (including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, brokerage, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable ((1) including, without limitation, income taxes reasonably estimated to be actually payable as a result of any disposition of property within two years of the date of disposition and (2) after taking into account any reduction in tax liability due to available tax credits or deductions and any tax sharing arrangements) and (c) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Net Equity Proceeds" means (a) in the case of any sale by the Company of Qualified Capital Stock of the Company, the aggregate net cash proceeds received by the Company, after payment of expenses, commissions and the like (including, without limitation, brokerage, legal, accounting and investment banking fees and commissions) incurred in connection therewith, and (b) in the case of any exchange, exercise, conversion or surrender of any outstanding Indebtedness of the Company or any Restricted Subsidiary issued after the Issue Date for or into shares of Qualified Capital Stock of the Company, the amount of such Indebtedness (or, if such Indebtedness was issued at an amount less than the stated principal amount thereof, the accrued amount thereof as determined in accordance with GAAP) as reflected in the consolidated financial statements of the Company prepared in accordance with GAAP as of the most recent date next preceding the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder of such Indebtedness to the Company or to any wholly owned Restricted Subsidiary of the Company upon such exchange, exercise, conversion or surrender and less any and all payments made to the holders of such Indebtedness, and all other expenses incurred by the Company 25 -17- in connection therewith), in each case (a) and (b) to the extent consummated after the Issue Date. "Non-U.S. Person" means a person who is not a U.S. person, as defined in Regulation S. "Notes" means the Initial Notes and the Exchange Notes treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering Memorandum" means the Offering Memorandum dated August 5, 1996, pursuant to which the Initial Notes were offered, and any supplement thereto. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity. "Officers' Certificate" means a certificate signed by two Officers of the Company. "Opinion of Counsel" means a written opinion from legal counsel which and who are acceptable to the Trustee. "Paying Agent" shall initially be Mellon Securities Trust Co., a New York chartered trust company, until a successor paying agent for the Notes is selected in accordance with this Indenture. "Payment Blockage Period" has the meaning provided in Section 10.02. "payment default" has the meaning set forth in Section 6.01. "Permitted Indebtedness" has the meaning set forth in Section 4.12. "Permitted Investments" means (a) investments in cash and Cash Equivalents; (b) Investments by the Company or by any Restricted Subsidiary of the Company in any Person (i) that is or 26 -18- will become immediately after such Investment a direct or indirect Restricted Subsidiary of the Company, or (ii) such that such Investment, when combined with all other outstanding Investments of the Company permitted pursuant to this clause (ii), would not exceed, in the aggregate, 5% of the Company's Adjusted Consolidated Net Tangible Assets; (c) any Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations in respect of the Notes and this Indenture; and (d) Investments made by the Company or by its Restricted Subsidiaries as a result of an Asset Sale made in compliance with Section 4.16. "Permitted Liens" means: (i) Liens on assets or property of the Company that secure Senior Indebtedness of the Company and Liens on assets or property of a Restricted Subsidiary that secure Senior Indebtedness of such Restricted Subsidiary, in each case to the extent such Senior Indebtedness is permitted under paragraph (b) of the covenant described under Section 4.12 or clause (vi) of the definition of Permitted Indebtedness; (ii) Liens securing Indebtedness permitted under clause (iv) of the definition of Permitted Indebtedness; (iii) Liens securing Indebtedness of a Person existing at the time that such Person is merged into or consolidated with the Company or a Restricted Subsidiary, provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of such Person; (iv) Liens on property acquired by the Company or a Restricted Subsidiary, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other property; (v) Liens relating to royalty payments to be made by the Company to the British Columbia provincial government in respect of copper extracted and processed from the Kemess South property; (vi) Liens in respect of Interest Swap Obligations, Commodity Agreements, Capitalized Lease Obligations or Purchase Money Obligations, in each case permitted under this Indenture; 27 -19- (vii) Liens in favor of the Company or any Restricted Wholly Owned Subsidiary; (viii) Liens incurred, or pledges and deposits in connection with, workers' compensation, unemployment insurance and other social security benefits, and leases, appeal bonds and other obligations of like nature incurred by the Company or any Restricted Subsidiary in the ordinary course of business; (ix) Liens imposed by law, including, without limitation, mechanics', carriers', warehousemen's, materialmen's, suppliers' and vendors' Liens, incurred by the Company or any Restricted Subsidiary in the ordinary course of business; and (x) Liens for ad valorem, income or property taxes or assessments and similar charges which either are not delinquent or are being contested in good faith by appropriate proceedings for which the Company has set aside on its books reserves to the extent required by GAAP. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Physical Notes" has the meaning provided in Section 2.01. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "principal" of any Indebtedness (including the Notes) means the principal amount of such Indebtedness plus the premium, if any, on such Indebtedness. "Private Placement Legend" means the legend initially set forth on the Notes in the form set forth in Section 2.15. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as determined by the Board of Directors of the Company in consultation with its independent public accountants. 28 -20- "Public Equity Offering" means a public offering of Common Stock of the Company resulting in net proceeds to the Company in excess of US$20 million. "Purchase Money Obligations" means Indebtedness of the Company and its Restricted Subsidiaries incurred in connection with the purchase of property or assets of the business of the Company; provided that any Lien so created in connection with such incurrence is limited solely to the property or assets so purchased. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act. "Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's or both of them are not making publicly available ratings of the Notes, a nationally recognized U.S. rating agency or agencies, as the case may be, selected by the Company, which will be substituted for S&P or Moody's or both, as the case may be. "Rating Category" means (i) with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such categories of S&P or Moody's used by another Rating Agency, if applicable. "Rating Event" means that at any time within 90 days (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade or for review without indication of direction by any Rating Agency) after the earlier of the date of public notice of a Change of Control or of the intention of the Company or of any Person to effect a Change of Control, the rating of the Notes is decreased by any Rating Agency by one or more Gradations. "Record Date" means the Record Dates specified in the Notes, whether or not a Legal Holiday. "Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Notes. 29 -21- "Redemption Price," when used with respect to any Note to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Notes. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company of Indebtedness Incurred in accordance with Section 4.12 (other than pursuant to clause (iv), (v), (vi), (vii) or (viii) of the definition of Permitted Indebtedness), in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company in connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company, and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Registrar" shall initially mean the Trustee, as the registration agent for the Notes, until a successor registrar for the Notes is appointed in accordance with Section 2.03. "Registration Rights Agreement" means the Registration Rights Agreement dated as of August 12, 1996 among the Company, the Guarantors and the Initial Purchasers for the benefit of themselves and the Holders, as the same may be amended or modified from time to time in accordance with the terms thereof. "Regulation S" means Regulation S under the Securities Act. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Indebtedness; provided that if, and for so long as, any 30 -22- Designated Senior Indebtedness lacks such a representative, then the Representative for such Designated Senior Indebtedness shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Indebtedness in respect of any Designated Senior Indebtedness. "Restricted Payment" has the meaning provided in Section 4.10. "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "S&P" means Standard & Poor's Corporation and its successors. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Senior Indebtedness" means any Indebtedness of the Company (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law), whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Notwithstanding the foregoing, Senior Indebtedness shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary (including, without limitation, amounts owed for compensation), (iii) Indebtedness and other amounts incurred in connection with obtaining goods, materials or services owing to trade creditors, (iv) Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) Indebtedness incurred in 31 -23- violation of the covenant described in Section 4.12 and (vii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Subsidiary," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section Section 77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as otherwise provided in Section 9.04. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer this Indenture, or in the case of a successor trustee, an officer assigned to the department, division or group performing the corporation trust work of such successor and assigned to administer this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Unrestricted Subsidiary" means any Subsidiary of the Company designated as an Unrestricted Subsidiary by the Board of Directors of the Company; provided, however, that (i) the Subsidiary to be so designated (x)(I) has total assets with a fair market value at the time of such designation of US$1,000 or less or (II) is being so designated prior to the acquisition by the Company of such Subsidiary by merger or consolidation with an Unrestricted Subsidiary, and (y) does not own any Capital Stock of the Company or any Restricted Subsidiary, (ii) if such Subsidiary is acquired by the Company, such Subsidiary is designated as an Unrestricted Subsidiary prior to the consummation of such acquisition, (iii) no Default or Event of Default shall have occurred and be continuing, (iv) no portion of any Indebtedness or any other obligation (contingent or otherwise) of such Subsidiary (a) is guaranteed by or is otherwise the subject of credit support provided by the Company or any of its Restricted Subsidiaries, (b) is recourse to or obligates the Company or any of its Restricted Subsidiaries in any way, or (c) subjects any property or asset of the Company or any of its Restricted Subsidiaries directly or indirectly, contingently or otherwise, to the satisfaction of such Indebtedness or other obligation, (v) neither the Company nor any of its 32 -24- Restricted Subsidiaries has any contract, agreement, arrangement or understanding with such Subsidiary other than on terms as favorable to the Company or such Restricted Subsidiary as those that might be obtained at the time from Persons that are not Affiliates of the Company, and (vi) neither the Company nor any of its Restricted Subsidiaries has any obligations (a) to subscribe for additional shares of Capital Stock of such Subsidiary, or (b) to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Company's Board of Directors shall be evidenced to the Trustee by filing with the trustee a certified certificate stating that such designation complies with the foregoing conditions. The Company's Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing, including, without limitation, under Sections 4.12 and 4.18, assuming the incurrence by the Company and its Restricted Subsidiaries at the time of such designation of all existing Indebtedness and Liens of the Unrestricted Subsidiary to be so designated as a Restricted Subsidiary. In the event of any Disposition involving the Company in which the Company is not the Surviving Person, the Board of Directors of the Surviving Person may (x) prior to such Disposition, designate any of its Subsidiaries, and any of the Company's Subsidiaries being acquired pursuant to such Disposition that are not Restricted Subsidiaries, as Unrestricted Subsidiaries, and (y) after such Disposition, designate any of its direct or indirect Subsidiaries as an Unrestricted Subsidiary under the same conditions and in the same manner as the Company under the terms of this Indenture. "U.S. Government Obligations" means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "U.S. Physical Notes" has the meaning provided in Section 2.01. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any 33 -25- contingency) to vote in the election of members of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the total of the product obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "wholly owned Subsidiary" of any Person means any Subsidiary of such Person of which all the outstanding voting securities (other than directors' qualifying shares or similar legally required de minimis holdings) which normally have the right to vote in the election of directors are owned by such Person or any wholly owned Subsidiary of such Person. "Working Capital Facility" means the existing working capital facility provided to the Company pursuant to a credit agreement between The Bank of Nova Scotia and the Company dated February 15, 1996, as the same may be amended from time to time, and any agreement evidencing the refinancing, modification, replacement, renewal, restatement, refunding, deferral, extension, substitution, supplement, reissuance or resale thereof. SECTION 1.02 Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes. "indenture security holder" means a Holder or a Noteholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company, the Guarantors or any other obligor on the Notes or the Guarantees. 34 -26- All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03 Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect on the date hereof; (iii) "or" is not exclusive; (iv) words in the singular include the plural, and words in the plural include the singular; (v) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (vi) all references to "$" and "US$" shall refer to the lawful currency of the United States of America; and (vii) all references to "Cdn.$" shall refer to the lawful currency of Canada. ARTICLE TWO THE NOTES SECTION 2.01 Form and Dating. The Initial Notes, the notation thereon relating to the Guarantees and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Exchange Notes, the notation relating to the Guarantees and the Trustee's certificate of authentication shall be substantially in the form of Exhibit B hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or depository rule or usage. The Company, the Guarantors and the Trustee shall approve the form of the Notes and any notation, legend or 35 -27- endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The terms and provisions contained in the Notes and the Guarantees, annexed hereto as Exhibits A and B, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold (i) to Qualified Institutional Buyers ("QIBs") in reliance on Rule 144A or (ii) Institutional Accredited Investors (who are not QIBs) shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit A (the "Global Note"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued in the form of permanent certificated Notes in registered form in substantially the form set forth in Exhibit A (the "Offshore Physical Notes"). Notes offered and sold in reliance on any exemption from registration under the Securities Act other than as described in the preceding paragraph shall be issued, and Notes offered and sold in reliance on Rule 144A or to Institutional Accredited Investors, as described in the preceding paragraph, may be issued, in the form of permanent certificated Notes in registered form, in substantially the form set forth in Exhibit A (the "U.S. Physical Notes"). The Offshore Physical Notes and the U.S. Physical Notes are sometimes collectively herein referred to as the "Physical Notes." SECTION 2.02 Execution and Authentication; Aggregate Principal Amount. One Officer shall sign, or one Officer and a Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Notes for the Company by manual or facsimile signature. The Company's seal shall also be reproduced on the Notes. Each Guarantor shall execute the Guarantees in the manner set forth in Section 11.09. If an Officer or Secretary whose signature is on a Note was an Officer or Secretary at the time of such execution but no 36 -28- longer holds that office or position at the time the Trustee authenticates the Note, the Note shall nevertheless be valid. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Notes for original issue in the aggregate principal amount not to exceed $175,000,000, and (ii) Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes, in each case upon written orders of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Notes to be authenticated, the date on which the Notes are to be authenticated and the aggregate principal amount of Notes outstanding on the date of authentication, whether the Notes are to be Initial Notes or Exchange Notes, and shall further specify the amount of such Notes to be issued as the Global Note, Offshore Physical Notes or U.S. Physical Notes. The aggregate principal amount of Notes outstanding at any time may not exceed $175,000,000, except as provided in Section 2.07. The Trustee may appoint an authenticating agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. The Notes shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. SECTION 2.03 Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar"). The Company shall also maintain an office or offices or agency (which shall be located in the Borough of Manhattan in the City of New York, State of New York) where Notes may be presented or surrendered for payment ("Paying Agent") and notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company, upon prior written notice to the Trustee, may appoint one 37 -29- or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional Paying Agent. Neither the Company nor any Affiliate of the Company may act as Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of demands and notices in connection with the Notes, until such time as the Trustee has resigned or a successor has been appointed. The Paying Agent or Registrar may resign upon 30 days' notice to the Company. SECTION 2.04 Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, premium, if any, or interest on the Notes (whether such assets have been distributed to it by the Company or any other obligor on the Notes), and the Paying Agent shall notify the Trustee of any Default by the Company (or any other obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05 Noteholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee before each Record Date and at such other times as the Trustee may 38 -30- request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of the Holders and the Company and the Guarantor shall otherwise comply with TIA Section 312(a). SECTION 2.06 Transfer and Exchange. Subject to the provisions of Sections 2.16 and 2.17, when Notes are presented to the Registrar or a co-Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney, duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Section 2.10, 3.06, 4.15, 4.16 or 9.06); provided, that in no event shall the Trustee, Registrar or co-Registrar be responsible for the payment of any such taxes or governmental charges. The Company shall not be required to issue, and the Company and the Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Note being redeemed in part. Any Holder of the Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. 39 -31- SECTION 2.07 Replacement Notes. If a mutilated Note is surrendered to the Trustee or the Company and the Trustee receive evidence to their satisfaction that a Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the conditions for replacement set forth herein have been met. If required by the Trustee or the Company, such Holder must provide an affidavit of lost certificate and an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. The Company may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Note, including reasonable fees and expenses of counsel. Every replacement Note shall constitute an additional obligation of the Company. SECTION 2.08 Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof and those described in this Section as not outstanding. Subject to the provisions of Section 2.09, a Note does not cease to be outstanding because the Company, the Guarantors or any of their respective Affiliates holds the Note. If a Note is replaced pursuant to Section 2.07 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives an Opinion of Counsel that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date, the Paying Agent holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. SECTION 2.09 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver, consent or notice, Notes owned by the Company, the Guarantors or 40 -32- any of their respective Affiliates shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Trust Officer of the Trustee actually knows are so owned shall be so considered. SECTION 2.10 Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Notes to be authenticated and the date on which the temporary Notes are to be authenticated. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate upon receipt of a written order of the Company pursuant to Section 2.02 definitive Notes in exchange for temporary Notes. SECTION 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel all Notes surrendered for transfer, exchange, payment, replacement or cancellation and shall retain or destroy, in accordance with its normal practice, cancelled Notes (subject to the record retention requirement of the Exchange Act). If such Notes are destroyed, certification of the destruction of all cancelled Notes shall be delivered to the Company. Subject to Section 2.07, the Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. If the Company or the Guarantors shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest to the 41 -33- Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day, in each case at the rate provided in Section 4.01 hereof. At least 15 days before the subsequent special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or caused to be mailed to each Holder, as of a recent date selected by the Company, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13 CUSIP Number. The Company in issuing the Notes may use one or more "CUSIP" numbers, and if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP numbers printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any change in the CUSIP numbers. SECTION 2.14 Deposit of Moneys. Prior to 11:00 a.m. New York City time on each Interest Payment Date and Maturity Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date or Maturity Date, as the case may be. SECTION 2.15 Restrictive Legends. Each Global Note and Physical Note that constitutes a Restricted Security shall bear the following legend (the "Private Placement Legend") on the face thereof until August 12, 1999, unless otherwise agreed by the Company and the Holder thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. 42 -34- PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE OR TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE OR TRANSFER AGENT FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE OR TRANSFER AGENT AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS ANY OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE ACT. Each Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A 43 -35- NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE. SECTION 2.16 Book-Entry Provisions for Global Security. (a) The Global Note initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 2.15. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) Transfers of the Global Note shall be limited to transfers in whole, but not in part, to the Depositary, its 44 -36- successors or their respective nominees. Interests of beneficial owners in the Global Note may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depositary and the provisions of Section 2.17. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Note if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depositary to issue Physical Notes. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of the entire Global Note to beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note constituting a Restricted Security delivered in exchange for an interest in the Global Note pursuant to paragraph (b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17, bear the legend regarding transfer restrictions applicable to the Physical Notes set forth in Section 2.15. (f) The Holder of the Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. 45 -37- SECTION 2.17 Special Transfer Provisions. (a) Transfers to Non-QIB Institutional Accredited Investors and Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after August 12, 1999 or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto or (2) in the case of a transfer to a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, whereupon (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Notes) a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and (b) the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an 46 -38- account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Notes to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the Global Note, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note in an amount equal to the principal amount of the Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred. (c) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17 exist or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (d) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.16 or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. 47 -39- ARTICLE THREE REDEMPTION SECTION 3.01 Notices to Trustee. If the Company elects to redeem Notes pursuant to Paragraph 6 of the Notes, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount of the Notes to be redeemed. The Company shall give each notice provided for in this Section 3.01 at least 30 days before the Redemption Date (or at least 45 days if the Company requests the Trustee to give notice to the Holders pursuant to Section 3.03 hereof) (unless a shorter notice period shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf of the Trustee), together with an Officers' Certificate stating that such redemption shall comply with the conditions contained herein and in the Notes. SECTION 3.02 Selection of Notes To Be Redeemed If fewer than all of the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or in such other fair and reasonable manner chosen at the discretion of the Trustee; provided, however, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portion thereof for redemption shall be made by the Trustee only on a pro rata basis, unless such method is otherwise prohibited. Not less than 30 days nor more than 60 days prior to the Redemption Date, the Trustee shall make the selection from the Notes outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes in denominations of $1,000 or less may be redeemed only in whole; except that if all of the Notes of the Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000 shall be redeemed. Unless the Company defaults in making the redemption payment, interest on Notes or portions thereof called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price plus accrued interest, if any, upon surrender to the Paying Agent 48 -40- of the Notes redeemed. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger than $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03 Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first class mail, postage prepaid, to each Holder whose Notes are to be redeemed to such Holder's registered address, with a copy to the Trustee and any Paying Agent. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Notes to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price and the amount of accrued interest, if any, to be paid; (iii) the name and address of the Paying Agent or the place or places where such Notes are to be surrendered for payment; (iv) the subparagraph of the Notes pursuant to which such redemption is being made; (v) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; (vi) that, unless the Company defaults in making the redemption payment, interest on Notes or portions thereof called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price plus accrued interest, if any, upon surrender to the Paying Agent of the Notes redeemed; (vii) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, and upon surrender and cancellation of such Note, a new Note or Notes in the aggregate principal 49 -41- amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof; and (viii) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption; and (ix) the CUSIP number, if any, listed on such Note or printed on the Notes, provided, that such notice shall specify that no representation is made as to the correctness or accuracy of such CUSIP number. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the Redemption Date, an Officer's Certificate, requesting that the Trustee give such notice and setting forth the information to be stated in such notice. SECTION 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Trustee or Paying Agent, such Notes called for redemption shall be paid at the Redemption Price (which shall include accrued interest thereon to the Redemption Date), but installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in the Notes. SECTION 3.05 Deposit of Redemption Price. On or before the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus accrued interest, if any, of all Notes to be redeemed on that date. The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the Notes to be redeemed will cease to accrue on and after the applicable 50 -42- Redemption Date, whether or not such Notes are presented for payment. SECTION 3.06 Notes Redeemed in Part. Upon surrender of a Note that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE FOUR COVENANTS SECTION 4.01 Payment of Notes. The Company shall pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. An installment of principal of or interest on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. The Company shall pay, to the extent such payments are lawful, interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by the Notes plus 2% per annum. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. If the Company is required to make any withholding or deduction for or on account of any Canadian taxes from any payment made under or with respect to the Notes, the Company will pay such Additional Amounts as may be necessary so that the net amount received by each Holder (including Additional Amounts) will not be less than the amount the Holder would have received had such Canadian taxes not been withheld or deducted; provided that no 51 -43- Additional Amounts will be payable with respect to a payment made to a Holder (an "Excluded Holder") (i) with which the Company does not deal at arm's length (within the meaning of the Income Tax Act (Canada)) at the time of making such payment, or (ii) which is subject to such Canadian taxes by reason of its being connected with Canada otherwise than by the mere holding of the Notes or the receipt of payments thereunder. The Company will also (i) make such withholding or deduction and (ii) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. The Company will furnish, within 30 days after the date the payment of any Canadian taxes is due pursuant to applicable law, to the Holders of Notes that are outstanding on the date of the withholding or deduction copies of tax receipts evidencing that such payment has been made by the Company. The Company will indemnify and hold harmless each Holder of Notes that are outstanding on the date of the withholding or deduction (other than an Excluded Holder) and upon written request reimburse each such Holder for the amount of (i) any Canadian taxes so levied or imposed and paid by such Holder as a result of payments made under or with respect to the Notes, (ii) any liability (including penalties, interest and expense) arising therefrom or with respect thereto, and (iii) any Canadian taxes imposed with respect to any reimbursement under clause (i) or (ii) above. At least 30 days prior to each date on which any payment under or with respect to the Notes is due and payable, if the Company becomes obligated to pay Additional Amounts with respect to such payment, the Company will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable, and the amounts so payable and will set forth such other information as is necessary to enable the Trustee to pay such Additional Amounts to the Holders on the payment date. SECTION 4.02 Maintenance of Office or Agency. The Company shall maintain the office or agency located in the Borough of Manhattan, State of New York as required under Section 2.03. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.02. 52 -44- SECTION 4.03 Corporate Existence. Except as otherwise permitted by Article Five and Section 4.16, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of each such Restricted Subsidiary and the material rights (charter and statutory) and franchises of the Company and each such Restricted Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to itself, any material right or franchise and, with respect to any of its Restricted Subsidiaries, any such existence, material right or franchise, if the Board of Directors of the Company shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Company and the Restricted Subsidiaries, taken as a whole. SECTION 4.04 Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.05 Maintenance of Properties and Insurance. (a) The Company shall, and shall cause each of its Restricted Subsidiaries to, maintain its material operating properties in appropriate condition (subject to ordinary wear and tear and taking into account the historical and intended use of any such properties) and make appropriate repairs, renewals and replacements thereto, all as in the sole judgment of the Company and its Management may be necessary so that business carried on in connection therewith may be properly conducted at all times unless the failure to so maintain such properties would not have a material adverse effect on the financial condition of the Company and its Restricted Subsidiaries taken as a whole; provided, however, that nothing in this Section 4.05 shall prevent the Company or any of its Restricted Subsidiaries from discontinuing or 53 -45- abandoning the operation and maintenance of any of such properties, if such discontinuance or abandonment is, in the sole judgment of Management of the Company or the Restricted Subsidiary, as the case may be, desirable in the conduct of their respective businesses and does not materially affect the ability of the Company to repay principal on the Securities. (b) The Company shall provide or cause to be provided, for itself and each of its Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the good faith judgment of the Board of Directors of the Company, are adequate and appropriate for the conduct of the business of the Company and such Restricted Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the good faith judgment of the Board of Directors of the Company, for companies similarly situated in the industry. SECTION 4.06 Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within 90 days after the end of the Company's fiscal year, an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each of the Company and its Subsidiaries has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of such Officer's knowledge each of the Company and its Subsidiaries during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no Default or Event of Default occurred during such year and at the date of such certificate there is no Default or Event of Default that has occurred and is continuing or, if such signers do know of such Default or Event of Default, the certificate shall describe such Default or Event of Default and its status. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) The annual financial statements delivered pursuant to Section 4.08 shall be accompanied by a written report of the Company's independent accountants (who shall be a firm of established national reputation) that in conducting their audit of such financial statements nothing has come to their attention that 54 -46- would lead them to believe that the Company has violated any provisions of Article Four, Five or Six of this Indenture insofar as they relate to accounting matters or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Notes, the Company shall deliver to the Trustee, at its address set forth in Section 13.02 hereof, by registered or certified mail or by telegram, telex or facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action within five Business Days of its becoming aware of such occurrence. SECTION 4.07 Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America and Canada, all states, provinces and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are not in the aggregate reasonably likely to have a material adverse effect on the financial condition or results of operations of the Company and its Restricted Subsidiaries, taken as a whole. SECTION 4.08 SEC Reports. (a) Upon consummation of the Exchange Offer and the issuance of the Exchange Notes, the Company (at its own expense) shall file with the SEC when due as required by the Exchange Act and shall file with the Trustee within 15 days after it files them with the SEC copies of the quarterly and annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) to be filed pursuant to Section 13 or 15(d) of the Exchange Act (without regard to whether the Company is subject to the requirements of such Section 13 or 15(d) of the Exchange Act); provided that prior to the consummation of the Exchange Offer and the issuance of the Exchange Notes, the Company (at its own expense) will mail to the Trustee and Holders in 55 -47- accordance with paragraph (b) of this Section 4.08 substantially the same information that would have been required by the foregoing documents within 15 days of when any such document would otherwise have been required to be filed with the SEC. Upon qualification of this Indenture under the TIA, the Company shall also comply with the provisions of TIA Section 314(a). (b) At the Company's expense, the Company shall cause an annual report if furnished by it to stockholders generally and each quarterly or other financial report if furnished by it to stockholders generally to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar at the time of such mailing or furnishing to stockholders. (c) The Company shall provide to any Holder any information reasonably requested by such Holder concerning the Company and the Guarantors (including financial statements) necessary in order to permit such Holder to sell or transfer Notes in compliance with Rule 144A under the Securities Act. SECTION 4.09 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.10 Limitation on Restricted Payments. Neither the Company nor any of its Restricted Subsidiaries shall, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable solely in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company, or 56 -48- any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, other than through the exchange therefor solely of Qualified Capital Stock of the Company or warrants, rights or options to acquire Qualified Capital Stock of the Company, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes, or (d) make any Investment (other than Permitted Investments) in any Person (each of the foregoing prohibited actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such proposed Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default has occurred and is continuing or would result therefrom, or (ii) the Company is not able to Incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12(b) (as if such Restricted Payment had been made as of the last day of the Four Quarter Period), or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the board of directors of the Company) exceeds or would exceed the sum of: (x) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company during the period (treating such period as a single accounting period) subsequent to the Issue Date and prior to the date of the making of such Restricted Payment; and (y) 100% of the aggregate Net Equity Proceeds received by the Company from any Person (other than from a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (A) any Qualified Capital Stock of the Company paid as a dividend on any Capital Stock of the Company and (B) any Qualified Capital Stock of the Company with respect to which the purchase price thereof has been financed directly or indirectly using funds (i) borrowed from the Company or from any of its Subsidiaries, unless and until and to the extent such borrowing is repaid, or (ii) contributed, extended, guaranteed or advanced by the Company or by any of its Subsidiaries (including, without limitation, in respect of any employee stock ownership or benefit plan)). Notwithstanding the foregoing, these provisions do not prohibit: (1) the payment of any dividend or making of any distribution within 60 days after the date of its declaration if the dividend or distribution would have been permitted on the date 57 -49- of declaration; (2) the acquisition of Capital Stock of the Company or warrants, rights or options to acquire Capital Stock of the Company either (i) solely in exchange for shares of Qualified Capital Stock of the Company or warrants, rights or options to acquire Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company or warrants, rights or options to acquire Qualified Capital Stock of the Company; and (3) the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company or warrants, rights or options to acquire Qualified Capital Stock of the Company or (B) Refinancing Indebtedness; provided, however, that in the case of clauses (2) and (3) of this paragraph, no Default or Event of Default shall have occurred and be continuing at the time of such payment or as a result thereof. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date, amounts expended pursuant to clauses (1) and (2) shall, in each case, be included in such calculation. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment complies with this Indenture and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon the Company's latest available internal quarterly financial statements. SECTION 4.11 Limitation on Transactions with Affiliates. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into any transaction or series of transactions with or for the benefit of any of their Affiliates (each an "Affiliate Transaction"), except in good faith and on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those that could have been obtained in a comparable transaction on an arm's-length basis from a Person not an Affiliate of the Company or such Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $5 million shall be approved by the board of directors of the Company, such approval to be evidenced by a Board Resolution 58 -50- stating that such board of directors has determined that such transaction complies with the foregoing provisions. If the Company or any Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $15 million, the Company or such Subsidiary shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to customary directors' fees, indemnification and similar arrangements. SECTION 4.12 Limitation on Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness, including, without limitation, any Acquired Indebtedness (other than Permitted Indebtedness). (b) Notwithstanding the foregoing limitations, in addition to Permitted Indebtedness, the Company may Incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may Incur Acquired Indebtedness, in each case, if (i) no Default or Event of Default shall have occurred and be continuing on the date of the proposed Incurrence thereof or would result as a consequence of such proposed Incurrence and (ii) immediately after giving effect to such proposed Incurrence, (x) the Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.0 to 1.0 if such proposed Incurrence is on or prior to December 31, 1998 at least equal to 2.5 to 1.0 if such proposed Incurrence is after December 31, 1998 and on or prior to December 31, 1999, and at least equal to 2.75 to 1.0 if such proposed Incurrence occurs after December 31, 1999 and (y) the Adjusted Consolidated Net Tangible Assets of the Company are at least equal to 150% of the aggregate consolidated Indebtedness of the Company. (c) The Company will not, directly or indirectly, in any event Incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of the Company ranking pari passu with the Notes unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Notes to the same extent and in the same manner as such Indebtedness is subordinated to such pari passu 59 -51- Indebtedness pursuant to any subordination provisions that are most favorable to the holders of any such pari passu Indebtedness of the Company. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes, this Indenture and the Guarantee; (ii) Commodity Agreements of the Company; provided, however, that such Commodity Agreements are entered into to reduce the exposure of the Company and its Restricted Subsidiaries to fluctuations in the prices of commodities, in each case consistent with past practice of the Company; (iii) Interest Swap Obligations and Foreign Exchange Obligations of the Company; provided, however, that such Interest Swap Obligations and Foreign Exchange Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest or exchange rates on Indebtedness Incurred in accordance with this Indenture to the extent the notional principal amount of such Interest Swap Obligation or Foreign Exchange Obligation does not exceed the principal amount of the Indebtedness to which such Obligation relates; and provided, further, that the Company may enter into Foreign Exchange Obligations to protect the Company and its Restricted Subsidiaries from fluctuations in exchange rates related to the operating costs of the Company and its Restricted Subsidiaries, in each case consistent with past practice of the Company; (iv) Indebtedness under the Working Capital Facility not to exceed Cdn.$28 million, less any amounts repaid from Net Cash Proceeds pursuant to Section 4.16; (v) Capitalized Lease Obligations and Purchase Money Obligations of the Company or any Restricted Subsidiary not to exceed $20 million outstanding at any one time; (vi) additional Indebtedness Incurred by the Company not to exceed $25 million outstanding at any time; (vii) Indebtedness of a direct or indirect Restricted Subsidiary of the Company to the Company or to a direct or indirect wholly owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a direct or indirect wholly owned Restricted Subsidiary of the 60 -52- Company in each case subject to no Lien held by a Person other than the Company or a direct or indirect wholly owned Restricted Subsidiary of the Company; provided that if as of any date any Person other than the Company or a direct or indirect wholly owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the Incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (viii) Indebtedness of the Company to a direct or indirect wholly owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a direct or indirect wholly owned Restricted Subsidiary of the Company in each case subject to no Lien; provided that (a) any Indebtedness of the Company to any direct or indirect Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under this Indenture and the Notes, and (b) if as of any date any Person other than a direct or indirect wholly owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the Incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (viii) by the issuer of such Indebtedness; (ix) guarantees by Restricted Subsidiaries of the Company of Indebtedness of the Company (other than Permitted Indebtedness) Incurred on or after the Issue Date; provided that such Indebtedness was Incurred in compliance with this Section 4.12; and (x) Refinancing Indebtedness. SECTION 4.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock; (b) make loans or advances or pay any Indebtedness or other obligation owed to the Company or to any Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or to any Restricted Subsidiary of the Company (each such encumbrance or restriction in clause (a), 61 -53- (b), or (c) a "Payment Restriction"), except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) this Indenture; (3) customary non-assignment provisions of any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness Incurred in accordance with paragraph (b) of Section 4.12; provided that such encumbrance or restriction is not, and will not be, applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or asset of the Person, becoming a Restricted Subsidiary of the Company; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) restrictions imposed by Liens granted pursuant to clauses (v) and (vii)-(ix) of the definition of Permitted Liens solely to the extent such Liens encumber the transfer or other disposition of the assets subject to such Liens; (7) any restriction or encumbrance contained in contracts for the sale of assets to be consummated in accordance with this Indenture solely in respect of the assets to be sold pursuant to such contract; or (8) any encumbrance or restriction contained in Refinancing Indebtedness Incurred to Refinance the Indebtedness issued, assumed or Incurred pursuant to an agreement referred to in clause (2), (4) or (5) above; provided that the provisions relating to such encumbrance or restriction contained in any such Refinancing Indebtedness are no less favorable to the Company or to the Holders in any material respect in the reasonable and good faith judgment of the board of directors of the Company than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4) or (5). SECTION 4.14 Prohibition on Incurrence of Senior Subordinated Indebtedness. The Company shall not incur or suffer to exist Indebtedness that is senior in right of payment to the Notes and subordinate in right of payment to any other Indebtedness of the Company. SECTION 4.15 Change of Control. (a) Upon the occurrence of a Change of Control Triggering Event, the Company will be required to offer to repurchase (the "Change of Control Offer") all of the outstanding Notes pursuant to the offer described below, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. 62 -54- (b) Within 30 days following the date upon which the Change of Control Triggering Event occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice will state: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered and not withdrawn will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); provided that the Change of Control Payment Date for the Notes shall be a date subsequent to any payment dates for the purchase or other repayment of Senior Indebtedness having similar provisions; (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; (7) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in an 63 -55- original principal amount of $1,000 or integral multiples thereof; and (8) the circumstances and relevant facts regarding such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender in immediately available funds sufficient to pay the purchase price plus accrued interest, if any, of all Notes so tendered and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any, and the Trustee shall promptly authenticate and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Notes surrendered. Any Notes not so accepted shall be promptly mailed by the Company to the Holder thereof. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Notes pursuant to a Change of Control Offer shall be returned by the Trustee to the Company. The Change of Control Offer is required to remain open for at least 20 Business Days and until the close of business on the Change of Control Payment Date. (c) A Change of Control Triggering Event requires both the occurrence of a Change of Control and a Rating Event. A Rating Event will occur if the rating on the Notes is downgraded by one or more Gradations at any time within a specified 90-day period (subject to extension under certain circumstances). See "Change of Control," "Change of Control Triggering Event" and "Rating Event" of Section 1.01. (d) If an offer is made to repurchase the Notes pursuant to a Change of Control Offer, the Company will comply with all tender offer rules under state and Federal Securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. 64 -56- SECTION 4.16 Limitation on Sale of Assets. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate any Asset Sale unless (i) such Asset Sale is for at least fair market value, (ii) at least 85% of the consideration therefrom received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents, and (iii) the Company or such Subsidiary shall apply the Net Cash Proceeds of such Asset Sale within 180 days of receipt thereof as follows: (a) to repay any Indebtedness secured by the assets involved in such Asset Sale together with a concomitant permanent reduction in the amount of such Indebtedness (including a permanent reduction in committed amounts therefor in the case of any revolving credit facility so repaid); and (b) with respect to any Net Cash Proceeds remaining after application pursuant to the preceding paragraph (a) (the "Available Proceeds Amount"), the Company shall make an offer to purchase (the "Asset Sale Offer") from all Holders up to a maximum principal amount (expressed as an integral multiple of $1,000) of Notes equal to the Available Proceeds Amount at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, that the Company will not be required to apply pursuant to this paragraph (b) Net Cash Proceeds received from any Asset Sale if, and only to the extent that, such Net Cash Proceeds are (i) applied to or invested in Mining Related Assets, within 180 days of such Asset Sale or (ii) applied on or prior to the date of such Asset Sale, to the purchase, redemption, payment or other permanent reduction of then outstanding Senior Indebtedness. If at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this Section 4.16. The Company may defer the Asset Sale Offer until there is an aggregate unutilized Available Proceeds Amount equal to or in excess of $10 million resulting from one or more Asset Sales (at which time, the entire unutilized Available Proceeds Amount, and not just the amount in excess of $10 million, shall be applied as required pursuant to this paragraph). 65 -57- In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under Section 5.01, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this Section 4.16, and shall comply with the provisions of this Section 4.16 with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this Section 4.16. Notwithstanding the foregoing, the Company shall not be obligated to purchase Notes pursuant to an Asset Sale Offer on or prior to the fifth anniversary of the Issue Date to the extent that such purchase would result in the aggregate of the principal amount of Notes purchased pursuant thereto or prior thereto being in excess of 25% of the principal amount of Notes originally issued; provided, however, that to the extent that the Available Proceeds Amount is not required to be applied to purchase Notes pursuant to an Asset Sale Offer, the Company shall apply such proceeds to make an Asset Sale Offer immediately after the fifth anniversary of the Issue Date. Notice of an Asset Sale Offer will be mailed to the Holders as shown on the register of Holders not less than 30 days nor more than 60 days before the payment date for the Asset Sale Offer, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer and shall state the following terms: (1) that the Asset Sale Offer is being made pursuant to this Section 4.16, that all Notes tendered will be accepted for payment and that Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 principal amount at maturity in exchange for cash; provided, however, that if the aggregate principal amount of Notes properly tendered in an Asset Sale Offer plus accrued interest at the expiration of such offer exceeds the Available Proceeds Amount, the Company shall select the Notes to be purchased on a pro rata basis (based on amounts tendered); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be 20 Business Days from the date of mailing of notice of such Asset Sale Offer, or such longer period as required by law) (the 66 -58- "Proceeds Purchase Date"); provided that the Proceeds Purchase Date for the Notes shall be a date subsequent to any payment dates for the purchase or other repayment of Senior Indebtedness having similar provisions; (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; and (7) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof; On or before the Proceeds Purchase Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Asset Sale Offer which are to be purchased in accordance with item (b) above, (ii) deposit with the Paying Agent U.S. Legal Tender in immediately available funds sufficient to pay the purchase price plus accrued interest, if any, of all Notes to be purchased and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if 67 -59- any. For purposes of this Section 4.16, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Notes pursuant to an Asset Sale Offer shall be returned by the Trustee to the Company. If an Offer is made to repurchase the Notes pursuant to an Asset Sale Offer, the Company will and will cause its Subsidiaries to comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. SECTION 4.17 Limitation on Preferred Stock of Restricted Subsidiaries. The Company shall not cause or permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a wholly owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a wholly owned Restricted Subsidiary of the Company) to own or hold any Preferred Stock of any Restricted Subsidiary of the Company or any Lien or security interest therein. SECTION 4.18 Limitation on Liens. The Company shall not, and shall not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist or remain in effect any Liens (other than Permitted Liens) upon any properties or assets of the Company or of any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or on any income or profits therefrom, or assign or otherwise convey any right to receive income or profits thereon; provided that in addition to creating Permitted Liens on its properties or assets, (i) the Company may create any Lien upon any of its properties or assets (including, but not limited to, any Capital Stock of its Subsidiaries) if the Notes are equally and ratably secured thereby, and (ii) a Subsidiary Guarantor may create any Lien upon any of its properties or assets (including, but not limited to, any Capital Stock of its Subsidiaries) if its Subsidiary Guarantee is equally and ratably secured thereby; and provided, further, that if (a) the Company creates any Lien on its assets to secure any Indebtedness of the Company subordinated to the Notes, the Lien securing such Indebtedness shall be subordinated and junior to the Lien securing the Notes with the same or lesser priorities as the subordinated Indebtedness shall have with respect to the Notes, and (b) a 68 -60- Guarantor creates any Lien on its assets to secure any Indebtedness of such Guarantor subordinated to the Notes, the Lien securing such subordinated Indebtedness shall be subordinated and junior to the Lien securing the Guarantee of such Guarantor with the same or lesser priorities as the subordinated Indebtedness shall have with respect to the Guarantee. SECTION 4.19 Conduct of Business. The Company and its Restricted Subsidiaries shall not engage in the conduct of any business other than the Mining Business on a basis congruent with the conduct of such business as it is conducted on the Issue Date. SECTION 4.20 Additional Subsidiary Guarantees. In the event that any Subsidiary, directly or indirectly, guarantees any Indebtedness of the Company other than the Notes (the "Other Indebtedness"), the Company shall cause such Subsidiary (an "Additional Guarantor") to concurrently guarantee (an "Additional Guarantee") the Company's Obligations under this Indenture and the Notes to the same extent that such Subsidiary guaranteed the Company's Obligations under the Other Indebtedness (including waiver of subrogation, if any); provided that if such Other Indebtedness is (i) Senior Indebtedness, the Additional Guarantee shall be subordinated in right of payment to the guarantee of such Other Indebtedness on the same basis that the Notes are subordinated to such Other Indebtedness, (ii) pari passu Indebtedness, the Additional Guarantee shall be pari passu in right of payment to the guarantee of such Other Indebtedness, or (iii) subordinated Indebtedness, the Additional Guarantee shall be senior in right of payment with respect to the guarantee of the Other Indebtedness; provided, however, that each Additional Guarantor will be automatically and unconditionally released and discharged from its obligations under such Additional Guarantee upon the release or discharge of the guarantee of the Other Indebtedness that resulted in the creation of such Additional Guarantee, except (i) a discharge or release by, or as a result of, any payment under the guarantee of such Other Indebtedness by such Additional Guarantor or (ii) a discharge or release of an initial Guarantee. 69 -61- ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01 Mergers, Consolidation and Sale of Assets. The Company shall not, in a single transaction or a series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless; (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia or Canada or any province thereof and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, this Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness Incurred or anticipated to be Incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction and (2) shall be able to Incur at least $1.00 of additional Indebtedness pursuant to Section 4.12(b); provided that in determining the Consolidated Fixed Charge Coverage Ratio of the resulting, transferee or surviving Person, such ratio shall be calculated as if the transaction (including the Incurrence of Any Indebtedness or Acquired Indebtedness) took place on the first day of the Four Quarter Period; (iii) immediately before and immediately after giving effect to such transaction and the 70 -62- assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness Incurred or anticipated to be Incurred and any Lien granted in connection with or in respect of the transaction), no Default and no Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied, which Opinion of Counsel may rely, as to factual matters, upon an Officers' Certificate. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Upon any such consolidation, merger, conveyance, lease or transfer in accordance with the foregoing, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under this Indenture and the Notes. Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture in connection with any transaction complying with the provisions of Section 4.16) will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantors unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor), or to which sale, lease, conveyance or other disposition shall have been made, is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia, or 71 -63- under the laws of Canada or any provinces thereof; (ii) such entity assumes by supplemental indenture all of the obligations of the Guarantor on the Guarantee; (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iv) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Company could satisfy the provisions of clause (ii) of the first paragraph of this covenant. Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a wholly owned Restricted Subsidiary of the Company need only comply with clause (iv) of the first paragraph of this covenant. SECTION 5.02 Successor Corporation Substituted. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, the surviving entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such surviving entity had been named as such; provided that solely for purposes of computing amounts described in clause (iii) of the first paragraph of Section 4.10, any such surviving entity to the Company shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation, combination or transfer of assets. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01 Events of Default. An "Event of Default" occurs if: (1) the Company fails to pay interest on any Note for a period of 30 days or more after such interest becomes due and payable; or (2) the Company fails to pay the principal on any Note, when such principal becomes due and payable, at maturity, upon redemption, pursuant to an Asset Sale Offer or a Change of Control Offer or otherwise; or 72 -64- (3) (x) the failure of the Company or any Guarantor to comply with any of the terms or provisions of Section 5.01 or (y) a default in the observance or performance of any other covenant or agreement contained in this Indenture which default continues for a period of 30 days after the Company receives written notice specifying the default from the Trustee or from Holders of at least 25% in principal amount of outstanding Notes; or (4) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or of any Restricted Subsidiary of the Company (or the payment of which is guaranteed by the Company or any Restricted Subsidiary of the Company) which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness after any applicable grace period provided in such Indebtedness on the date of such default (a "payment default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $10 million; or (5) one or more judgments in an aggregate amount in excess of $10 million (which are not covered by third-party insurance as to which a financially sound insurer has not disclaimed coverage) being rendered against the Company or any of its Subsidiaries and such judgments remain undischarged, or unstayed or unsatisfied for a period of 60 days after such judgment or judgments become final and non-appealable; or (6) the Company or any of its Restricted Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, or (e) admits in writing its inability to pay its debts as they become due; (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Restricted Subsidiary in an involuntary case, 73 -65- (b) appoints a Custodian of the Company or any Restricted Subsidiary or for all or substantially all of the property of the Company or any Restricted Subsidiary, or (c) orders the liquidation of the Company or any Restricted Subsidiary. and the order or decree remains unstayed and in effect for 60 consecutive days; (8) any of the Guarantees cease to be in full force and effect or any of the Guarantees are declared to be null and void and unenforceable or any of the Guarantees are found to be invalid or any of the Guarantors denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of this Indenture). Any Event of Default shall not be deemed to have occurred under clause (4) or (5) until the Trustee shall have received written notice from the Company or any of the Holders or unless a Trust Officer shall have actual knowledge of such Event of Default. SECTION 6.02 Acceleration. (a) If an Event of Default (other than an Event of Default specified in Sections 6.01(6) or 6.01(7) above with respect to the Company) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the then outstanding Notes may declare the unpaid principal of, premium, if any, and accrued and unpaid interest on, all the Notes then outstanding to be due and payable, by a notice in writing to the Company (and to the Trustee, if given by Holders) and upon such declaration such principal amount, premium, if any, and accrued and unpaid interest will become immediately due and payable. (b) If an Event of Default with respect to the Company specified in Sections 6.01(6) or 6.01(7) above occurs, all unpaid principal of, and premium, if any, and accrued and unpaid interest on, the Notes then outstanding will ipso facto become due and payable without any declaration or other act on the part of the Trustee or any Holder. (c) The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may rescind an acceleration and its consequences if all existing Events of Default (other than the nonpayment of principal of and premium, 74 -66- if any, and interest on the Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the Notes may waive any existing Default or Event of Default under this Indenture, and its consequences, except a Default in the payment of the principal of or interest on any Notes or a Default in respect of any term or provision of the Notes or this Indenture that cannot be modified or amended without the consent of all Holders. Holders of the Notes may not enforce this Indenture or the Notes except as provided in this Indenture and under the TIA. Subject to the provisions of this Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under this Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity against any and all expense and liability to which the Trustee, in its discretion, may be exposed. Subject to all provisions of this Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. SECTION 6.03 Other Remedies. If an Event of Default occurs and is continuing, and subject to the Trustee's right to indemnification, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Noteholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. 75 -67- SECTION 6.04 Waiver of Past Defaults. Subject to Sections 2.09, 6.07 and 9.02, the Holders of a majority in principal amount of the outstanding Notes by written notice to the Trustee may on behalf of all Holders waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Note as specified in clauses (1) and (2) of Section 6.01. When a Default or Event of Default is waived, it is cured and ceases to exist. SECTION 6.05 Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.03. Subject to Section 7.01, however, the Trustee may refuse to follow any direction that the Trustee reasonably believes conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Noteholder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.06 Limitation on Suits. A Noteholder may not pursue any remedy with respect to this Indenture or the Notes unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) Holders of at least 25% in principal amount of the outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holders offer to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of satisfactory indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the outstanding Notes do not give the 76 -68- Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Noteholder may not use this Indenture to prejudice the rights of another Noteholder or to obtain a preference or priority over such other Noteholder. SECTION 6.07 Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08 Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Notes for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest at the rate set forth in Section 4.01 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09 Trustee May File Proofs of Claim. The Trustee 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 (including any claim for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents and counsel) and the Noteholders allowed in any judicial proceedings relating to the Company or any other obligor upon the Notes, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Noteholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due to it for the reasonable 77 -69- compensation, expenses, taxes, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.07. The Company's payment obligations under this Section 6.09 shall be secured in accordance with the provisions of Section 7.07 hereunder. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding. SECTION 6.10 Priorities. If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07; Second: if the Holders are forced to proceed against the Company directly without the Trustee, to Holders for their collection costs; Third: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and Fourth: to the Company, the Guarantors or any other obligor on the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Noteholders pursuant to this Section 6.10. SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due 78 -70- regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Notes. ARTICLE SEVEN TRUSTEE SECTION 7.01 Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is 79 -71- proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02, 6.04 or 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 7.02 Rights of Trustee. Subject to Section 7.01: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate and/or an Opinion of Counsel, which shall conform to Sections 13.04 and 13.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. 80 -72- (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney and to consult with the officers and representatives of the Company, including the Company's accountants and attorneys. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which may be incurred by it in compliance with such request, order or direction. (g) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (h) The Trustee may exercise any powers hereunder and perform any duties of it through attorneys (which may but shall not be required to be employees of the Trustee), accountants, receivers, or other agents employed by the Trustee, and shall be entitled to pay the reasonable compensation and expenses of such attorneys, accountants, receivers and agents. Before being required to take any action, the Trustee may require an Opinion of Counsel reasonably acceptable to it, which Opinion shall be made available to the other parties hereto upon request, or a verified certificate of any party hereto, or both, concerning the proposed action. If it does so in good faith, the Trustee shall be absolutely protected in relying thereon. 81 -73- SECTION 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any Subsidiary of the Company, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes, and it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Company in this Indenture or the Notes other than the Trustee's certificate of authentication on the Notes. SECTION 7.05 Notice of Default. If a Default or an Event of Default occurs and is continuing of which the Trustee has actual knowledge, the Trustee shall mail to each Noteholder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, or interest on, any Note, including an accelerated payment and the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer or on the Proceeds Purchase Date pursuant to a Net Proceeds Offer and, except in the case of a failure to comply with Article V hereof, the Trustee may withhold the notice if and so long as its Board of Directors, the executive committee of its Board of Directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Noteholders. SECTION 7.06 Reports by Trustee to Holders. Within 60 days after each May 15, the Trustee shall, to the extent that any of the events described in TIA Section 313(a) occurred within the previous twelve months, but not otherwise, mail to each Noteholder a brief report dated as of such date that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section Section 313(b), (c) and (d). A copy of each report at the time of its mailing to Noteholders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Notes are listed. 82 -74- The Company shall promptly notify the Trustee if the Notes become listed on any stock exchange and the Trustee shall comply with TIA Section 313(d). SECTION 7.07 Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all advances and reasonable out-of-pocket expenses incurred or made by it in connection with the performance of its duties under this Indenture. Such expenses shall include but not be limited to the reasonable fees and expenses of the Trustee's agents and counsel (including either in-house counsel or outside counsel). The Company shall indemnify the Trustee and its agents and employees, stockholders, directors and officers for, and hold them harmless against, any loss, liability or expense incurred by them except for such actions to the extent caused by any negligence, bad faith or willful misconduct on their part, arising out of or in connection with the administration of the Trustee's duties under this Indenture including but not limited to the reasonable costs and expenses (including without limitation reasonable attorneys' fees and expenses) of defending themselves against any claim or liability in connection with the exercise or performance of any of their rights, powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. At the Trustee's sole discretion, the Company shall defend the claim and the Trustee shall cooperate and may participate in the defense; provided that any settlement of a claim shall be consented to in writing by the Trustee which consent shall not unreasonably be withheld. Alternatively, the Trustee may at its option have separate counsel of its own choosing and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent, which consent shall not unreasonably be withheld. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. 83 -75- To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Notes on all assets or money held or collected by the Trustee, in its capacity as Trustee, except assets or money held in trust to pay principal of or interest on particular Notes. The Trustee's right to receive payment of any amounts due under this Section 7.07 shall not be subordinate to any other liability or indebtedness of the Company (even though the Notes may be subordinate to such other liability or indebtedness). When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08 Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Company and the Trustee and may appoint a successor Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee 84 -76- under this Indenture. A successor Trustee shall mail notice of its succession to each Noteholder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided that such corporation shall be otherwise qualified and eligible under this Article Seven. SECTION 7.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA Section Section 310(a)(1), (2) and (5). The Trustee (or, in the case of a corporation included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. In addition, if the Trustee is a corporation included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA Section 310(a)(2). The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. The provisions of TIA Section 310 shall apply to the Company, as obligor of the Notes. 85 -77- SECTION 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. The provisions of TIA Section 311 shall apply to the Company, as obligor on the Notes. ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01 Termination of the Company's Obligations. The Company may terminate the Guarantors' and its obligations under the Notes and this Indenture, except those obligations referred to in the penultimate paragraph of this Section 8.01, if all Notes previously authenticated and delivered (other than destroyed, lost or stolen Notes which have been replaced or paid or Notes for whose payment U.S. Legal Tender has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (a) either (i) pursuant to Article Three, the Company shall have given notice to the Trustee and mailed a notice of redemption to each Holder of the redemption of all of the Notes under arrangements satisfactory to the Trustee for the giving of such notice or (ii) all Notes have otherwise become due and payable hereunder; (b) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, U.S. Legal Tender in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal of, premium, if any, and interest on the outstanding Notes to maturity or redemption; provided that the Trustee shall have been irrevocably instructed to apply such U.S. Legal Tender to the payment of said principal, 86 -78- premium, if any, and interest with respect to the Notes and, provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Indebtedness pursuant to the provisions of Article Ten; (c) no Default or Event of Default with respect to this Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (d) the Company shall have paid all other sums payable by it hereunder; and (e) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for the termination of the Company's obligations under the Notes and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under the Working Capital Facility (if then in effect) or any other agreement or instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 8.05 and 8.06 shall survive until the Notes are no longer outstanding pursuant to the last paragraph of Section 2.08. After the Notes are no longer outstanding, the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. After such delivery or irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's and the Guarantors' obligations under the Notes, the Guarantees and this Indenture except for those surviving obligations specified above. SECTION 8.02 Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option by Board Resolution of the Board of Directors of the Company, at any time, elect to have either paragraph (b) or (c) below be applied to all outstanding Notes (determined in accordance with Section 2.08) upon compliance with the conditions set forth in Section 8.03. 87 -79- (b) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (b), the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.03, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.04 hereof and the other Sections of this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), and Holders of the Notes and any amounts deposited under Section 8.03 hereof shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness under Article Ten or otherwise, except for the following provisions, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of and interest on such Notes when such payments are due, (ii) the Company's obligations with respect to such Notes under Article Two and Section 4.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (iv) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) hereof. (c) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), the Company shall, subject to the satisfaction of the conditions set forth in Section 8.03 hereof, be released from its obligations under the covenants contained in Sections 4.10 through 4.20 and Article Five hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes) and Holders of the Notes and any amounts deposited under Section 8.03 hereof shall cease to be subject to 88 -80- any obligations to, or the rights of, any holder of Senior Indebtedness or Guarantor Senior Indebtedness under Article Ten or Article Twelve or otherwise. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event or Default under Section 6.01(3) hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), subject to the satisfaction of the conditions set forth in Section 8.03 hereof, Sections 6.01(3), 6.01(4) and 6.01(5) shall not constitute Events of Default. SECTION 8.03 Conditions to Legal Defeasance or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02(b) or 8.02(c) hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, U.S. Legal Tender or U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, of such principal or installment of principal of or interest on the Notes; provided that the Trustee shall have received an irrevocable written order from the Company instructing the Trustee to apply such U.S. Legal Tender or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes; (b) in the case of an election under Section 8.02(b) hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, 89 -81- there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.02(c) hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default or event which with notice or lapse of time or both would become a Default or an Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(6) and 6.01(7) hereof are concerned, at any time in the period ending on the 91st day after the date of such deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of or constitute a default under this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the 90 -82- Legal Defeasance or the Covenant Defeasance have been complied with; and (h) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (i) the trust funds will not be subject to any rights of any holders of Indebtedness of the Company other than the Notes, and (ii) assuming no intervening bankruptcy or insolvency of the Company between the date of deposit and the 91st day following the deposit and that no Holder is an insider of the Company, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law. SECTION 8.04 Application of Trust Money. The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S. Government Obligations deposited with it pursuant to Article Eight, and shall apply the deposited U.S. Legal Tender and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal of and interest on the Notes. The Trustee shall be under no obligation to invest said U.S. Legal Tender or U.S. Government Obligations except as it may agree with the Company. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Legal Tender or U.S. Government Obligations deposited pursuant to Section 8.03 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any U.S. Legal Tender or U. S. Government Obligations held by it as provided in Section 8.03 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.05 Repayment to the Company or the Guarantors. Subject to Article Eight, the Trustee and the Paying Agent shall promptly pay to the Company, or if deposited with the Trustee by any Guarantor, to such Guarantor, upon request any 91 -83- excess U.S. Legal Tender or U.S. Government Obligations held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company, or if deposited with the Trustee by any Guarantor, to such Guarantor, upon request any money held by them for the payment of principal or interest that remains unclaimed for two years; provided that the Trustee or such Paying Agent, before being required to make any payment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York notice that such money remains unclaimed and that after a date specified therein which shall be at least 30 days from the date of such publication or mailing any unclaimed balance of such money then remaining will be repaid to the Company or a Guarantor. After payment to the Company or a Guarantor, as the case may be, Noteholders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person. SECTION 8.06 Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with Article Eight by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and each Guarantor's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Article Eight until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with Article Eight; provided that if the Company or any Guarantor, as the case may be, has made any payment of interest on or principal of any Notes because of the reinstatement of its obligations, the Company or any Guarantor, as the case may be, shall be subrogated to the rights of the Holders of such Notes to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. 92 -84- ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01 Without Consent of Holders. The Company and the Guarantors, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Notes or Guarantees without notice to or consent of any Noteholder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not, in the opinion of the Trustee, adversely affect the rights of any Holder in any material respect; (2) to comply with Article Five; (3) to provide for uncertificated Notes in addition to or in place of certificated Notes; (4) to comply with any requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (5) to make any change that would provide any additional benefit or rights to the Noteholders or that does not adversely affect the rights of any Noteholder; (6) to provide for issuance of the Exchange Notes, which will have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes will be modified or eliminated, as appropriate), and which will be treated together with any outstanding Initial Notes, as a single issue of securities; or (7) to make any other change that does not, in the opinion of the Trustee, adversely affect in any material respect the rights of any Noteholders hereunder; provided that the Company has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.01. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the 93 -85- Guarantors, as the case may be, authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02 With Consent of Holders. Subject to Section 6.07 and Section 9.07, the Company and the Guarantors, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least a majority in aggregate principal amount of the outstanding Notes, may amend or supplement this Indenture, the Notes or the Guarantees, without notice to any other Noteholders. Subject to Section 6.07, the Holder or Holders of a majority in aggregate principal amount of the outstanding Notes may waive compliance by the Company with any provision of this Indenture or the Notes without notice to any other Noteholder. No amendment, supplement or waiver, including a waiver pursuant to Section 6.04, shall, without the consent of each Holder of each Note affected thereby: (1) reduce the amount of Notes whose Holders must consent to an amendment; (2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; (3) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (4) make any Notes payable in money other than that stated in the Notes; (5) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, permitting holders of a majority in principal amount of Notes 94 -86- to waive Defaults or Events of Default, other than ones with respect to the payment of principal of or interest on the Notes, or relating to certain amendments of this Indenture; (6) amend, modify or change in any material respect the obligation of the Company to make or consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer in respect of any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto; (7) modify Article Ten or Article Twelve or the definitions used in Article Ten or Article Twelve to adversely affect the Holders of the Notes in any material respect; or (8) release any Guarantor that is a Significant Subsidiary of the Company from any of its obligations under its Guarantee or this Indenture otherwise than in accordance with the terms of this Indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the Guarantors, as the case may be, authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. 95 -87- SECTION 9.03 Effect on Senior Indebtedness and Guarantor Senior Indebtedness. No amendment of this Indenture shall adversely affect the rights of any holder of Senior Indebtedness or Guarantor Senior Indebtedness under Article Ten or Article Twelve of this Indenture, without the consent of such holder. SECTION 9.04 Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Notes shall comply with the TIA as then in effect. SECTION 9.05 Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note or portion of such Note by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Noteholder, unless it makes a change described in any of clauses (1) through (7) of Section 9.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note; provided that any such waiver shall not impair or affect the right of any Holder to receive 96 -88- payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 9.06 Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Any such notation or exchange shall be made at the sole cost and expense of the Company. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.07 Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. Such Opinion of Counsel shall not be an expense of the Trustee. ARTICLE TEN SUBORDINATION SECTION 10.01 Notes Subordinated to Senior Indebtedness. The Company covenants and agrees, and the Trustee and each Holder of the Notes, by its acceptance thereof, likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article Ten; and the Trustee and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment 97 -89- of all Obligations on the Notes by the Company shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on the Senior Indebtedness, and that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness, and that each holder of Senior Indebtedness whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Indebtedness in reliance upon the covenants and provisions contained in this Indenture and the Notes. SECTION 10.02 No Payment on Notes in Certain Circumstances. (a) No direct or indirect payment by or on behalf of the Company of principal of, premium, if any, or interest on, the Notes whether pursuant to the terms of the Notes or upon acceleration or otherwise shall be made if, at the time of such payment, there exists a default in the payment of all or any portion of principal of, premium, if any, or interest on, any Senior Indebtedness with a principal amount in excess of $5.0 million (and the Trustee has received written notice thereof), and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of Senior Indebtedness. In addition, during the continuance of any other event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated, upon the occurrence of (x) receipt by the Trustee of written notice from the holders of a majority of the outstanding principal amount of the Designated Senior Indebtedness or their Representatives, or (y) if such event of default results from the acceleration of the Notes, no such payment may be made by the Company upon or in respect of the Notes for a period ("Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 179 days thereafter (unless such Payment Blockage Period shall be terminated by written notice to the Trustee from the holders of a majority of the outstanding principal amount of such Designated Senior Indebtedness or their Representatives who delivered such notice). Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 179 days from the date on which such Payment Blockage Period was commenced. Not more than one Payment Blockage Period may be commenced with respect to the Notes during any period of 360 consecutive days. For all purposes of this paragraph, no event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the 98 -90- commencement of a second Payment Blockage Period by the holders of such Designated Senior Indebtedness or their Representatives whether or not within a period of 360 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Payment Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment or distribution shall be segregated or held in trust) on account of principal of, premium, if any, or interest on, the Notes before all Senior Indebtedness is paid in full, such payment or distribution shall be received and held in trust by the Trustee or such Holder or Paying Agent for the benefit of the holders of the Senior Indebtedness, or their respective Representatives, ratably according to the respective amounts of Senior Indebtedness held or represented by each, and shall be paid over or delivered to the holders of the Senior Indebtedness remaining unpaid to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid after giving effect to all concurrent payments and distributions to or for the holders of such Senior Indebtedness. The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Senior Indebtedness, if any, received from the holders of Senior Indebtedness (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Senior Indebtedness. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Senior Indebtedness thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Notes. 99 -91- SECTION 10.03 Payment Over of Proceeds upon Dissolution, Etc. (a) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Indebtedness shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Indebtedness, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition of any of the Notes for cash or property or otherwise. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Notes or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Indebtedness. (b) To the extent any payment of Senior Indebtedness (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Indebtedness or part thereof originally intended to be 100 -92- satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by Section 10.03(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amount of Senior Indebtedness held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. (d) The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof and as long as permitted under the terms of the Senior Indebtedness shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume the Company's obligations hereunder in accordance with Article Five hereof. SECTION 10.04 Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Sections 10.02 and 10.03, from making payments at any time for the purpose of making payments of principal of and interest on the Notes, or from depositing with the Trustee any moneys for such payments, or (ii) in the absence of actual knowledge by the Trustee that a given payment would be prohibited by Section 10.02 or 10.03, the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal of, and interest on, the Notes to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment would otherwise become due and 101 -93- payable a Trust Officer shall have actually received the written notice provided for in the second sentence of Section 10.02(a) or in Section 10.07 (provided that, notwithstanding the foregoing, such application shall otherwise be subject to the provisions of the first sentence of Section 10.02(a) and Section 10.03). The Company shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of the Company. SECTION 10.05 Subrogation. Subject to the payment in full in cash or Cash Equivalents of all Senior Indebtedness, the Holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the Notes shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Indebtedness by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article Ten which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Article Ten are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. SECTION 10.06 Obligations of the Company Unconditional. Nothing contained in this Article Ten or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and any interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Holder of any Note or the Trustee on its behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, in respect of cash, property or securities of the Company received upon the exercise of any such remedy. 102 -94- SECTION 10.07 Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes pursuant to the provisions of this Article Ten. Regardless of anything to the contrary contained in this Article Ten or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Senior Indebtedness or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Company, or from a holder of Senior Indebtedness or a Representative therefor, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article Ten, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amounts of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such person to receive such payment. SECTION 10.08 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article Ten, the Trustee, subject to the provisions of Article Seven hereof, and the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or the Holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten. 103 -95- SECTION 10.09 Trustee's Relation to Senior Indebtedness. The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Indebtedness which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness. Whenever a distribution is to be made or a notice given to holders or owners of Senior Indebtedness, the distribution may be made and the notice may be given to their Representative, if any. SECTION 10.10 Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Notes and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders of the Notes to the holders of the Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness, or any instrument 104 -96- evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the payment or collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 10.11 Noteholders Authorize Trustee To Effectuate Subordination of Notes. Each Holder of Notes, by its acceptance of them, authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Indebtedness and the Holders of Notes, the subordination provided in this Article Ten, and appoints the Trustee its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company, the filing of a claim for the unpaid balance of its Notes and accrued interest in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 10.12 This Article Ten Not To Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Notes by reason of any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. 105 -97- SECTION 10.13 Trustee's Compensation Not Prejudiced. Nothing in this Article Ten will apply to amounts due to the Trustee pursuant to other sections in this Indenture. ARTICLE ELEVEN GUARANTEE SECTION 11.01 Unconditional Guarantee. Each Guarantor hereby unconditionally, jointly and severally, guarantees, subject to Article Twelve, to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Notes and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.05. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in this Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any 106 -98- custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Six, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. SECTION 11.02 Subordination of Guarantee. The obligations of each Guarantor to the Holders of Notes and to the Trustee pursuant to the Guarantee and this Indenture are expressly subordinate and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Guarantor, to the extent and in the manner provided in Article Twelve. SECTION 11.03 Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.04 Release of a Guarantor. Upon (i) the release by the lenders under the Working Capital Facility, related documents and future refinancings thereof of all guarantees of a Guarantor and all Liens on the property or assets of said Guarantor relating to such Indebtedness or (ii) the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Guarantor (or all or substantially all its assets) to an entity which is not a Subsidiary of the Company and which sale or disposition is otherwise in compliance with the terms of this Indenture, such Guarantor shall be deemed released from all obligations under this Article Eleven without any further action required on the part of the Trustee or any Holder; provided, however, that any such termination shall occur only to the extent that all obligations of such Guarantor under the Working Capital Facility and all of its guarantees of, and under all of its pledges 107 -99- of assets or other security interests which secure, such Indebtedness of the Company or the Guarantor shall also terminate upon such release, sale or transfer. The Trustee shall execute an appropriate instrument delivered by the Company evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate and Opinion of Counsel certifying as to the compliance with this Section 11.04. Any Guarantor not so released remains liable for the full amount of principal of and interest on the Notes as provided in this Article Eleven. SECTION 11.05 Limitation of Subsidiary Guarantor's Liability. Each Guarantor and, by its acceptance hereof, each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor (including, but not limited to, the Guarantor Senior Indebtedness of such Guarantor) and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to Section 11.07, result in the obligations of such Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. SECTION 11.06 Guarantors May Consolidate, Etc., on Certain Terms. (a) Nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company or shall prevent any sale of assets or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to the Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Guarantor shall no longer have any force or effect. 108 -100- (b) Except as set forth in Article Four and Article Five hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into a corporation or corporations other than the Company or another Guarantor (whether or not affiliated with the Guarantor) or shall prevent any sale of assets or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to a corporation or corporations other than the Company or another Guarantor (whether or not affiliated with the Guarantor); provided, however, that, subject to Sections 11.04 and 11.06(a), (i) immediately after such transaction and giving effect thereto, such transaction does not (a) violate any covenants set forth herein or (b) result in a Default or Event of Default under this Indenture that is continuing, (ii) upon any such consolidation, merger, sale or conveyance, the Guarantee of such Guarantor set forth in this Article Eleven, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Guarantor, shall be expressly assumed (in the event that the Guarantor is not the surviving corporation in the merger), by supplemental indenture satisfactory in form to the Trustee and in compliance with Section 9.07, executed and delivered to the Trustee, by the corporation formed by such consolidation, or into which the Guarantor shall have merged, or by the corporation that shall have acquired such property, and (iii) in the event that such Guarantor is not the surviving corporation in the merger, such surviving corporation shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia. In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture executed and delivered to the Trustee and satisfactory in form to the Trustee of the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. SECTION 11.07 Contribution. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under the Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Notes or any other 109 -101- Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair saleable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts including, without limitation, Guarantor Senior Indebtedness (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. SECTION 11.08 Waiver of Subrogation. Until all Obligations are paid in full each Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Guarantees and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Notes against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Notes, and shall, subject to the provisions of Section 11.02, Article Ten and Article Twelve, forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.08 is knowingly made in contemplation of such benefits. 110 -102- SECTION 11.09 Execution of Guarantee. To evidence their guarantee to the Holders set forth in this Article Eleven, the Guarantors hereby agree to execute the Guarantees in substantially the form included in Exhibit A and Exhibit B, which shall be endorsed on each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that its Guarantee set forth in this Article Eleven shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Guarantee prior to the authentication of the Note on which it is endorsed, and the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Guarantee on behalf of such Guarantor. Such signatures upon the Guarantees may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantees, and in case any such officer who shall have signed the Guarantees shall cease to be such officer before the Note on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Note nevertheless may be authenticated and delivered or disposed of as though the person who signed the Guarantees had not ceased to be such officer of the Guarantor. SECTION 11.10 Waiver of Stay, Extension or Usury Laws. Each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each such Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 111 -103- ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS SECTION 12.01 Guarantee Obligations Subordinated to Guarantor Senior Indebtedness. Each Guarantor covenants and agrees, and the Trustee and each Holder of the Notes, by its acceptance thereof, likewise covenants and agrees, that all Guarantees shall be issued subject to the provisions of this Article Twelve; and the Trustee and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Notes pursuant to the Guarantees by any Guarantor shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on the Guarantor Senior Indebtedness of such Guarantor; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Guarantor Senior Indebtedness, and that each holder of Guarantor Senior Indebtedness whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Guarantor Senior Indebtedness in reliance upon the covenants and provisions contained in this Indenture, the Notes and the Guarantees. SECTION 12.02 No Payment on Notes in Certain Circumstances. (a) No direct or indirect payment by or on behalf of any Guarantor with respect to any obligations on the Guarantee whether pursuant to the terms of the Guarantee or upon acceleration or otherwise shall be made if, at the time of such payment, there exists a default in the payment of all or any portion of principal of, premium, if any, or interest on, any Guarantor Senior Indebtedness with a principal amount in excess of $5.0 million (and the Trustee has received written notice thereof), and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of such Guarantor Senior Indebtedness. In addition, during the continuance of any other event of default with respect to any Designated Senior Indebtedness (which Designated Senior Indebtedness is also Guarantor Senior Indebtedness of such Guarantor) pursuant to which the maturity thereof may be accelerated, upon the occurrence of (x) receipt by the Trustee of written notice from the holders of a majority of the outstanding principal amount of the Designated Senior Indebtedness or their Representatives, or (y) if such event 112 -104- of default results from the acceleration of the Notes, no such payment may be made by the Guarantor upon or in respect of the Guarantee of such Guarantor for a period ("Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 179 days thereafter (unless such Payment Blockage Period shall be terminated by written notice to the Trustee from the holders of a majority of the outstanding principal amount of such Designated Senior Indebtedness or their Representatives who delivered such notice). Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 179 days from the date on which such Payment Blockage Period was commenced. Not more than one Payment Blockage Period may be commenced with respect to the Notes during any period of 360 consecutive days. For all purposes of this paragraph, no event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the holders of such Designated Senior Indebtedness or their Representatives whether or not within a period of 360 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Payment Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment or distribution of assets or securities of the Guarantor of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment or distribution shall be segregated or held in trust) on account of principal of, premium, if any, or interest on, the Guarantee of such Guarantor before all Guarantor Senior Indebtedness is paid in full, such payment or distribution shall be received and held in trust by the Trustee or such Holder or Paying Agent for the benefit of the holders of the Senior Indebtedness, or their respective Representatives, ratably according to the respective amounts of Guarantor Senior Indebtedness held or represented by each, and shall be paid over or delivered to the holders of the Guarantor Senior Indebtedness remaining unpaid to the extent necessary to make payment in full of all Guarantor Senior Indebtedness remaining unpaid after giving 113 -105- effect to all concurrent payments and distributions to or for the holders of such Guarantor Senior Indebtedness. The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Guarantor Senior Indebtedness, if any, received from the holders of Guarantor Senior Indebtedness (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Guarantors and only amounts included in the information provided to the Trustee shall be paid to the holders of Guarantor Senior Indebtedness. Nothing contained in this Article Twelve shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Guarantor Senior Indebtedness thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Guarantees. SECTION 12.03 Payment Over of Proceeds upon Dissolution, Etc. (a) Upon any payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to such Guarantor or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Guarantor Senior Indebtedness of such Guarantor shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of such Guarantor Senior Indebtedness, before any payment or distribution of any kind or character is made on account of any Obligations on the Guarantee of such Guarantor. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, to which the Holders of the Notes or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by such Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Guarantor Senior Indebtedness of such Guarantor (pro rata to such holders on the basis of the respective amounts of such Guarantor Senior Indebtedness held by such holders) or their respective 114 -106- Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of such Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior Indebtedness has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Guarantor Senior Indebtedness. (b) To the extent any payment of such Guarantor Senior Indebtedness (whether by or on behalf of such Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, such Guarantor Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by Section 12.03(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Guarantor Senior Indebtedness (pro rata to such holders on the basis of the respective amount of such Guarantor Senior Indebtedness held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of such Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior Indebtedness has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Guarantor Senior Indebtedness. (d) The consolidation of any Guarantor with, or the merger of any Guarantor with or into, another corporation or the liquidation or dissolution of any Guarantor following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Section 11.06 hereof and as long as permitted under the terms of 115 -107- the Guarantor Senior Indebtedness of such Guarantor shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume such Guarantor's obligations hereunder in accordance with Section 11.06 hereof. SECTION 12.04 Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Twelve or elsewhere in this Indenture shall prevent (i) a Guarantor, except under the conditions described in Sections 12.02 and 12.03, from making payments at any time for the purpose of making payments in respect of its Guarantee, or from depositing with the Trustee any moneys for such payments, or (ii) in the absence of actual knowledge by the Trustee that a given payment would be prohibited by Section 12.02 or 12.03, the application by the Trustee of any moneys deposited with it for the purpose of making such payments in respect of the Notes to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment would otherwise become due and payable a Trust Officer shall have actually received the written notice provided for in the second sentence of Section 12.02(a) or in Section 12.07 (provided that, notwithstanding the foregoing, such application shall otherwise be subject to the provisions of the first sentence of Section 12.02(a) and Section 12.03). A Guarantor shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of such Guarantor. SECTION 12.05 Subrogation. Subject to the payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of a Guarantor, the Holders of the Guarantee of such Guarantor shall be subrogated to the rights of the holders of Guarantor Senior Indebtedness of such Guarantor to receive payments or distributions of cash, property or securities of such Guarantor applicable to such Guarantor Senior Indebtedness until the Notes shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of such Guarantor Senior Indebtedness by or on behalf of such Guarantor or by or on behalf of the Holders by virtue of this Article Twelve which otherwise would have been made to the Holders shall, as between such Guarantor and the Holders of the Notes, be deemed to be a payment by such Guarantor to or on account of such Guarantor Senior Indebtedness, it being understood that the provisions of this Article Twelve are and are intended solely for the purpose of 116 -108- defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Guarantor Senior Indebtedness, on the other hand. SECTION 12.06 Obligations of the Subsidiary Guarantors Unconditional. Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Notes or the Guarantees is intended to or shall impair, as among the Guarantors, its creditors other than the holders of Guarantor Senior Indebtedness, and the Holders, the obligation of the Guarantors, which is absolute and unconditional, to pay to the Holders all amounts due and payable under the Guarantees as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Guarantors other than the holders of the Guarantor Senior Indebtedness, nor shall anything herein or therein prevent the Holder of any Note or the Trustee on its behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, in respect of cash, property or securities of the Guarantors received upon the exercise of any such remedy. SECTION 12.07 Notice to Trustee. The Guarantors shall give prompt written notice to the Trustee of any fact known to the Guarantors which would prohibit the making of any payment to or by the Trustee in respect of the Notes and the Guarantees pursuant to the provisions of this Article Twelve. Regardless of anything to the contrary contained in this Article Twelve or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Guarantor Senior Indebtedness or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Guarantors, or from a holder of Guarantor Senior Indebtedness or a Representative therefor, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Guarantor Senior Indebtedness to participate in any payment or distribution pursuant to this Article Twelve, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amounts of 117 -109- Guarantor Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Twelve, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such person to receive such payment. SECTION 12.08 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Guarantors referred to in this Article Twelve, the Trustee, subject to the provisions of Article Seven hereof, and the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or the Holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Guarantor Senior Indebtedness and other Indebtedness of the Guarantors, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve. SECTION 12.09 Trustee's Relation to Guarantor Senior Indebtedness. The Trustee and any agent of the Guarantors or the Trustee shall be entitled to all the rights set forth in this Article Twelve with respect to any Guarantor Senior Indebtedness which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Guarantor Senior Indebtedness and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. With respect to the holders of Guarantor Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Twelve, and no implied covenants or obligations with respect to the holders of Guarantor Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness. 118 -110- Whenever a distribution is to be made or a notice given to holders or owners of Guarantor Senior Indebtedness, the distribution may be made and the notice may be given to their Representative, if any. SECTION 12.10 Subordination Rights Not Impaired by Acts or Omissions of the Subsidiary Guarantors or Holders of Guarantor Senior Indebtedness. No right of any present or future holders of any Guarantor Senior Indebtedness to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Guarantors or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Guarantors with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Guarantor Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Notes and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Notes to the holders of the Guarantor Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Guarantor Senior Indebtedness, or otherwise amend or supplement in any manner Guarantor Senior Indebtedness, or any instrument evidencing the same or any agreement under which Guarantor Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Senior Indebtedness; (iii) release any Person liable in any manner for the payment or collection of Guarantor Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Guarantors and any other Person. SECTION 12.11 Noteholders Authorize Trustee To Effectuate Subordination of Guarantee Obligations. Each Holder of the Notes and the Guarantees by its acceptance of them authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Guarantor Senior Indebtedness and the Holders, the subordination provided in this 119 -111- Article Twelve, and appoints the Trustee its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of any Guarantor (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of any Guarantor, the filing of a claim for the unpaid balance of its Notes and accrued interest in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Guarantor Senior Indebtedness or their Representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 12.12 This Article Twelve Not To Prevent Events of Default. The failure to make a payment in respect of the Guarantees by reason of any provision of this Article Twelve will not be construed as preventing the occurrence of an Event of Default. SECTION 12.13 Trustee's Compensation Not Prejudiced. Nothing in this Article Twelve will apply to amounts due to the Trustee pursuant to other sections in this Indenture. 120 -112- ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.01 TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 13.02 Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: IF TO THE COMPANY OR THE GUARANTORS: Royal Oak Mines Inc. 5501 Lakeview Drive Kirkland, WA 98033 Attn: Chief Financial Officer WITH COPIES TO: Lang Michener B.C.E. Place, P.O. Box 747, Suite 2500 181 Bay Street Toronto, Ontario, Canada M5J 2T7 Attn: David A. Knight, Esq. IF TO THE TRUSTEE: Mellon Bank, F.S.B. 1111 Third Avenue, Suite 2230 Seattle, WA 98101 Attention: Corporate Trust Department IF TO THE PAYING AGENT (WITH A COPY TO THE TRUSTEE) Mellon Securities Trust Company 120 Broadway, 13th Floor New York, NY 10271 121 -113- Each of the Company, the Guarantors and the Trustee by written notice to each other such Person may designate additional or different addresses for notices to such Person. Any notice or communication to the Company, the Guarantors or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Failure to deliver "copies" as noted above shall not affect the sufficiency of a notice to the Company, Trustee or Paying Agent. Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03 Communications by Holders with Other Holders. Noteholders may communicate pursuant to TIA Section 312(b) with other Noteholders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and any other Person shall have the protection of TIA Section 312(c). SECTION 13.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with; and 122 -114- (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with. SECTION 13.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.06, shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. SECTION 13.06 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Noteholders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 13.07 Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. 123 -115- SECTION 13.08 GOVERNING LAW. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE. SECTION 13.09 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 13.10 No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company, the Guarantors or of the Trustee shall not have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Noteholder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. SECTION 13.11 Successors. All agreements of the Company and the Guarantors in this Indenture, the Notes and the Guarantees shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12 Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 13.13 Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other 124 -116- respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. 125 -117- SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. Issuer: ROYAL OAK MINES INC. By: /s/ M. K. Witte ------------------------------ Name: M. K. Witte Title: Chairman and CEO Guarantor: KEMESS MINES INC. By: /s/ M. K. Witte ------------------------------ Name: M. K. Witte Title: Chairman and CEO Trustee: MELLON BANK, F.S.B., as Trustee By: /s/ Robert R. Meyers ------------------------------ Name: Title: 126 EXHIBIT A CUSIP No.: [ ] ROYAL OAK MINES INC. 11% SENIOR SUBORDINATED NOTE DUE 2006 No. $ ROYAL OAK MINES INC., an ontario, Canada corporation (the "Company," which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of Dollars, on August 15, 2006. Interest Payment Dates: February 15 and August 15. Record Dates: February 1 and August 1. Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. ROYAL OAK MINES INC. By: ------------------------------ Name: Title: Dated: Certificate of Authentication This is one of the 11% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture. MELLON BANK, F.S.B., as Trustee Dated: By: ------------------------------ Authorized Signatory A-1 127 (REVERSE OF SECURITY) 11% SENIOR SUBORDINATED NOTE DUE 2006 1. Interest. ROYAL OAK MINES INC., an Ontario, Canada corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from August 12, 1996. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing February 15, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Notes plus 2% per annum and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Mellon Bank, F.S.B. (the "Trustee") will act as Registrar and Mellon Securities Trust Co., a New York chartered trust company, will act as Paying Agent. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. Indenture and Guarantees. The Company issued the Notes under an Indenture, dated as of August 12, 1996 (the "Indenture"), among the Company, the Guarantor (as defined in the Indenture) and the Trustee. This Note is one of a duly authorized issue of Initial Notes of the Company designated as its 11% Senior Subordinated Notes due 2006 (the "Initial Notes"). The Notes are limited in aggregate principal amount to $175,000,000. Payment on each Note is guaranteed on a senior subordinated basis by the Guarantors pursuant to Article Eleven of the Indenture. The Notes include the Initial Notes and the Exchange Notes, as defined below, issued in exchange for the Initial Notes pursuant to the Indenture. A-2 128 The Initial Notes and the Exchange Notes are treated as a single class of securities under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Section Section 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and said Act for a statement of them. The Notes are general unsecured obligations of the Company. 5. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness of the Company, whether outstanding on the date of the Indenture or thereafter incurred. The Guarantee in respect of the Notes is subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of the Guarantor, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purposes. 6. Redemption. (a) Optional Redemption. The Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after August 15, 2001, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on August 15 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption: A-3 129
Year Percentage - ---- ---------- 2001 ................................ 105.500% 2002 ................................ 103.667 2003 ................................ 101.833 2004 and thereafter ................. 100.000%
(b) Optional Redemption upon Public Equity Offerings. At any time, or from time to time, prior to August 15, 1999, the Company may, at its option, use the net proceeds of one or more Public Equity Offerings of the Company to redeem up to 35% of the aggregate principal amount of Notes at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on August 15 of the year set forth below, plus, in each case, accrued interest thereon to the date of redemption:
Year Percentage - ---- ---------- 1996 ................................ 111.000% 1997 ................................ 109.778% 1998 ................................ 108.556%
In order to effect the foregoing redemption with the net proceeds of any Public Equity Offering, the Company shall make such redemption on or prior to 120 days after the receipt of such net proceeds. (c) Optional Redemption upon Changes to Certain Canadian Laws. The Notes are redeemable, as a whole but not in part, at the option of the Company at any time upon not less than 30 nor more than 60 days notice at a redemption price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon to the date of redemption, if the Company has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Notes, any additional amounts ("Additional Amounts") as a result of any change in, or amendment to, the laws (or any regulations promulgated thereunder including changes to withholding tax laws) of Canada (or any political subdivision or taxing authority thereof or therein), or any change in, or amendment to, any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after August 5, 1996. 7. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. A-4 130 Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales (as defined in the Indenture) and upon the occurrence of a Change of Control (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. Registration Rights. Pursuant to the Registration Rights Agreement among the Company, the Guarantor and the Holders of the Initial Notes, the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company's Series B 11% Senior Subordinated Notes due 2006 (the "Exchange Notes"), which have been registered under the Securities Act, in like principal amount and having terms identical in all material respects to the Initial Notes. The Holders of the Initial Notes shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 11. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. A-5 131 13. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Note. 15. Restrictive Covenants. The Indenture imposes certain covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional Indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with Affiliates, incur Indebtedness that is subordinated in right of payment to any Senior Indebtedness and senior in right of payment to the Notes, incur liens, impose restrictions on the ability of a subsidiary to pay dividends or make certain payments to the Company and its Restricted Subsidiaries, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company or its Restricted Subsidiaries. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 16. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided A-6 132 in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of such Holders. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 20. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 21. Governing Law. The Laws of the State of New York shall govern this Note and the Indenture, without regard to principles of conflict of laws. 22. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 23. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 24. Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. A-7 133 The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note in larger type. Requests may be made to: Royal Oak Mines Inc., 5501 Lakeview Drive, Kirkland, WA 98033, Attn: Chief Financial Officer. A-8 134 [FORM OF NOTATION ON NOTE RELATING TO GUARANTEE] SENIOR GUARANTEE KEMESS MINES INC. (the "Guarantor"), has unconditionally guaranteed on a senior subordinated basis (such guarantee by the Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Eleven and Article Twelve of the Indenture and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Holders and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth and are expressly subordinated and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Guarantor, to the extent and in the manner provided, in Article Eleven and Article Twelve of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Guarantees therein made. No past, present or future stockholder, officer, director, employee or incorporator, as such, of any of the Guarantors shall have any liability under the Guarantee of such Guarantor by reason of such person's status as stockholder, officer, director, employee or incorporator. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Guarantee. A-9 135 The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. KEMESS MINES INC. By: ------------------------------ Name: Title: A-10 136 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint ______________________________________ , agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Signed: ------------------------- ------------------------------ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------------------- In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) December 1, 1999, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Note is being transferred: A-11 137 [Check One] (1) ___ to the Company or a subsidiary thereof; or (2) ___ pursuant to and in compliance with Rule 144A under the Securities Act; or (3) ___ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) ___ outside the United states to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or (5) ___ pursuant to the exemption from registration provided by Rule 144 under the Securities Act; or (6) ___ pursuant to an effective registration statement under the Securities Act; or (7) ___ pursuant to another available exemption from the registration requirements of the Securities Act. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. A-12 138 If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.17 of the Indenture shall have been satisfied. Date: Signed: ------------------------- ------------------------------ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------------------- TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: Signed: ------------------------- ------------------------------ NOTICE: To be executed by an executive officer A-13 139 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $ -------------------- Dated: -------------------- ------------------------------------ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ------------------------------------------------ A-14 140 EXHIBIT B CUSIP No.: ROYAL OAK MINES INC. SERIES B 11% SENIOR SUBORDINATED NOTE DUE 2006 No. $ ROYAL OAK MINES INC., an Ontario, Canada corporation (the "Company," which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of Dollars, on August 15, 2006. Interest Payment Dates: February 15 and August 15. Record Dates: February 1 and August 1. Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. ROYAL OAK MINES INC. By: ------------------------------ Name: Title: Dated: Certificate of Authentication This is one of the Series B 11% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture. MELLON BANK, F.S.B., as Trustee Dated: By: ------------------------------ Authorized Signatory B-1 141 (REVERSE OF SECURITY) SERIES B 11% SENIOR SUBORDINATED NOTE DUE 2006 1. Interest. ROYAL OAK MINES INC., an Ontario, Canada corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from August 12, 1996. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing February 15, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Notes plus 2% per annum and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Mellon Bank, F.S.B. (the "Trustee") will act as Paying Agent and Mellon Securities Trust Co., a New York chartered trust company, will act as Paying Agent. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. Indenture and Guarantees. The Company issued the Notes under an Indenture, dated as of August 12, 1996 (the "Indenture"), among the Company, the Guarantors (as defined in the Indenture) and the Trustee. This Note is one of a duly authorized issue of Exchange Notes of the Company designated as its Series B 11% Senior Subordinated Notes due 2006 (the "Exchange Notes"). The Notes are limited in aggregate principal amount to $175,000,000. Payment on each Note is guaranteed on a senior subordinated basis by the Guarantors pursuant to Article Eleven of the Indenture. The Notes include the Initial Notes (the 13% Senior Subordinated Notes due 2005) and the Exchange Notes, issued in exchange for the B-2 142 Initial Notes pursuant to the Indenture. The Initial Notes and the Exchange Notes are treated as a single class of securities under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Section Section 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and said Act for a statement of them. The Notes are general unsecured obligations of the Company. 5. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness of the Company, whether outstanding on the date of the Indenture or thereafter incurred. The Guarantee in respect of the Notes is subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of the Guarantor, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purposes. 6. Redemption. (a) Optional Redemption. The Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after August 15, 2001, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on August 15 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Year Percentage - ---- ---------- 2001 .............................. 105.500% 2002 .............................. 103.667 2003 .............................. 101.833 2004 and thereafter ............... 100.000%
(b) Optional Redemption upon Public Equity Offerings. At any time, or from time to time, prior to August 15, 1999, the Company may, at its option, use the net proceeds of one or more Public Equity Offerings of the Company to redeem up to 35% of the aggregate principal amount of Notes at the following redemption B-3 143 prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on August 15 of the year set forth below, plus, in each case, accrued interest thereon to the date of redemption:
Year Percentage - ---- ---------- 1996 ............................... 111.000% 1997 ............................... 109.778% 1998 ............................... 108.556%
In order to effect the foregoing redemption with the net proceeds of any Public Equity Offering, the Company shall make such redemption on or prior to 120 days after the receipt of such net proceeds. (c) Optional Redemption upon Changes to Certain Canadian Laws. The Notes are redeemable, as a whole but not in part, at the option of the Company at any time upon not less than 30 nor more than 60 days notice at a redemption price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon to the date of redemption, if the Company has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Notes, any additional amounts ("Additional Amounts") as a result of any change in, or amendment to, the laws (or any regulations promulgated thereunder including changes to withholding tax laws) of Canada (or any political subdivision or taxing authority thereof or therein), or any change in, or amendment to, any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after August 5, 1996. 7. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales (as defined in B-4 144 the Indenture) and upon the occurrence of a Change of Control (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Note. 14. Restrictive Covenants. The Indenture imposes certain covenants that limit the ability of the Company and its B-5 145 Restricted Subsidiaries to, among other things, incur additional Indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with Affiliates, incur Indebtedness that is subordinated in right of payment to any Senior Indebtedness and senior in right of payment to the Notes, incur liens, impose restrictions on the ability of a subsidiary to pay dividends or make certain payments to the Company and its Restricted Subsidiaries, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company or its Restricted Subsidiaries. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. B-6 146 19. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 20. Governing Law. The Laws of the State of New York shall govern this Note and the Indenture, without regard to principles of conflict of laws. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note in larger type. Requests may be made to: Royal Oak Mines Inc., 5501 Lakeview Drive, Kirkland, WA 98033, Attn: Chief Financial Officer. B-7 147 [FORM OF NOTATION ON NOTE RELATING TO GUARANTEE] SENIOR GUARANTEE KEMESS MINES INC. (the "Guarantor") has unconditionally guaranteed on a senior subordinated basis (such guarantee by each Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Eleven and Article Twelve of the Indenture and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Holders and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth and are expressly subordinated and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Guarantor, to the extent and in the manner provided, in Article Eleven and Article Twelve of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Guarantee therein made. No past, present or future stockholder, officer, director, employee or incorporator, as such, of any of the Guarantors shall have any liability under the Guarantee of such Guarantor by reason of such person's status as stockholder, officer, director, employee or incorporator. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Guarantee. B-8 148 The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. KEMESS MINES INC. By: ------------------------------ Name: Title: B-9 149 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint _________________________________ , agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Signed: ------------------------- ------------------------------ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------------------- B-10 150 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $___________________ Dated: ------------------------- ------------------------------------ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ------------------------------------- B-11 151 Exhibit C Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors ___________, ____ Mellon Bank, F.S.B. 1111 Third Avenue, Suite 2230 Seattle, WA 98101 Attention: Corporate Trust Department Re: Royal Oak Mines Inc. 11% Senior Subordinated Notes due 2006 -------------------------------------- Ladies and Gentlemen: In connection with our proposed purchase of 11% Senior Subordinated Notes due 2006 (the "Notes") of Royal Oak Mines Inc. (the "Company"), we confirm that: 1. We have received a copy of the Offering Memorandum (the "Offering Memorandum"), dated August 5, 1996 relating to the Notes and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated on pages (i)-(iv) of the Offering Memorandum and in the section entitled "Transfer Restrictions" of the Offering Memorandum, including the restrictions on duplication and circulation of the Offering Memorandum. 2. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture relating to the Notes (as described in the Offering Memorandum) and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 3. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell or otherwise transfer any Notes prior to the date which is three years after the original issuance of the Notes, we will do so C-1 152 only (i) to the Company or any of its subsidiaries, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), (iii) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as defined in the Indenture relating to the Notes), a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes, (iv) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 4. We are not acquiring the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan (as defined in Section 3 of the Employee Retirement Income Security Act of 1974), except as permitted in the section entitled "Transfer Restrictions" of the Offering Memorandum. 5. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Trustee and the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 6. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 7. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a C-2 153 copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: ------------------------------ Name: Title: C-3 154 Exhibit D Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S ______________, ____ Mellon Bank, F.S.B. 1111 Third Avenue, Suite 2230 Seattle, WA 98101 Attention: Corporate Trust Department Re: Royal Oak Mines Inc. (the "Company") 11% Senior Subordinated Notes due 2006 (the "Notes") Ladies and Gentlemen: In connection with our proposed sale of $___________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and D-1 155 (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: ------------------------------ Authorized Signature D-2 EX-10.1 3 REGISTRATION RIGHTS AGREEMENT 1 Exhibit 10.1 ================================================================================ REGISTRATION RIGHTS AGREEMENT Dated as of August 12, 1996 Among ROYAL OAK MINES INC. and KEMESS MINES INC. and BT SECURITIES CORPORATION and SCOTIA CAPITAL MARKETS (USA) INC. as Initial Purchasers ================================================================================ $175,000,000 11% SENIOR SUBORDINATED NOTES DUE 2006 2 TABLE OF CONTENTS
Page ---- 1. Definitions ......................................... 1 2. Exchange Offer ...................................... 5 3. Shelf Registration .................................. 8 4. Liquidated Damages .................................. 9 5. Registration Procedures ............................. 11 6. Registration Expenses ............................... 21 7. Indemnification ..................................... 23 8. Rule 144 and 144A ................................... 27 9. Underwritten Registrations .......................... 27 10. Miscellaneous ....................................... 28 (a) No Inconsistent Agreements .................... 28 (b) Adjustments Affecting Registrable Notes ....................................... 28 (c) Amendments and Waivers ........................ 28 (d) Notices ....................................... 29 (e) Successors and Assigns ........................ 30 (f) Counterparts .................................. 30 (g) Headings ...................................... 30 (h) Governing Law ................................. 30 (i) Severability .................................. 31 (j) Notes Held by the Issuers or their Affiliates .................................. 31 (k) Third Party Beneficiaries ..................... 31
3 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of August 12, 1996, by and among Royal Oak Mines Inc., an Ontario, Canada corporation (the "Company"), Kemess Mines Inc., an Ontario, Canada corporation (the "Guarantor"), and BT Securities Corporation ("BTSC") and Scotia Capital Markets (USA) Inc. (together with BTSC, the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated August 5, 1996, among the Company, the Guarantor and the Initial Purchasers (the "Purchase Agreement"), which provides, among other things, for the sale by the Company to the Initial Purchasers of $175,000,000 aggregate principal amount of the Company's 11% Senior Subordinated Notes due 2006 (the "Notes"), which Notes will be guaranteed by the Guarantor. The Company and the Guarantor are collectively referred to herein as the "Issuers." In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and their direct and indirect transferees. The execution and delivery of this Agreement is a condition to the obligation of the Initial Purchasers to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Advice: See the last paragraph of Section 5 hereof. Agreement: See the first introductory paragraph hereto. Applicable Period: See Section 2(b) hereof. Closing Date: The Closing Date as defined in the Purchase Agreement. Company: See the first introductory paragraph hereto. Effectiveness Date: The 120th day after the Issue Date. 4 -2- Effectiveness Period: See Section 3(a) hereof. Event Date: See Section 4(b) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Notes: See Section 2(a) hereof. Exchange Offer: See Section 2(a) hereof. Exchange Registration Statement: See Section 2(a) hereof. Filing Date: The 45th day after the Issue Date. Guarantor: See the first introductory paragraph hereto. Holder: Any holder of a Registrable Note or Registrable Notes. Indemnified Person: See Section 7(c) hereof. Indemnifying Person: See Section 7(c) hereof. Indenture: The Indenture, dated as of August 12, 1996 between the Company, the Guarantor and Mellon Bank, F.S.B., as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the first introductory paragraph hereto. Inspectors: See Section 5(o) hereof. Issue Date: The date on which the original Notes were sold to the Initial Purchasers pursuant to the Purchase Agreement. Issuers: The Company and the Guarantor. Liquidated Damages: See Section 4(a) hereof. NASD: National Association of Securities Dealers, Inc. 5 -3- Notes: See the second introductory paragraph hereto. Participant: See Section 7(a) hereof. Participating Broker-Dealer: See Section 2(b) hereof. Person: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Private Exchange: See Section 2(b) hereof. Private Exchange Notes: See Section 2(b) hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, with respect to the terms of the offering of any portion of the Registrable Notes covered by such Registration Statement including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the second introductory paragraph hereto. Records: See Section 5(o) hereof. Registrable Notes: Each Note upon original issuance of the Notes and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until in the case of any such Note, Exchange Note or Private Exchange Note, as the case may be, the earliest to occur of (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Registration Statement) covering such Note, Exchange Note or Private Exchange Note, as the case may be, has been declared effective by the SEC and such Note (unless such Note was not tendered for exchange by the Holder thereof), Exchange Note or Private Exchange Note, as 6 -4- the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note, as the case may be, is sold in compliance with Rule 144, or (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture. Registration Statement: Any registration statement of the Company, including, but not limited to, the Exchange Registration Statement, that covers any of the Registrable Notes pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(c) hereof. Shelf Registration: See Section 3(a) hereof. TIA: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and, if existent, the trustee under any indenture governing the Exchange Notes and Private Exchange Notes (if any). 7 -5- Underwritten registration or underwritten offering: A registration in which securities of one or more of the Issuers are sold to an underwriter for reoffering to the public. 2. Exchange Offer (a) Each of the Issuers agrees to file with the SEC no later than the Filing Date an offer to exchange (the "Exchange Offer") any and all of the Registrable Notes (other than the Private Exchange Notes, if any) for a like aggregate principal amount of debt securities of the Company, guaranteed by the Guarantor, which are identical in all material respects to the Notes (the "Exchange Notes") (and which are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA) and which, in either case, has been qualified under the TIA), except that the Exchange Notes (other than Private Exchange Notes, if any) shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon. The Exchange Offer shall be registered under the Securities Act on the appropriate form (the "Exchange Registration Statement") and shall comply with all applicable tender offer rules and regulations under the Exchange Act. The Issuers agree to use their best efforts to (x) cause the Exchange Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20 business days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 180th day following the Issue Date. If after such Exchange Registration Statement is declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Exchange Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder who participates in the Exchange Offer will be required to represent that any Exchange Notes received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes in violation of the provisions of the Securities Act, and that such Holder is not 8 -6- an affiliate of any of the Issuers within the meaning of the Securities Act. Upon consummation of the Exchange Offer in accordance with this Section 2, the Issuers shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof. No securities other than the Exchange Notes shall be included in the Exchange Registration Statement. (b) The Issuers shall include within the Prospectus contained in the Exchange Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the Staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the Staff of the SEC or such positions or policies, in the judgment of the Initial Purchasers, represent the prevailing views of the Staff of the SEC. Such "Plan of Distribution" section shall also expressly permit the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes. Each of the Issuers shall use all reasonable efforts to keep the Exchange Registration Statement effective and to amend and supplement the Prospectus contained therein, in order to permit such Prospectus to be lawfully delivered by any Participating Broker-Dealer subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes; provided, however, that such period shall not exceed 180 days after the consummation of the Exchange Offer (or such longer period if extended pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period"). If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Notes acquired by them and having the status of an unsold allotment in the initial distribution, the Issuers shall, upon the request of either of the Initial Purchasers, simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to the Initial 9 -7- Purchasers in exchange (the "Private Exchange") for such Notes held by the Initial Purchasers a like principal amount of debt securities of the Company, guaranteed by the Guarantor, that are identical in all material respects to the Exchange Notes (the "Private Exchange Notes") (and which are issued pursuant to the same indenture as the Exchange Notes) except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes. Interest on the Exchange Notes and the Private Exchange Notes will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the Issue Date. In connection with the Exchange Offer, the Issuers shall: (1) mail to each Holder a copy of the Prospectus forming part of the Exchange Registration Statement, together with an appropriate letter of transmittal and related documents; (2) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (3) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (4) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, the Issuers shall: (1) accept for exchange all Notes tendered and not validly withdrawn pursuant to the Exchange Offer or the Private Exchange; (2) deliver to the Trustee for cancellation all Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, Exchange Notes or 10 -8- Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture, which in either event shall provide that (1) the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture and (2) the Private Exchange Notes shall be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations of the Staff of the SEC, the Issuers are not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days of the Issue Date, (iii) any holder of Private Exchange Notes so requests at any time after the consummation of the Private Exchange, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of any of the Issuers within the meaning of the Securities Act), then the Issuers shall promptly deliver to the Holders and the Trustee written notice thereof (the "Shelf Notice") to the Trustee and in the case of clauses (i) and (ii), all Holders, in the case of clause (iii), the Holders of the Private Exchange Notes and in the case of clause (iv), the affected Holder, and shall file a Shelf Registration pursuant to Section 3 hereof. 3. Shelf Registration If a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) Shelf Registration. The Issuers shall as promptly as reasonably practicable file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes (the "Shelf Registration"). If the Issuers shall not have yet filed an Exchange Registration Statement, 11 -9- each of the Issuers shall use its best efforts to file with the SEC the Shelf Registration on or prior to the Filing Date. The Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Registrable Notes to be included in the Shelf Registration. Each of the Issuers shall use its best efforts to cause the Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep the Shelf Registration continuously effective under the Securities Act until the date which is three years from the Issue Date, subject to extension pursuant to the last paragraph of Section 5 hereof (the "Effectiveness Period"), or such shorter period ending when all Registrable Notes covered by the Shelf Registration have been sold in the manner set forth and as contemplated in the Shelf Registration. (b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), each of the Issuers shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof. (c) Supplements and Amendments. The Issuers shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement or by any underwriter of such Registrable Notes. 4. Liquidated Damages (a) The Issuers and the Initial Purchasers agree that the Holders of Registrable Notes will suffer damages if the Issuers fail to fulfill its obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers agree to pay, as liquidated damages, additional interest on the Notes ("Liquidated Damages") under the circumstances and to the extent set forth below: 12 -10- (i) if neither the Exchange Registration Statement nor the Shelf Registration has been filed on or prior to the Filing Date, then, commencing on the 46th day after the Issue Date, Liquidated Damages shall accrue on the Notes over and above the stated interest at a rate of 0.50% per annum of the principal amount of the Notes for the first 90 days immediately following the Filing Date, such Liquidated Damages rate increasing by an additional 0.50% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; (ii) if neither the Exchange Registration Statement nor the Shelf Registration is declared effective by the SEC on or prior to the Effectiveness Date, then, commencing on the 121st day after the Issue Date, Liquidated Damages shall accrue on the Notes included or which should have been included in such Registration Statement over and above the stated interest at a rate of 0.50% per annum of the principal amount of the Notes for the first 90 days immediately following the Effectiveness Date, such Liquidated Damages increasing by an additional 0.50% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; and (iii) if (A) the Issuers have not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the 180th day after the Issue Date or (B) if applicable, the Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (unless all the Notes have previously been sold thereunder), then Liquidated Damages shall accrue (over and above any interest otherwise payable on such Notes) at a rate of 0.50% per annum of the principal amount of the Notes for the first 90 days commencing on (x) the 181st day after the Issue Date with respect to the Notes validly tendered and not exchanged by the Company, in the case of (A) above, or (y) the day such Shelf Registration ceases to be effective in the case of (B) above, such Liquidated Damages rate increasing by an additional 0.50% per annum of the principal amount of the Notes at the beginning of each such subsequent 90-day period (it being understood and agreed that, in the case of (B) above, so long as any Note is then covered by an effective Shelf Registration Statement, no Liquidated Damages shall accrue on such Note); provided, however, that the Liquidated Damages rate on any affected Note may not exceed at any one time in the aggregate 13 -11- 2.0% per annum of the principal amount of the Notes; and provided, further, that (1) upon the filing of the Exchange Registration Statement or a Shelf Registration (in the case of clause (i) of this Section 4(a)), (2) upon the effectiveness of the Exchange Registration Statement or the Shelf Registration (in the case of clause (ii) of this Section 4(a)), or (3) upon the exchange of Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this Section 4(a)), or upon the effectiveness of the Shelf Registration which had ceased to remain effective (in the case of clause (iii)(B) of this Section 4(a)), Liquidated Damages on the affected Notes as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Issuers shall notify the Trustee within one business day after each and every date on which an event occurs in respect of which Liquidated Damages is required to be paid (an "Event Date"). Any Liquidated Damages due pursuant to clauses (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable to the Holders of affected Notes in cash semi-annually on each February 15 and August 15 (to the holders of record on the February 1 and August 1 immediately preceding such dates), commencing with the first such date occurring after any such Liquidated Damages commences to accrue. The amount of Liquidated Damages will be determined by multiplying the applicable Liquidated Damages rate by the principal amount of the affected Registrable Notes of such Holders, multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registration(s) to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder, the Issuers shall: (a) Prepare and file with the SEC prior to the Filing Date a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use their best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to Section 3 14 -12- hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall, if requested, furnish to and afford the Holders of the Registrable Notes covered by such Registration Statement or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five business days prior to such filing). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document, if the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period or until consummation of the Exchange Offer, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Company shall be deemed not to have used its best efforts to keep a Registration Statement effective during the Applicable Period if it voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law or unless the Company complies with 15 -13- this Agreement, including without limitation, the provisions of paragraph 5(k) hereof and the last paragraph of this Section 5. (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, notify the selling Holders of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within two business days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers the representations and warranties of the Issuers contained in any agreement (including any underwriting agreement), contemplated by Section 5(n) hereof cease to be true and correct, (iv) of the receipt by the Issuers of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will 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 16 -14- statements therein not misleading, and that in the case of the Prospectus, it will 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, in light of the circumstances under which they were made, not misleading, and (vi) of the determination by the Issuers that a post-effective amendment to a Registration Statement would be appropriate. (d) Use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes for sale in any jurisdiction, and, if any such order is issued, to use all reasonable efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) If a Shelf Registration is filed pursuant to Section 3 and if reasonably requested by the managing underwriter or underwriters (if any), or the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, or counsel for any of them reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Issuers have received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, at the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. 17 -15- (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each selling Holder of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, each Issuer hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, to use its best efforts to register or qualify such Registrable Notes (and to cooperate with selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes) for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the 18 -16- Registrable Notes covered by the applicable Registration Statement; provided, however, that none of the Issuers shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) Use its best efforts to cause the Registrable Notes covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Holders thereof or the underwriter or underwriters, if any, to dispose of such Registrable Notes, except as may be required solely as a consequence of the nature of a selling Holder's business, in which case each of the Issuers will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not 19 -17- contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (l) Use its best efforts to cause the Registrable Notes covered by a Registration Statement or the Exchange Notes, as the case may be, to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement or the Exchange Notes, as the case may be, or the managing underwriter or underwriters, if any. (m) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes or Exchange Notes, as the case may be, in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes or Exchange Notes, as the case may be. (n) In connection with any underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Issuers and their respective subsidiaries and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested; (ii) obtain the written opinion of counsel to the Issuers and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of debt securities similar to the Notes and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of any subsidiary of 20 -18- any of the Issuers or of any business acquired by any of the Issuers for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and such other matters as reasonably requested by the managing underwriter or underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to all parties to be indemnified pursuant to said Section . The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (o) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Issuers and their respective subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and their respective subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records which any of the Issuers determine, in good faith, to be confidential and any Records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order 21 -19- from a court of competent jurisdiction, (iii) disclosure of such information is, in the opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement, or any transactions contemplated hereby or arising hereunder, or (iv) the information in such Records has been made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker- Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Issuers unless and until such information is generally available to the public. Each selling Holder of such Registrable Notes and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Issuers and allow the Issuers to undertake appropriate action to prevent disclosure of the Records deemed confidential at the Issuers' sole expense. (p) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (q) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to 22 -20- underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (r) If an Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Issuers (or to such other Person as directed by the Issuers) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (s) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (t) Use its best efforts to take all other steps necessary or advisable to effect the registration of the Registrable Notes covered by a Registration Statement contemplated hereby. The Issuers may require each seller of Registrable Notes as to which any Registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Notes as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Notes of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Issuers of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Notes 23 -21- covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until it is advised in writing (the "Advice") by the Issuers that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Issuers shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice. 6. Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers shall be borne by the Issuers whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, or by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or sold by any Participating Broker-Dealer, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel 24 -22- for the Issuers, (v) fees and disbursements of all independent certified public accountants referred to in Section 5(n)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) rating agency fees, if any, and any fees associated with making the Registrable Notes or Exchange Notes eligible for trading through The Depository Trust Company, (vii) Securities Act liability insurance, if the Issuers desire such insurance, (viii) fees and expenses of all other Persons retained by the Issuers, (ix) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of the Issuers performing legal or accounting duties), (x) the expense of any annual audit, (xi) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xii) the expenses relating to printing, word processing and distributing all Registration Statements and final forms of all underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. (b) The Issuers, jointly and severally, shall reimburse out-of-pocket expenses (other than legal expenses) of Holders of Registrable Notes incurred in connection with the registration and sale of the Registrable Notes pursuant to a Shelf Registration or in connection with the exchange of Registrable Notes pursuant to the Exchange Offer. 7. Indemnification (a) Each of the Issuers, jointly and severally, agrees to indemnify and hold harmless each Holder of Registrable Notes offered pursuant to a Shelf Registration Statement and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, the affiliates, directors, officers, agents, representatives and employees of each such Person or its affiliates, and each other Person, if any, who controls any such Person or its affiliates within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement pursuant to which the offering of such Registrable Notes or Exchange Notes, as the case may be, is registered (or any 25 -23- amendment thereto) or related Prospectus (or any amendments or supplements thereto) or any related preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Issuers will not be required to indemnify a Participant if (i) such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Issuers in writing by or on behalf of such Participant expressly for use therein or (ii) if such Participant sold to the person asserting the claim the Registrable Notes or Exchange Notes which are the subject of such claim and such untrue statement or omission or alleged untrue statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and it is established by the Issuers in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Notes or Exchange Notes sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Issuers with Section 5 of this Agreement. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their respective directors and officers and each Person who controls the Issuers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Issuers to each Participant, but only (i) with reference to information relating to such Participant furnished to the Issuers in writing by or on behalf of such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus or (ii) with respect to any untrue statement or representation made by such Participant in writing to the Issuers. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. 26 -24- (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such proceeding and shall pay the reasonable fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Person shall not relieve it of any obligation or liability which it may have hereunder or otherwise (unless and only to the extent that such failure directly results in the loss or compromise of any material rights or defenses by the Indemnifying Person and the Indemnifying Person was not otherwise aware of such action or claim). In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, unless there exists a conflict among Indemnified Persons, the Indemnifying Person shall not, in connection with any one such proceeding or separate but substantially similar related proceeding in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes and Exchange Notes sold by all such Participants and any such separate firm for the Issuers, their directors, their officers and such control Persons of the Issuers shall be designated in writing by the Issuers. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its prior written consent, but if settled with 27 -25- such consent or if there be a final non-appealable judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, the Indemnifying Person agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for reasonable fees and expenses actually incurred by counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement; provided, however, that the Indemnifying Person shall not be liable for any settlement effected without its consent pursuant to this sentence if the Indemnifying Person is contesting, in good faith, the request for reimbursement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Indemnified Person and (C) does not contain any explicit agreement to assist the other parties to such proceeding. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other from the offering of the Notes or (ii) if the allocation provided by the foregoing 28 -26- clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 29 -27- 8. Rule 144 and 144A The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Notes, make publicly available annual reports and such information, documents and other reports of the type specified in Sections 13 and 15(d) of the Exchange Act. The Company further covenants for so long as any Registrable Notes remain outstanding, to make available to any Holder or beneficial owner of Registrable Notes in connection with any sale thereof and any prospective purchaser of such Registrable Notes from such Holder or beneficial owner the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Registrable Notes pursuant to Rule 144A. 9. Underwritten Registrations If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes included in such offering and reasonably acceptable to the Issuers. No Holder of Registrable Notes may participate in any underwritten registation hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous (a) No Inconsistent Agreements. None of the Issuers have entered, as of the date hereof, and none of the Issuers shall, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. None of the Issuers have entered and 30 -28- none of the Issuers will enter into any agreement with respect to any of its securities which will grant to any Person piggy-back registration rights with respect to a Registration Statement. (b) Adjustments Affecting Registrable Notes. None of the Issuers shall, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) Notices. All notices and other communications (including without limitation any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: 1. if to a Holder of the Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchasers as follows: 31 -29- BT Securities Corporation Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Facsimile No: (212) 250-7200 Attention: Corporate Finance Department SCOTIA CAPITAL MARKETS 1 Liberty Plaza 25th Floor 165 Broadway New York, New York 10006 Attention: Corporate Finance Department with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Facsimile No: (212) 269-5420 Attention: William B. Gannett, Esq. 2. if to the Initial Purchasers, at the addresses specified in Section 10(d)(1); 3. if to an Issuer, as follows: Royal Oak Mines Inc. 5501 Lakeview Drive Kirkland, WA 98033 Attention: Chief Executive Officer with copies to: Lang Michener BCE Place, Suite 2500 Toronto, Ontario M5J 2T7 Attention: William J.V. Sheridan, Esq. Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: David A. Katz, Esq. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the 32 -30- mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Notes. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that 33 -31- may be hereafter declared invalid, illegal, void or unenforceable. (j) Notes Held by the Issuers or their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Issuers or their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) Third Party Beneficiaries. Holders of Registrable Notes and Participating Broker-Dealers are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. 34 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Issuer: ROYAL OAK MINES INC. By: /s/ M. K. Witte ---------------- Name: M. K. Witte Title: Chairman and CEO Guarantor: KEMESS MINES INC. By: /s/ M. K. Witte --------------- Name: M. K. Witte Title: Chairman and CEO The foregoing Agreement is hereby confirmed and accepted as of the date first above written: BT SECURITIES CORPORATION By: /s/ Paul F. Cambridge --------------------- Name: Paul F. Cambridge Title: Managing Director SCOTIA CAPITAL MARKETS (USA) INC. By: /s/ Vance P. Shaw ----------------- Name: Vance P. Shaw Title: Director EX-10.2 4 CREDIT AGREEMENT 1 Exhibit 10.2 CREDIT AGREEMENT BETWEEN THE BANK OF NOVA SCOTIA AS BANK AND ROYAL OAK MINES INC. AS BORROWER February 15, 1996 2 TABLE OF CONTENTS
Page PARTIES................................................................................................. 1 RECITALS................................................................................................ 1 ARTICLE 1 - INTERPRETATION 1.01 Defined Terms................................................................................. 1 1.02 Other Usages.................................................................................. 10 1.03 Plural and Singular........................................................................... 11 1.04 Headings...................................................................................... 11 1.05 Currency...................................................................................... 11 1.06 Applicable Law................................................................................ 11 1.07 Time of the Essence........................................................................... 11 1.08 Non-Banking Days.............................................................................. 11 1.09 Consents and Approvals........................................................................ 11 1.10 Amount of Credit.............................................................................. 11 1.11 Schedules..................................................................................... 12 1.12 Paramountcy................................................................................... 12 1.13 Extension of Credit........................................................................... 12 ARTICLE 2 - CREDIT FACILITY 2.01 Establishment of Credit Facility.............................................................. 12 2.02 Bank's Commitments............................................................................ 12 2.03 Reduction of Credit Facility.................................................................. 12 2.04 Termination of Credit Facility................................................................ 13 ARTICLE 3 - GENERAL PROVISIONS RELATING TO CREDITS 3.01 Types of Credit Availments.................................................................... 13 3.02 Funding of Loans.............................................................................. 13 3.03 Funding of Bankers' Acceptances............................................................... 13 3.04 Safekeeping of Drafts......................................................................... 14 3.05 Alternative Borrowings........................................................................ 14 3.06 Inability to Fund U.S. Dollar Advances in Canada.............................................. 14 3.07 Timing of Credit Availments................................................................... 16 3.08 Time and Place of Payments.................................................................... 16 3.09 Evidence of Indebtedness...................................................................... 16 3.10 Notice Periods................................................................................ 16 ARTICLE 4 - DRAWDOWNS 4.01 Drawdown Notice............................................................................... 16 4.02 Expiry of Availability........................................................................ 17
3
Page ARTICLE 5 - ROLLOVERS 5.01 Bankers' Acceptances.......................................................................... 17 5.02 LIBO Loans.................................................................................... 17 5.03 Rollover Notice............................................................................... 18 ARTICLE 6 - CONVERSIONS 6.01 Converting Loan to Other Type of Loan......................................................... 18 6.02 Converting Loan to Bankers' Acceptances....................................................... 18 6.03 Converting Bankers' Acceptances to Loan....................................................... 19 6.04 Converting Letter to Loan..................................................................... 19 6.05 Conversion Notice............................................................................. 19 6.06 Conversion After Default...................................................................... 20 6.07 Absence of Notice............................................................................. 20 ARTICLE 7 - INTEREST AND FEES 7.01 Interest Rates................................................................................ 20 7.02 Calculation and Payment of Interest........................................................... 20 7.03 General Interest Rules........................................................................ 21 7.04 Selection of Interest Periods................................................................. 22 7.05 Acceptance Fees............................................................................... 22 7.06 Arrangement Fee............................................................................... 22 7.07 Letter Fees................................................................................... 22 7.08 Standby Fee................................................................................... 22 ARTICLE 8 - RESERVE, CAPITAL, INDEMNITY AND TAX PROVISIONS 8.01 Conditions of Credit.......................................................................... 23 8.02 Change of Circumstances....................................................................... 23 8.03 Indemnity Relating to Credits................................................................. 24 8.04 Indemnity for Transactional Liability......................................................... 24 8.05 Payments Free and Clear of Taxes.............................................................. 25 ARTICLE 9 - REPAYMENTS AND PREPAYMENTS 9.01 Repayment..................................................................................... 25 9.02 Voluntary Prepayments under Credit Facility................................................... 25 9.03 Bankers' Acceptances and Letters.............................................................. 26 9.04 Early Termination of Letters.................................................................. 26
2. 4
Page ARTICLE 10 - REPRESENTATIONS AND WARRANTIES 10.01 Representations and Warranties....................................................... 27 10.02 Survival of Representations and Warranties........................................... 30 ARTICLE 11 - COVENANTS 11.01 Affirmative Covenants................................................................ 30 11.02 Performance of Covenants by the Bank................................................. 33 11.03 Restrictive Covenants................................................................ 34 ARTICLE 12 - CONDITIONS PRECEDENT TO OBTAINING CREDIT 12.01 Conditions Precedent to All Credit................................................... 35 12.02 Conditions Precedent to Initial Drawdown............................................. 35 12.03 Waiver............................................................................... 36 ARTICLE 13 - DEFAULT AND REMEDIES 13.01 Events of Default.................................................................... 36 13.02 Remedies Cumulative.................................................................. 38 13.03 Set-Off.............................................................................. 38 ARTICLE 14 - MISCELLANEOUS 14.01 Waivers.............................................................................. 38 14.02 Notices.............................................................................. 38 14.03 Severability......................................................................... 39 14.04 Counterparts......................................................................... 39 14.05 Successors and Assigns............................................................... 39 14.06 Assignment........................................................................... 39 14.07 Entire Agreement..................................................................... 39 14.08 Further Assurances................................................................... 39 14.09 Judgment Currency.................................................................... 39 Schedule A - Form of Drawdown/Rollover Notice Schedule B - Existing Security Interests Materiality $100,000 Schedule C - Compliance Certificate Schedule D - Principal Places of Business Schedule E - List of Restricted and Material Subsidiaries of Royal Oak Mines Inc. Schedule F - List of Material Actions
3. 5 CREDIT AGREEMENT THIS AGREEMENT dated as of the 15th day of February, 1996. B E T W E E N: THE BANK OF NOVA SCOTIA, a Canadian chartered bank (herein called the "Bank"), OF THE FIRST PART, - and - ROYAL OAK MINES INC., a corporation amalgamated under the laws of the Province of Ontario (herein called the "Borrower"), OF THE SECOND PART. WHEREAS the Borrower has requested the Bank to establish a certain credit facility for general corporate purposes; AND WHEREAS the Bank is willing to provide such credit facility to the Borrower for the aforesaid purposes upon the terms and conditions contained herein; NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto covenant and agree as follows: ARTICLE 1 INTERPRETATION 1.01 DEFINED TERMS. The following defined terms shall for all purposes of this agreement, or any amendment hereto, have the following respective meanings unless the context otherwise 6 2. specifies or requires or unless otherwise defined herein and all accounting terms shall be construed in accordance with generally accepted accounting principles: "ALTERNATE BASE RATE CANADA" means, at any particular time, the variable rate of interest per annum, calculated on the basis of a 360-day year, which is equal to the greater of (a) the Base Rate Canada at such time and (b) the aggregate of (i) the Federal Funds Effective Rate at such time and (ii) 1/2 of 1% per annum. "AVAILABLE CREDIT" means, at any particular time, the amount, if any, by which the amount of the Credit Facility at such time exceeds the amount of credit outstanding under the Credit Facility at such time. "BANKERS' ACCEPTANCE" means a bill of exchange (a) drawn by the Borrower and accepted by the Bank, (b) denominated in Canadian dollars, (c) having a term to maturity of 7 to 180 days, (d) issued and payable only in Canada and (e) having a face amount of not less than Cdn. $100,000. "BANKING DAY" means any day other than a Saturday or a Sunday on which banks generally are open for business in Vancouver, British Columbia and New York, New York, and when used in respect of LIBO Loans, means any day other than a Saturday or a Sunday on which banks generally are open for business in Vancouver, British Columbia, New York, New York and London, England and on which transactions can be carried on in the London interbank market. "BASE RATE CANADA" means the variable rate of interest per annum determined by the Bank from time to time as its base rate for United States dollar loans made by the Bank in Canada from time to time, being a variable per annum reference rate of interest adjusted automatically upon change by the Bank, calculated on the basis of a 360-day year. "BASE RATE CANADA LOAN" means monies lent by the Bank to the Borrower hereunder in United States dollars and upon which interest accrues at a rate referrable to the Alternate Base Rate Canada. "BRANCH OF ACCOUNT" means the Vancouver main branch of the Bank located at 650 West Georgia St., P.O. Box 11502, Vancouver, British Columbia, V6P 4P2 or such other branch of the Bank located in Canada as the Borrower and the Bank may agree upon. "CANADIAN DOLLAR EQUIVALENT" means, as of any particular time and with respect to any amount of United States dollars: (a) for the purposes of Section 1.10, the equivalent amount of Canadian dollars determined by using the noon rate of exchange for Canadian interbank transactions applied in converting United States dollars into Canadian dollars published by the Bank of Canada for the day in question; and (b) for all other purposes herein, the equivalent amount of Canadian dollars determined by using the quoted spot rate at which the Bank's principal office in 7 3. Vancouver offers to sell Canadian dollars in exchange for United States dollars at such time. "COLOMAC MINE" means the mining property and related facilities located in the Northwest Territories approximately 137 miles north-west of Yellowknife on the western shore of Indin Lake consisting of 16 stated claims, 4 mining leases and 3 surface leases, covering 24,343.81 acres of mining rights, and 4,630.59 acres of surface rights, and commonly known as the "Colomac Mine". "CONSOLIDATED DEBT" means, at any time for the Company and its Subsidiaries the total of (i) all indebtedness of the Company or any Subsidiary for borrowed money, including the Company's or any Subsidiary's reimbursement and other obligations with respect to borrowings of gold or other commodities, bankers' acceptances, letters of credit and letters of guarantee, (ii) all indebtedness of the Company or any Subsidiary for the deferred purchase price of property or services represented by a note or other security, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by the Company or any Subsidiary, (iv) all current liabilities represented by any note, bond, debenture or other evidence of debt, (v) all obligations under leases which are or should be (in accordance with generally accepted accounting principles) recorded as capital leases in respect of which the Company or any Subsidiary is liable as lessee, and (vi) all guarantees of the Company or any Subsidiaries; less Subordinated Debt. For greater certainty, margin limits, credit lines or other similar arrangements made available to the Borrower and its Subsidiaries in connection with any hedging arrangements of the Borrower or its Subsidiaries are not to be construed as falling within the definition of "Consolidated Debt". "CONSOLIDATED TANGIBLE NET WORTH" means, at any time, the total (which shall be added to such total if positive or deducted if negative) of (i) stated capital (or the equivalent account in respect of issued and outstanding shares, but excluding treasury shares and any subscribed but unissued shares); (ii) retained earnings; (iii) contributed surplus; and (iv) Subordinated Debt, less (v) all intangible assets, including, without limitation, organization expenses, patents, copyrights, trade marks, goodwill, covenants not to compete, research and development costs, training costs, unamortized debt discounts and deferred charges (other than capitalized development and related charges in respect of any resource property); all determined as of such time with respect to the Borrower and its Subsidiaries on a consolidated basis, in accordance with generally accepted accounting principles. "CONTAMINANT" means any contaminant, as defined by EPA. "CONVERSION NOTICE" shall have the meaning ascribed thereto in Section 6.05. "CORPORATE B/A FEE" means a fluctuating fee rate expressed as a percentage per annum determined and adjusted automatically upon change by the Bank from time to time as a reference rate for determining fees to be charged to designated corporate customers for the acceptance by the Bank of drafts or bills of exchange in Canadian dollars issued by such corporate customers. 8 4. "CREDIT EXCESS" means, at a particular date, the amount, if any, by which the aggregate amount of credit outstanding under the Credit Facility as at the close of business on such date exceeds the aggregate amount of the Credit Facility as at the close of business on such date. "CREDIT FACILITY" means the revolving term credit facility established by the Bank in favour of the Borrower pursuant to Section 2.01. "DEBT SERVICE" means Interest Expensed, Interest Capitalized and sinking fund payments or other periodic principal repayments, other than principal payments due on maturity, required to be made during the relevant period. "DEFAULT" means any event which is or which, with the passage of time, the giving of notice or both, would be an Event of Default. "DESIGNATED ACCOUNT" means, with respect to transactions in a particular currency, an account of the Borrower maintained by the Bank at the Branch of Account for the purposes of transactions in such currency under this agreement. "$" denotes Canadian dollars or U.S. dollars as the context may permit. "DRAWDOWN NOTICE" shall have the meaning ascribed thereto in Section 4.01. "ENVIRONMENTAL LAWS" means all applicable federal, state, provincial or local statutes, laws, ordinances, codes, rules, regulations, decrees and orders relating to or imposing liability or standards of conduct concerning public health or the protection of the environment (including, without limitation, EPA). "EPA" means, the Environmental Protection Act (Ontario), as amended from time to time, and any successor statute. "EVENT OF DEFAULT" means any one of the events set forth in Section 13.01. "EXCHANGE EQUIVALENT" means, as of any particular date, with reference to any amount (the "original amount") expressed in a particular currency (the "original currency"), the amount expressed in another currency which would be required to buy the original amount of the original currency using the quoted spot rates at which the principal office in Vancouver of the Bank offers to provide such other currency in exchange for such original currency at 12:00 noon (Vancouver time) on such date. "FEDERAL FUNDS EFFECTIVE RATE" means, for any particular day, the variable rate of interest per annum, calculated on the basis of a 360-day year and for the actual number of days elapsed, equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers as published for such day (or, if such day is not a Banking Day, for the next preceding Banking Day) by the Federal Reserve Bank of New York or, for any Banking Day on which such rate is not so published by the Federal Reserve Bank of New York, the average of the quotations for such day for such 9 5. transactions received by the Bank from three Federal Funds brokers of recognized standing selected by the Bank. "FISCAL QUARTER" means any of the three-month periods ending on the last day of March, June, September and December in each Fiscal Year. "FISCAL YEAR" means any of the twelve-month periods ending on the last day of December in each year. "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally accepted accounting principles in effect in Canada from time to time as recommended in the Handbook of the Canadian Institute of Chartered Accountants. "GIANT MINE" means the mining property and related facilities located approximately 5 kilometres north of Yellowknife, Northwest Territories, consisting of 6 mining leases covering 1,635.55 acres, one surface lease covering 2,242.76 acres and one docking facility lease covering 3.43 acres, and commonly known as the "Giant Mine". "GUARANTEES" mean any contract or other arrangement whereby a person directly or indirectly: (i) guarantees, endorses (or otherwise than for collection or deposit in the ordinary course of business), discounts with recourse, agrees (contingently or otherwise) to purchase or repurchase or otherwise acquire, any indebtedness, obligation or liability of any other person; or (ii) agrees to supply or advance funds (whether by way of loan, share purchase or capital contribution, through a commitment to pay for property or services regardless of the non-delivery of such property or the non-furnishing of such services, or otherwise) in respect of any indebtedness, obligation or liability of any other person; or (iii) provides security for the indebtedness, obligations or liabilities of any other person, whether or not it assumes liability, contingent or otherwise, for the indebtedness, liabilities or obligations so secured; or (iv) becomes liable in respect of any indebtedness, obligation or liability of any other person. "HAZARDOUS MATERIALS" means any Pollutant or Contaminant or hazardous or toxic chemical, material or substance within the meaning of any applicable federal, state, provincial or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous or toxic waste, substance or material or concerning the environment or public health, all as in effect on the applicable date. 10 6. "HOPE BROOK MINE" means the mining property and related facilities located near the towns of Burgeo and Port aux Basques, Newfoundland, consisting of 6,802 acres of mining rights and 490 acres of surface rights, and commonly known as the "Hope Brook Mine". "INDEBTEDNESS CURRENCY" shall have the meaning ascribed thereto in Section 14.09. "INTEREST CAPITALIZED" means, with respect to the Borrower, interest recorded as being capitalized to projects on the Borrower's financial statements. "INTEREST COVERAGE RATIO" means the ratio of Net Income of the Borrower (adjusted so that (A) gains and losses from extraordinary events are eliminated and (B) income tax expense, non-cash uses of funds and Interest Expensed is added back to Net Income) in a period to Debt Service in the same period. "INTEREST EXPENSED" means, with respect to the Borrower, interest recorded as a deduction on the Borrower's financial statements. "INTEREST PERIOD" means, in the case of any LIBO Loan, the applicable period for which interest on such LIBO Loan shall be calculated pursuant to Article 7. "JUDGMENT CONVERSION DATE" and "JUDGMENT CURRENCY" shall have the respective meanings ascribed thereto in Section 14.09. "LETTERS" means Letters of Credit. "LETTERS OF CREDIT" means stand-by letters of credit issued by the Bank on the instructions and credit of the Borrower, each being denominated in Canadian dollars or United States dollars, having a maturity of not more than 1 year, being renewable at the sole discretion of the Bank, being issued to a named beneficiary and being otherwise in a form satisfactory to the Bank. "LIBO LOANS" means monies lent by the Bank to the Borrower hereunder in United States dollars and upon which interest accrues at a rate referrable to the LIBO Rate. "LIBO RATE" means the rate of interest per annum, calculated on the basis of a 360 day year, determined by the Bank for a particular Interest Period to be the arithmetic average (rounded upwards to the nearest 1/16 of 1%) of the rates of interest per annum, calculated on the basis of a 360 day year, at which the Bank is offered deposits by prime banks in the London interbank market at approximately 11:00 a.m. (London time) on the second Banking Day prior to the commencement of such Interest Period in an amount of United States dollars similar to the principal amount of the applicable LIBO Loan and for a deposit period comparable to such Interest Period. "LIEN" means any deed of trust, mortgage, charge, hypothec, assignment, pledge, lien, security interest, encumbrance, vendor privilege or vendor's right of reclamation of whatever kind or nature, regardless of form and whether consensual or arising by law (statutory or otherwise), that secures the payment of any indebtedness or liability or the observance or performance of any 11 7. obligation (including any agreement to give any of the foregoing and any filing of or agreement to give any financing statement under the Personal Property Security Act (Ontario) or any similar action under any similar law of any other jurisdiction). "LOAN DOCUMENTS" means this agreement, the Bankers' Acceptances and the Letters and all other documents to be executed and delivered by the Borrower hereunder. "LOANS" means Prime Rate Loans, Base Rate Canada Loans and LIBO Loans. "MATERIAL ADVERSE CHANGE" means any change of circumstances or event which would or does have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means a material adverse effect (or a series of adverse effects, none of which is material in and of itself but which, cumulatively, result in a material adverse effect) on the financial condition, operations, assets, business, properties or prospects of the Borrower and its Subsidiaries, on the ability of the Borrower to perform its obligations under any of the Loan Documents, on the ability of the Bank to enforce any of such obligations. "MATURITY DATE" means the date which is 364 days after the execution and delivery of this agreement, subject to annual extension in the discretion of the Bank. A written request for such extension (an "Extension Request") shall be delivered by the Borrower to the Bank at least 60 days prior to the Maturity Date. The Bank shall have 15 business days following receipt of an Extension Request to advise the Borrower of its decision to agree to the Extension Request or to refuse the Extension Request. "NET INCOME" means in respect of the period for which it is being determined, the net income of the Borrower as set forth in the audited financial statements of the Borrower for such period. "NIGHTHAWK LAKE MINE" means the mining property and related facilities located on the boundary between Cody and Macklem Townships on Nighthawk Lake, approximately 20 miles east of Timmins, Ontario, consisting of the mining rights and surface rights to 13 patented claims and 1 ten year leased claim, mining rights only to 3 Licences of Occupation and the use of surface rights of an island held under a Licence of Occupation, representing approximately 2,229.03 acres of mining rights and 522.69 acres of surface rights, and commonly known as the "Nighthawk Lake Mine". "OFFICIAL BODY" means any national government or government of any political subdivision thereof, or any agency, authority, board, central bank, monetary authority, commission, department or instrumentality thereof, or any court, tribunal, grand jury, mediator, arbitrator or referee, whether foreign or domestic. "PAMOUR MINE" means the mining property and related facilities located near Timmins, Ontario, in Northeastern Whitney Township, in the Porcupine Mining Division, consisting of 57 patented claims, one leased claim and one licence of occupation covering over 1,575 acres of mining rights and 1,571 acres of surface rights, and commonly known as the "Pamour Mine". 12 8. "PERMITTED ENCUMBRANCES" means any one or more of the following with respect to the property and assets of the Borrower or any of its Subsidiaries: (a) Liens for taxes, assessments or governmental charges or levies not at the time due or delinquent or the validity of which are being contested in good faith by appropriate proceedings and as to which reserves are being maintained in accordance with generally accepted accounting principles so long as forfeiture of any part of such property or assets will not result from the failure to pay such taxes, assessments or governmental charges or levies during the period of such contest; (b) the Lien of any judgment rendered or the Lien of any claim filed which is being contested in good faith by appropriate proceedings and as to which reserves are being maintained in accordance with generally accepted accounting principles so long as forfeiture of any part of such property or assets will not result from the failure to satisfy such judgment or claim during the period of such contest; (c) undetermined or inchoate Liens and charges including royalty obligations incidental to current operations which have not at such time been filed pursuant to law or which relate to obligations not due or delinquent; (d) restrictions, easements, rights-of-way, servitudes or other similar rights in land granted to or reserved by other persons which in the aggregate do not materially impair the usefulness, in the operation of the business of the Borrower or any of its Subsidiaries, of the property subject to such restrictions, easements, rights-of-way, servitudes or other similar rights in land granted to or reserved by other persons; (e) the right reserved to or vested in any municipality or governmental or other public authority by the terms of any lease, licence, franchise, grant or permit acquired by either the Borrower or any of its Subsidiaries or by any statutory provision, to terminate any such lease, licence, franchise, grant or permit, or to require annual or other payments as a condition to the continuance thereof; (f) the Lien resulting from the deposit of cash or securities (i) in connection with contracts, tenders, reclamation or expropriation proceedings, or (ii) to secure workers' compensation, surety or appeal bonds, costs of litigation when required by law, and public and statutory obligations, or (iii) in connection with the discharge of Liens or claims incidental to construction and mechanics', warehouseman's, carriers' and other similar liens; (g) security given to a public utility or any municipality or governmental or other public authority when required by such utility or other authority in connection with the operations of the Borrower or any of its Subsidiaries, all in the ordinary course of business; 13 9. (h) the reservations, limitations, provisos and conditions, if any, expressed in any original grants from the Crown or in comparable grants, if any, in jurisdictions other than Canada; (i) title defects or irregularities which are of a minor nature and in the aggregate will not materially impair the use of the property for the purpose for which it is held; (j) applicable municipal and other governmental restrictions affecting the use of land or the nature of any structures which may be erected thereon, provided such restrictions have been complied with and will not materially impair the use of the property for the purpose for which it is held; (k) Liens to secure the payment of the purchase price or the repayment of monies borrowed to pay the purchase price of any personal property hereafter or previously acquired by the Borrower or any of its Subsidiaries and having an aggregate purchase price of less than $10,000,000; (l) the extension, renewal or refinancing of any Permitted Encumbrance, provided that the amount so secured does not exceed the original amount secured immediately prior to such extension, renewal or refinancing and the Lien is not extended to any additional property; and (m) security interests existing on the date hereof, disclosed in Schedule B and securing payment or performance of indebtedness disclosed in Schedule B up to the amount thereof permitted pursuant to Section 11.03(k). "PERSON" means an individual, partnership, firm, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature, whether acting in an individual, fiduciary or other capacity. "PRESCRIBED STOCK EXCHANGE" means, on any particular date with respect to a particular class of securities, the stock exchange on which the most number of such class of securities were traded on such date or, if there was no trading in such class of securities on either of such stock exchanges on such date, such stock exchange on which the most number of such class of securities were traded on the most recent date on which such class of securities was traded on either of such stock exchanges. "PRIME RATE" means the variable rate of interest per annum, calculated on the basis of a 365 day year or a 366 day year in the case of a leap year, equal to the rate of interest publicly announced by the Bank from time to time as its prime rate for Canadian dollar loans made by the Bank in Canada from time to time, being a variable per annum reference rate of interest adjusted automatically upon change by the Bank. "PRIME RATE LOANS" means monies lent by the Bank to the Borrower hereunder in Canadian dollars and upon which interest accrues at a rate referrable to the Prime Rate. 14 10. "PRINCIPAL PROPERTIES" means, collectively, all current operating properties of the Borrower including the Colomac Mine, the Giant Mine, the Hope Brook Mine, the Nighthawk Lake Mine and the Pamour Mine, and, in the singular, any one of them. "RESTRICTED SUBSIDIARY" means, at any time, and except as provided in the next following sentence, a Subsidiary of the Borrower which holds or owns (whether held or owned directly or indirectly through the ownership of shares or any other interest in one or more Persons or otherwise) any interest in a Principal Property at such time. A Subsidiary of the Borrower which does not own or hold an interest in a Principal Property may be designated by the Borrower, with the consent of the Bank, as a Restricted Subsidiary, and any Subsidiary of the Borrower which is a Restricted Subsidiary may be designated by the Borrower, with the consent of the Bank, not to be a Restricted Subsidiary. "ROLLOVER NOTICE" shall have the meaning ascribed thereto in Section 5.03. "SUBORDINATED DEBT" means all indebtedness of the Borrower whether unsecured or secured by a security interest in or other encumbrance of any kind on the property or assets of the Borrowers or its Subsidiaries, which indebtedness and security, if any, are fully subordinated in a manner satisfactory to the Bank as to payment, priority and acceleration to the rights of the Bank hereunder. "SUBSIDIARY" means any corporation, whatsoever and howsoever incorporated, a majority of the shares of any class of which entitle the holder to elect a majority of the board of directors thereof (including shares which are entitled to vote upon the happening of any event or contingency which shall have occurred and be continuing) are owned by the Borrower, and shall include any Subsidiary of a Subsidiary. "U.S. DOLLAR EQUIVALENT" means, as of any particular time and with respect to any amount of Canadian dollars: (a) for the purposes of Section 2.01, the equivalent amount of United States dollars determined by using the noon rate of exchange for Canadian interbank transactions applied in converting Canadian dollars into United States dollars published by the Bank of Canada for the day in question; and (b) for all other purposes herein, the equivalent amount of United States dollars determined by using the quoted spot rate at which the Bank's principal office in Vancouver offers to buy or sell United States dollars, as the case may be, in exchange for Canadian dollars at such time. 1.02 OTHER USAGES. References to "this agreement", "the agreement", "hereof", "herein", "hereto" and like references refer to this Credit Agreement and not to any particular Article, Section or other subdivision of this agreement. Any references herein to any agreements or documents shall mean such agreements or documents as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof. 15 11. 1.03 PLURAL AND SINGULAR. Where the context so requires, words importing the singular number shall include the plural and vice versa. 1.04 HEADINGS. The division of this agreement into Articles and Sections and the insertion of headings in this agreement are for convenience of reference only and shall not affect the construction or interpretation of this agreement. 1.05 CURRENCY. Unless otherwise specified herein, all statements of or references to dollar amounts in this agreement shall mean lawful money of Canada. 1.06 APPLICABLE LAW. This agreement and, unless otherwise expressly provided for therein, all documents delivered pursuant hereto shall be governed by and construed and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and the parties hereto do hereby attorn to the non-exclusive Jurisdiction of the courts of the Province of Ontario. 1.07 TIME OF THE ESSENCE. Time shall in all respects be of the essence of this agreement. 1.08 NON-BANKING DAYS. Subject to Section 7.04(c), whenever any payment to be made hereunder shall be stated to be due or any action to be taken hereunder shall be stated to be required to be taken on a day other than a Banking Day, such payment shall be made or such action shall be taken on the next succeeding Banking Day and, in the case of the payment of any amount, the extension of time shall be included for the purposes of computation of interest, if any, thereon. 1.09 CONSENTS AND APPROVALS. Whenever the consent or approval of a party hereto is required in a particular circumstance, unless otherwise expressly provided for therein, such consent or approval shall not be unreasonably withheld or delayed by such party. 1.10 AMOUNT OF CREDIT. Any reference herein to the "amount of credit outstanding" or "amount of outstanding credit" or "outstanding amount of credit" or any similar phrase shall mean, at any particular time: (a) in the case of a Prime Rate Loan or a loan in Canadian dollars made pursuant to Section 3.05, the principal amount thereof; (b) in the case of a LIBO Loan, a Base Rate Canada Loan or a loan in United States dollars made pursuant to Section 3.05, the Canadian Dollar Equivalent of the principal amount thereof; (c) in the case of Bankers' Acceptances, the face amount of the Bankers' Acceptances; (d) in the case of a Letter denominated in Canadian Dollars, the outstanding amount of the contingent liability of the Bank thereunder; and 16 12. (e) in the case of a Letter denominated in United States Dollars, the Canadian Dollar Equivalent of the outstanding amount of the contingent liability of the Bank thereunder. 1.11 SCHEDULES. Each and every one of the schedules which is referred to in this agreement and attached to this agreement shall form a part of this agreement. 1.12 PARAMOUNTCY. In the event of any conflict or inconsistency between the provisions of this agreement and the provisions of any other Loan Document, the provisions of this agreement shall prevail and be paramount. If any covenant, representation, warranty or event of default contained in any other Loan Document is in conflict with or is inconsistent with a provision of this agreement relating to the same specific matter, such covenant, representation, warranty or event of default shall be deemed to be amended to the extent necessary to ensure that it is not in conflict with or inconsistent with the provision of this agreement relating to the same specific matter. 1.13 EXTENSION OF CREDIT. For the purposes hereof, each drawdown, rollover and conversion shall be deemed to be an extension of credit to the Borrower hereunder. ARTICLE 2 CREDIT FACILITY 2.01 ESTABLISHMENT OF CREDIT FACILITY. Subject to the terms and conditions hereof, the Bank hereby establishes a revolving term credit facility (the "Credit Facility") in favour of the Borrower in the aggregate amount of Cdn. $28,000,000 or the U.S. Dollar Equivalent thereof. Any Credit Excess of $1,000,000 or more shall be repaid by the Borrower forthwith so that following such payments or repayments to the Bank the amount of credit outstanding under the Credit Facility will not exceed the Credit Facility. 2.02 BANK'S COMMITMENTS. Subject to the terms and conditions hereof, the Bank agrees to extend credit to the Borrower hereunder from time to time provided that the aggregate amount of credit extended by the Bank under the Credit Facility shall not at any time exceed the amount of the Credit Facility referred to in Section 2.01 as the same may be reduced pursuant to Section 2.03. All credit requested hereunder, shall be made available to the Borrower by the Bank. Subject to Sections 3.05 and 3.06, the Bank shall provide to the Borrower each credit, whether such credit is extended by way of drawdown, rollover or conversion. 2.03 REDUCTION OF CREDIT FACILITY. The Borrower may, from time to time and at any time, by notice in writing to the Bank, permanently reduce the Credit Facility to the extent it is not being utilized at the time such notice is given, provided that such reduction shall not become effective until two Banking Days after such notice has been given. The amount of the Credit Facility will be permanently reduced to nil upon repayment on the Maturity Date of the aggregate credit under the Credit Facility, all in accordance with Section 9.01. Any such reduction shall not affect or diminish any of the obligations of the Borrower hereunder. Any repayment or prepayment of credit outstanding under the Credit Facility (other than pursuant to Section 9.01) 17 13. shall not cause a reduction in the amount of the Credit Facility. Any repayment of outstanding credit which forms part of any conversion from one type of credit to another type of credit under Article 3 or Article 6 shall not cause any reduction in the amount of the Credit Facility. 2.04 TERMINATION OF CREDIT FACILITY. (a) The Credit Facility shall terminate upon the earliest to occur of: (i) the termination of the Credit Facility in accordance with Section 13.01; (ii) the date on which the Credit Facility has been permanently reduced to zero pursuant to Section 2.03; and (iii) the Maturity Date. (b) Upon the termination of the Credit Facility, the right of the Borrower to obtain any credit thereunder and all of the obligations of the Bank to extend credit thereunder shall automatically terminate. ARTICLE 3 GENERAL PROVISIONS RELATING TO CREDITS 3.01 TYPES OF CREDIT AVAILMENTS. Subject to the terms and conditions hereof, the Borrower may obtain credit under the Credit Facility by way of one or more Prime Rate Loans, Base Rate Canada Loans, LIBO Loans, Bankers' Acceptances and, when applicable, loans pursuant to Section 3.05. Subject also to the terms and conditions hereof, the Borrower may obtain credit from the Bank by way of overdrafts and by way of Letters. 3.02 FUNDING OF LOANS. The Bank shall make available the principal amount of each Loan, in the appropriate currency, prior to 11:00 a.m. (Vancouver time) on the date of the extension of credit. The Bank shall, upon fulfilment by the Borrower of the terms and conditions set forth in Article 12, make such funds available to the Borrower on the date of the extension of credit by crediting the applicable Designated Account (or causing such account to be credited) unless otherwise irrevocably authorized and directed in the Drawdown Notice. 3.03 FUNDING OF BANKERS' ACCEPTANCES. (a) Subject to Section 3.05, the Bank shall, not later than 11:00 a.m. (Vancouver time) on the date of the extension of the credit, accept drafts of the Borrower which are presented to it for acceptance prior to the date of the credit and which have an aggregate face amount equal to the total credit being extended by way of Bankers' Acceptances on such date. With respect to each drawdown of, rollover of or conversion into Bankers' Acceptances, the Bank shall not be required to accept any draft which has a face amount which is not an integral multiple of Cdn. $100,000. Subject to the provisions hereof, the Bank shall be responsible for 18 14. making all necessary arrangements with respect to the stamping of Bankers' Acceptances. (b) It shall be the responsibility of the Borrower to arrange in accordance with normal market practice for the sale of the Bankers' Acceptances and, accordingly, the Borrower shall advise the Bank (no later than 11:00 a.m. (Vancouver time) on the date of the extension of the credit) of the price payable for each such Bankers' Acceptance by the purchaser thereof and the purchaser who will be paying such price to and taking delivery of such Bankers' Acceptances from the Bank. The Bank is hereby authorized to release each Bankers' Acceptance accepted by it to such purchaser upon receipt of an amount equal to such price. Upon receipt of such purchase price, the Bank shall deposit the amount so received to the applicable Designated Account. The Borrower agrees to provide ScotiaMcLeod Inc. with an opportunity to purchase each Bankers' Acceptance issued by the Borrower. 3.04 SAFEKEEPING OF DRAFTS. The Bank agrees that, in respect of the safekeeping of executed drafts of the Borrower which are delivered to it for acceptance hereunder, it shall exercise the same degree of care which the Bank gives to its own property, provided that the Bank shall not be deemed to be insurers thereof. 3.05 ALTERNATIVE BORROWINGS. If, in the sole judgment of the Bank reasonably exercised, it is unable to extend credit by way of Bankers' Acceptances in accordance with this agreement, the Bank shall give an irrevocable notice to such effect to the Borrower prior to 10:00 a.m. (Vancouver time) on the date of the requested credit extension and shall make available to the Borrower prior to 11:00 a.m. (Vancouver time) on the date of such requested credit extension a Canadian dollar loan in the principal amount equal to the Bank's total credit to be extended by way of Bankers' Acceptances, such loan to be funded in the same manner as a Loan is funded pursuant to Section 3.02. Such loan shall have the same term as the Bankers' Acceptances for which it is a substitute and shall bear such rate of interest per annum throughout the term thereof as shall permit the Bank to obtain the same effective rate as if the Bank had accepted and purchased a Bankers' Acceptance at approximately 11:00 a.m. (Vancouver time) on the date such loan is made, on the basis that, and the Borrower hereby agrees that, for such a loan, interest shall be payable in advance on the date of the credit by the Bank deducting the interest payable in respect thereof from the principal amount of such loan. 3.06 INABILITY TO FUND U.S. DOLLAR ADVANCES IN CANADA. If the Bank determines in good faith, which determination shall be final, conclusive and binding on the Borrower, and the Bank notifies the Borrower that (i) by reason of circumstances affecting financial markets inside or outside Canada, deposits of United States dollars are unavailable to the Bank in Canada, (ii) adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided in the definition of LIBO Rate or Alternate Base Rate Canada, as the case may be, (iii) the making or continuation of United States dollar advances in Canada has been made impracticable by the occurrence of a contingency (other than a mere increase in rates payable by the Bank to fund the advance) which materially and adversely affects the funding of the advances at any interest rate computed on the basis of the LIBO Rate or Alternate Base Rate Canada, as 19 15. the case may be, or by reason of a change in any applicable law or government regulation, guideline or order (whether or not having the force of law but, if not having the force of law, one with which a responsible Canadian chartered bank would comply) or in the interpretation thereof by any Official Body affecting the Bank or any relevant financial market, or (iv) any change to present law or any future law, regulation, order, treaty or official directive (whether or not having the force of law but, if not having the force of law, one with which a responsible Canadian chartered bank would comply) or any change therein or any interpretation or application thereof by any Official Body has made it unlawful for the Bank to make or maintain or give effect to its obligations in respect of United States dollar advances in Canada as contemplated herein, then (a) the right of the Borrower to obtain any affected type of credit from the Bank shall be suspended until the Bank determines that the circumstances causing such suspension no longer exist and the Bank so notifies the Borrower; (b) if any affected type of credit is not yet outstanding, any applicable Drawdown Notice shall be cancelled and the advance requested therein shall not be made; (c) if any LIBO Loan is already outstanding at any time when the right of the Borrower to obtain credit by way of a LIBO Loan is suspended, it shall, subject to the Borrower having the right to obtain credit by way of a Base Rate Canada Loan at such time, be converted on the last day of the Interest Period applicable thereto (or on such earlier date as may be required to comply with any applicable law) to a Base Rate Canada Loan in the principal amount equal to the principal amount of the LIBO Loan or, if the Borrower does not have the right to obtain credit by way of a Base Rate Canada Loan at such time, such LIBO Loan shall be converted on the last day of the Interest Period applicable thereto (or on such earlier date as may be required to comply with any applicable law) to a Prime Rate Loan in the principal amount equal to the Canadian Dollar Equivalent of the principal amount of such LIBO Loan; and (d) if any Base Rate Canada Loan is already outstanding at any time when the right of the Borrower to obtain credit by way of a Base Rate Canada Loan is suspended, it shall, subject to the Borrower having the right to obtain credit by way of a LIBO Loan at such time, be immediately converted to a LIBO Loan in the principal amount equal to the principal amount of the Base Rate Canada Loan and having an Interest Period of one month or, if the Borrower does not have the right to obtain credit by way of a LIBO Loan at such time, it shall be immediately converted to a Prime Rate Loan in the principal amount equal to the Canadian Dollar Equivalent of the principal amount of the Base Rate Canada Loan. 3.07 TIMING OF CREDIT AVAILMENTS. No Bankers' Acceptance, LIBO Loan or loan pursuant to Section 3.05 may have a maturity date later than the Maturity Date. 3.08 TIME AND PLACE OF PAYMENTS. Unless otherwise expressly provided herein, the Borrower shall make all payments pursuant to this agreement by deposit to the applicable Designated Account before 12:00 noon (Vancouver time) on the day specified for payment and the Bank 20 16. shall be entitled to withdraw the amount of any payment due to the Bank hereunder from such account on the day specified for payment. 3.09 EVIDENCE OF INDEBTEDNESS. The Bank shall maintain accounts wherein the Bank shall record the amount of credit outstanding, each payment of principal and interest on account of each Loan, each Bankers' Acceptance accepted and cancelled, each Letter issued and drawn upon and all other amounts becoming due to and being paid to the Bank hereunder, including acceptance fees, standby fees and Letter fees. The Bank's accounts constitute, in the absence of manifest error, prima facie evidence of the indebtedness of the Borrower to the Bank pursuant to this agreement. 3.10 NOTICE PERIODS. Each Drawdown Notice, Rollover Notice and Conversion Notice shall be given to the Bank: (a) prior to 10:00 a.m. (Vancouver time) on the second Banking Day prior to the date of a drawdown by the issuance of a Letter; (b) prior to 10:00 a.m. (Vancouver time) on the second Banking Day prior to the date of a drawdown of, rollover of or conversion into a LIBO Loan or a drawdown of or conversion into a Base Rate Canada Loan or a Prime Rate Loan having a principal amount greater than $1,000,000; (c) prior to 10:00 a.m. (Vancouver time) on the second Banking day prior to the date of a drawdown of or conversion into a Base Rate Canada Loan or a Prime Rate Loan having a principal amount greater than or equal to $1,000,000 and less than or equal to $1,000,000 or a drawdown of, rollover of or conversion into a Bankers' Acceptance; and (d) prior to 10:00 a.m. (Vancouver time) on the first Banking day prior to the date of any other drawdown, rollover or conversion. ARTICLE 4 DRAWDOWNS 4.01 DRAWDOWN NOTICE. Subject to Sections 2.01, 3.05 and 3.06 and provided that all of the applicable conditions precedent set forth in Article 12 have been fulfilled by the Borrower or waived by the Bank, the Borrower may have credit extended to it hereunder by giving to the Bank an irrevocable notice in substantially the form of Schedule A hereto ("Drawdown Notice") specifying: (a) the date the credit is to be extended; (b) whether the credit is to be extended by way of Prime Rate Loan, Base Rate Canada Loan, LIBO Loan or Bankers' Acceptance; 21 17. (c) in the case of any credit to be extended by way of a Loan, the principal amount of the Loan; (d) if the credit is to be extended by way of LIBO Loan, the applicable Interest Period; (e) if the credit is to be extended by way of Bankers' Acceptances, the aggregate face amount of the Bankers' Acceptances to be issued (which may not be less than $100,000) and the term of the Bankers' Acceptances; (f) in the case of any credit obtained by Letters, the date of the credit (being the requested date of issuance of the Letters), the named beneficiary of the Letters, the maturity date and aggregate amount of the Letters, the currency in which the Letters are to be denominated and all other terms of the Letters; and (g) the details of any irrevocable authorization and direction pursuant to Section 3.02. 4.02 EXPIRY OF AVAILABILITY. The Borrower shall not be entitled to have credit extended to it by means of a drawdown under the Credit Facility after the Maturity Date. ARTICLE 5 ROLLOVERS 5.01 BANKERS' ACCEPTANCES. Subject to Section 3.05 and provided that the Borrower has, by giving notice to the Bank in accordance with Section 5.03, requested the Bank to accept its drafts to replace all or a portion of outstanding Bankers' Acceptances as they mature, the Bank shall, on the maturity of such Bankers' Acceptances and concurrent with the payment by the Borrower to the Bank of the face amount of such Bankers' Acceptances or the portion thereof to be replaced, accept the Borrower's drafts having an aggregate face amount equal to the aggregate face amount of the matured Bankers' Acceptances or the portion thereof to be replaced. 5.02 LIBO LOANS. Subject to Section 3.06 and provided that the Borrower has, by giving notice to the Bank in accordance with Section 5.03, requested the Bank to continue to extend credit by way of LIBO Loans to replace all or a portion of an outstanding LIBO Loan as it matures, the Bank shall, on the maturity of the LIBO Loan, continue to extend credit to the Borrower by way of a LIBO Loan (without a further advance of funds to the Borrower) in the principal amount equal to the principal amount of the matured LIBO Loan or the portion thereof to be replaced. 5.03 ROLLOVER NOTICE. The notice to be given to the Bank pursuant to Section 5.01 or 5.02 ("Rollover Notice") shall be an irrevocable notice in substantially the same form as Schedule A attached hereto specifying: (a) the maturity date of the maturing Bankers' Acceptances or the maturing LIBO Loan, as the case may be; 22 18. (b) the face amount of the maturing Bankers' Acceptances or the principal amount of the maturing LIBO Loan, as the case may be, and the portion thereof to be replaced; (c) in the case of a maturing LIBO Loan, the Interest Period or Interest Periods of the replacement LIBO Loans; and (d) in the case of maturing Bankers' Acceptances, the aggregate face amount of the new Bankers' Acceptances to be issued and the term of the new Bankers' Acceptances. ARTICLE 6 CONVERSIONS 6.01 CONVERTING LOAN TO OTHER TYPE OF LOAN. Subject to Section 3.06 and provided that the Borrower has, by giving notice to the Bank in accordance with Section 6.05, requested the Bank to convert all or a portion of an outstanding Loan of a particular type (and, for the purposes of this Section 6.01, a loan pursuant to Section 3.05 shall be deemed to be a Loan) into another type of Loan, the Bank shall, on the date of conversion (which, in the case of the conversion of all or a portion of an outstanding LIBO Loan or loan pursuant to Section 3.05, shall be the date on which such Loan matures), continue to extend credit to the Borrower by way of the type of Loan into which the outstanding Loan or a portion thereof is converted (without a further advance of funds to the Borrower) in the aggregate principal amount equal to the principal amount or the Canadian Dollar Equivalent or U.S. Dollar Equivalent of the principal amount, as the case may be, of the outstanding Loan or the portion thereof which is being converted. 6.02 CONVERTING LOAN TO BANKERS' ACCEPTANCES. Subject to Section 3.05 and provided that the Borrower has, by giving notice to the Bank in accordance with Section 6.05, requested the Bank to accept its drafts to replace all or a portion of an outstanding Loan (and, for the purposes of this Section 6.02, a loan pursuant to Section 3.05 shall be deemed to be a Loan) and, if a LIBO Loan or a loan pursuant to Section 3.05 is to be replaced the date of conversion is the date on which such Loan matures, the Bank shall, on the date of conversion and concurrent with the payment by the Borrower to the Bank of the principal amount of such outstanding Loan or the portion thereof which is being converted, accept the Borrower's draft or drafts having an aggregate face amount equal to the aggregate principal amount of such Loan or the portion thereof which is being converted (if a Prime Rate Loan or a loan in Canadian Dollars pursuant to Section 3.05 is being converted into a Bankers' Acceptance) or the Canadian Dollar Equivalent of the aggregate principal amount of such Loan or the portion thereof which is being converted (if a Base Rate Canada Loan, a loan in United States dollars pursuant to Section 3.05 or a LIBO Loan is being converted into a Bankers' Acceptance). 6.03 CONVERTING BANKERS' ACCEPTANCES TO LOAN. The Bank shall, on the maturity date of a Bankers' Acceptance which the Bank has accepted, pay to the holder thereof the face amount of such Bankers' Acceptance. Subject to Section 3.06 and provided that the Borrower has, by giving notice to the Bank in accordance with Section 6.05, requested the Bank to convert all or a portion 23 19. of outstanding maturing Bankers' Acceptances into a Loan, the Bank shall, upon the maturity date of such Bankers' Acceptances and the payment by the Bank to the holders of such Bankers' Acceptances of the aggregate face amount thereof and concurrent with the payment by the Borrower to the Bank of the aggregate face amount of such Bankers' Acceptances, extend credit to the Borrower by way of the Loan into which the matured Bankers' Acceptances or a portion thereof are converted in the aggregate principal amount equal to the aggregate face amount or the U.S. Dollar Equivalent of the aggregate face amount, as the case may be, of the matured Bankers' Acceptances or the portion thereof which are being converted. 6.04 CONVERTING LETTER TO LOAN. (a) In the event that the Bank is required to make a payment to honour any demand under a Letter, it shall be deemed to have extended credit to the Borrower by way of a Loan in the principal amount equal to the amount of such payment or the exchange equivalent of the amount of such payment, as the case may be. If the Letter was denominated in Canadian dollars, such Loan shall be a Canadian Loan. If the Letter was denominated in United States dollars, such Loan shall be a Base Rate Canada Loan. Such Loan shall constitute credit outstanding under the Credit Facility. (b) In the event that the Borrower is in default in respect of any payment in respect of an outstanding Letter which it is required to make to the Bank pursuant to Section 9.03, the Bank shall be deemed to have extended credit to the Borrower by way of a Loan in the principal amount equal to the amount of such payment or the exchange equivalent of the amount of such payment, as the case may be. If the Letter was denominated in Canadian dollars, such Loan shall be a Canadian Loan. If the Letter was denominated in United States dollars, such Loan shall be a Base Rate Canada Loan. Such Loan shall constitute credit outstanding under the Credit Facility. 6.05 CONVERSION NOTICE. The notice to be given to the Bank pursuant to Section 6.01, 6.02, 6.03 or 6.04 ("Conversion Notice") shall be irrevocable and shall specify: (a) whether an outstanding Loan or Bankers' Acceptances are to be converted and the type of Loan to be converted; (b) the date on which the conversion is to take place; (c) the face amount of the Bankers' Acceptances or the portion thereof which is to be converted or the principal amount of the Loan or the portion thereof which is to be converted; (d) the type and amount of the Loan or Bankers' Acceptances into which the outstanding Loan or Bankers' Acceptances are to be converted; 24 20. (e) if an outstanding Loan or Bankers' Acceptances are to be converted into a LIBO Loan, the applicable Interest Period; and (f) if an outstanding Loan is to be converted into Bankers' Acceptances, the aggregate face amount of the new Bankers' Acceptances to be issued and the term of the new Bankers' Acceptances. 6.06 CONVERSION AFTER DEFAULT. Upon written notice to such effect to the Borrower at such time as a Default has occurred and is continuing, the Bank may, on the maturity date of a Bankers' Acceptance, a loan pursuant to Section 3.05 or a LIBO Loan, as the case may be, automatically convert such Bankers' Acceptance, loan pursuant to Section 3.05 or LIBO Loan into a Prime Rate Loan or a Base Rate Canada Loan, as the case may be. 6.07 ABSENCE OF NOTICE. Subject to Section 3.06, in the absence of a Rollover Notice or Conversion Notice within the appropriate time periods referred to herein, a maturing LIBO Loan shall be automatically converted into a Base Rate Canada Loan and a maturing Bankers' Acceptance shall be automatically converted into a Prime Rate Loan, as though a notice to such effect had been given in accordance with Section 6.05. ARTICLE 7 INTEREST AND FEES 7.01 INTEREST RATES. The Borrower shall pay to the Bank interest on the outstanding principal amount from time to time of each Loan and on the amount of overdue interest thereon, at the rate per annum equal to: (a) in the case of each Prime Rate Loan, the Bank's Prime Rate; (b) in the case of each Base Rate Canada Loan, the Alternative Base Rate Canada; and (c) in the case of each LIBO Loan, the LIBO Rate plus 3/4% per annum. 7.02 CALCULATION AND PAYMENT OF INTEREST. (a) Interest on the outstanding principal amount from time to time of each Prime Rate Loan and on overdue interest thereon shall accrue from day to day from and including the date on which credit is obtained by way of such Loan or on which such overdue interest is due, as the case may be, to but excluding the date on which such Loan or overdue interest, as the case may be, is repaid in full (both before and after maturity and as well after as before judgment) and shall be calculated on the basis of the actual number of days elapsed divided by 365 or by 366 in the case of a leap year. 25 21. (b) Interest on the outstanding principal amount from time to time of each LIBO Loan and each Base Rate Canada Loan and on overdue interest thereon shall accrue from day to day from and including the date on which credit is obtained by way of such Loan on which such overdue interest is due, as the case may be, to but excluding the date on which such Loan or overdue interest, as the case may be, is repaid in full (both before and after maturity and as well after as before judgment) and shall be calculated on the basis of the actual number of days elapsed divided by 360. (c) Accrued interest shall be paid, (i) in the case of interest on Prime Rate Loans and Base Rate Canada Loans and on overdue interest thereon, monthly in arrears on the 22nd day of each calendar month; and (ii) in the case of interest on LIBO Loans, on the last day of the applicable Interest Period; provided that, in the case of Interest Periods of a duration longer than three months, accrued interest shall be paid no less frequently than every three months from the first day of such Interest Period during the term of such Interest Period and on the date on which such LIBO Loans are otherwise required to be repaid. 7.03 GENERAL INTEREST RULES. (a) For the purposes hereof, whenever interest is calculated on the basis of a year of 360 days, each rate of interest determined pursuant to such calculation expressed as an annual rate for the purposes of the Interest Act (Canada) is equivalent to such rate as so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360. (b) Interest on each Loan and on overdue interest thereon shall be payable in the currency in which such Loan is denominated during the relevant period. (c) If the Borrower fails to pay any fee or other amount (other than principal or interest) of any nature payable by it hereunder on the due date therefor, the Borrower shall pay to the Bank interest on such overdue amount in the same currency as such overdue amount is payable from and including such due date to but excluding the date of actual payment (as well after as before judgment) at the rate per annum, calculated and compounded monthly, which is equal to: (i) the Alternate Base Rate Canada plus 2% in the case of overdue amounts denominated in U.S. dollars; and (ii) the Prime Rate plus 2% in the case of all other overdue amounts. Such interest on overdue amounts shall become due and be paid on demand made by the Bank. 26 22. 7.04 SELECTION OF INTEREST PERIODS. With respect to each LIBO Loan, the Borrower shall specify in the Drawdown Notice, Rollover Notice or Conversion Notice, the duration of the Interest Period provided that: (a) Interest Periods for LIBO Loans shall have a duration from one to six months; (b) the first Interest Period for a LIBO Loan shall commence on and include the day on which credit is extended by way of such Loan and each subsequent Interest Period applicable thereto shall commence on and include the date of the expiry of the immediately preceding Interest Period applicable thereto; and (c) if any Interest Period would end on a day which is not a Banking Day, such Interest Period shall be extended to the next succeeding Banking Day unless such next succeeding Banking Day falls in the next calendar month, in which case such Interest Period shall be shortened to end on the immediately preceding Banking Day. 7.05 ACCEPTANCE FEES. Upon the acceptance of any draft of the Borrower pursuant hereto, the Borrower shall pay to the Bank, in advance, an acceptance fee calculated at the rate per annum, on the basis of a year of 365 days or 366 days in the case of a leap year, equal to the Corporate B/A Fee plus 1/8% per annum on the face amount of such Bankers' Acceptance for its term, being the actual number of days in the period commencing on the date of acceptance of the Borrower's draft and ending on but excluding the maturity date of the Bankers' Acceptance; provided, however, that such fee shall not be less than $100 with respect to any single transaction involving the issuance of one or more Bankers' Acceptances. 7.06 ARRANGEMENT FEE. The Borrower has agreed to pay an arrangement fee in the amount of $25,000 to the Bank, of which $10,000 has been paid as of November 17, 1995, and of which the remaining $15,000 will be paid by the Borrower to the Bank on the date first written above. 7.07 LETTER FEES. Upon the issue by the Bank of Letters hereunder and on the last Banking Day in each fiscal quarter thereafter, the Borrower shall pay to the Bank, in advance, a flat fee of 3/4% per annum based on the amount guaranteed subject to a minimum of $250. 7.08 STANDBY FEE. Upon the 22nd day of each calendar month, the Borrower shall pay to the Bank, in arrears, a standby fee calculated at the rate per annum, on the basis of a 365-day year, equal to twenty (20) basis points on the unused portion of the Credit Facility, such fee to accrue daily from the date of the execution of this agreement. ARTICLE 8 RESERVE, CAPITAL, INDEMNITY AND TAX PROVISIONS 8.01 CONDITIONS OF CREDIT. The obtaining or maintaining of credit hereunder shall be subject to the terms and conditions contained in this Article 8. 27 23. 8.02 CHANGE OF CIRCUMSTANCES. If, with respect to any type of credit, the introduction or adoption of any law, regulation, guideline, request or directive (whether or not having the force of law) of any governmental authority, central bank or comparable agency ("Restraint") or any change therein or in the application thereof to the Borrower or to the Bank or in the interpretation or administration thereof or any compliance by the Bank therewith: (a) prohibits or restricts extending or maintaining such type of credit or the charging of interest or fees in connection therewith, the Borrower agrees that the Bank shall have the right to comply with such Restraint, shall have the right to refuse to permit the Borrower to obtain such type of credit and shall have the right to require, at the option of the Borrower, the conversion of such outstanding credit to another type of credit to permit compliance with the Restraint or repayment in full of such credit together with accrued interest thereon on the last day on which it is lawful for the Bank to continue to maintain and fund such credit or to charge interest or fees in connection therewith, as the case may be; or (b) shall impose or require any reserve, special deposit requirements or tax (excluding taxes measured with reference to the net income of the Bank), shall establish an appropriate amount of capital to be maintained by the Bank or shall impose any other requirement or condition which results in an increased cost to the Bank of extending or maintaining a credit or obligation hereunder or reduces the amount received or receivable by the Bank with respect to any credit under this agreement or reduces the Bank's effective return hereunder or on its capital or causes the Bank to make any payment or to forego any return based on any amount received or receivable hereunder, then, on notification to the Borrower by the Bank, the Borrower shall pay immediately to the Bank such amounts as shall fully compensate the Bank for all such increased costs, reductions, payments or foregone returns which accrue up to and including the date of receipt by the Borrower of such notice and thereafter, upon demand from time to time, the Borrower shall pay such additional amount as shall fully compensate the Bank for any such increased or imposed costs, reductions, payments or foregone returns. The Bank shall notify the Borrower of any actual increased or imposed costs, reductions, payments or foregone returns forthwith on becoming aware of same and shall concurrently provide to the Borrower a certificate of an officer of the Bank setting forth the amount of compensation to be paid to the Bank and the basis for the calculation of such amount. Notwithstanding this Section 8.02(b), the Borrower shall not be liable to compensate the Bank for any such cost, reduction, payment or foregone return occurring more than 30 days before receipt by the Borrower of the aforementioned notification from the Bank; provided, however, that the aforementioned limitation shall not apply to any such cost, reduction, payment or foregone return of a retroactive nature. 8.03 INDEMNITY RELATING TO CREDITS. Upon notice from the Bank to the Borrower (which notice shall be accompanied by a detailed calculation of the amount to be paid by the Borrower), the Borrower shall pay to the Bank such amount or amounts as will compensate the Bank for any loss, or reasonable cost or expense incurred by it: 28 24. (a) in the liquidation or redeposit of any funds acquired by the Bank to fund or maintain any portion of a LIBO Loan or a loan pursuant to Section 3.05 as a result of: (i) the failure of the Borrower to borrow or make repayments on the dates specified under this agreement or in any notice from the Borrower to the Bank; or (ii) the repayment or prepayment of any amounts on a day other than the payment dates prescribed herein; or (b) with respect to any Bankers' Acceptance or Letter, arising from claims or legal proceedings, and including reasonable legal fees and disbursements, respecting the collection of amounts owed by the Borrower hereunder in respect of such Bankers' Acceptance or Letter or the enforcement of the Bank's rights hereunder in respect of such Bankers' Acceptance or Letter including, without limitation, legal proceedings attempting to restrain the Bank from paying any amount under such Bankers' Acceptance or Letter. 8.04 INDEMNITY FOR TRANSACTIONAL LIABILITY. (a) The Borrower hereby agrees to indemnify, exonerate and hold the Bank and each of its shareholders, officers, directors, employees, and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all claims, demands, actions, causes of action, suits, losses, costs (including, without limitation, all documentary, recording filing, mortgage or other stamp taxes or duties), charges, liabilities and damages, and reasonable expenses in connection therewith (irrespective of whether such Indemnified Party is a party to the action for which indemnification hereunder is sought), and including, without limitation, reasonable legal fees and out of pocket disbursements (collectively the "Indemnified Liabilities"), incurred or suffered by, or asserted against, the Indemnified Parties or any of them as a result of, or arising out of, or relating to (i) the extension of credit contemplated herein; (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any credit obtained hereunder, (iii) any actual or threatened investigation, litigation or other proceeding relating to any credit extended or proposed to be extended as contemplated herein; or (iv) the execution, delivery, performance or enforcement of this agreement and any instrument, document or agreement executed pursuant hereto, except for any such Indemnified Liabilities that a court of competent jurisdiction, arbitration or mediation determined arose on account of the relevant Indemnified Party's negligence or willful misconduct and, to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 29 25. (b) All obligations provided for in this Section 8.04 shall survive for two years following the permanent repayment of the outstanding Credit hereunder and any termination of this agreement and shall not be reduced or impaired by any investigation made by or on behalf of the Bank. (c) The Borrower hereby agrees that, for the purposes of effectively allocating the risk of loss placed on the Borrower by this Section 8.04, the Bank shall be deemed to be acting as the agent or trustee on behalf of and for the benefit of its shareholders, officers, directors, employees and agents. 8.05 PAYMENTS FREE AND CLEAR OF TAXES. The Borrower hereby agrees that any and all payments made hereunder by the Borrower to or for the benefit of the Bank ("Applicable Payments") shall be made free and clear of, and without deduction for, any and all present or future taxes, levies, imposts, deductions, charges, fees, duties or withholding or other charges of any nature imposed by any taxing authority, and all liabilities with respect thereto, imposed by any jurisdiction (the "Applicable Jurisdiction") as a consequence or result of any action taken by the Borrower, including the making of an Applicable Payment but excluding, in the case of the Bank, taxes imposed on its net income or capital taxes or receipts and franchise taxes (all such non-excluded taxes, levies, imposts, deductions, charges, fees, duties, withholding and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any Applicable Payment to the Bank, the sum so payable to the Bank shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.05) the Bank receives an amount equal to the sum it would have received had no such deductions been made. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 8.05 shall survive for two years following the permanent repayment of the outstanding credit hereunder and the termination of the Credit Agreement. ARTICLE 9 REPAYMENTS AND PREPAYMENTS 9.01 REPAYMENT. The Borrower shall repay to the Bank all of the outstanding credit under the Credit Facility on the Maturity Date. 9.02 VOLUNTARY PREPAYMENTS UNDER CREDIT FACILITY. The Borrower shall be entitled to prepay all or any portion of the outstanding credit under the Credit Facility (other than the prepayment of Bankers' Acceptances on any day other than the last day of their term) at any time, without penalty, provided that (i) notice of such prepayment is given to the Bank at least one Banking Day prior to the date of such prepayment and (ii) Section 8.03 (a) shall be complied with in connection with any such prepayment. Amounts which are prepaid as aforesaid may be reborrowed. 9.03 BANKERS' ACCEPTANCES AND LETTERS. If any repayment or prepayment by the Borrower hereunder shall require the prepayment of a Bankers' Acceptance or a Letter on any day other 30 26. than the last day of its term, the amount of such repayment or prepayment of a Bankers' Acceptance or a Letter shall be the aggregate amount guaranteed under any outstanding Letters issued by the Bank under the Credit Facility and the present value of the face amount of such Bankers' Acceptance based on its maturity date, such present value to be calculated using a discount rate equal to the yield of Government of Canada treasury bills having a similar maturity date. 9.04 EARLY TERMINATION OF LETTERS. The Borrower shall pay to the Bank all of the Bank's contingent liability in respect of any Letter which is the subject matter of any order, judgment, injunction or other such determination restricting payment by the Bank under and in accordance with such Letter or extending the Bank's liability under such Letter beyond the expiration date stated therein (an "Order"). Such payment in respect of each such Letter shall be due forthwith upon demand and in the currency in which such Letter is denominated (the "Letter Currency"). The Bank hereby agrees that it shall, with respect to each such Letter, upon the later of: (a) the date on which any final and non-appealable order, judgment or other such determination has been rendered or issued either terminating the applicable Order or permanently enjoining the Bank from paying under such Letter; and (b) the earlier of: (i) the date on which either the original counterpart of such Letter is returned to the Bank for cancellation or the Bank is released by the beneficiary from any further obligations in respect of such Letter; and (ii) the expiry of such Letter; pay to the Borrower an amount in the applicable Letter Currency equal to any excess of the amount received by the Bank hereunder in respect of the Bank's contingent liability under such Letter over the equivalent in such Letter Currency of the total of amounts applied to reimburse the Bank for amounts paid by it under such Letter (the Bank having the right to so appropriate such funds). In accordance with standard industry practice, the Bank shall pay to the Borrower interest on any amounts paid to the Borrower under this Section 9.04. ARTICLE 10 REPRESENTATIONS AND WARRANTIES 10.01 REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this agreement, the Borrower hereby represents and warrants to the Bank, as at the date of this agreement and as at the date of each extension of credit hereunder as set forth in Article 12, as follows and acknowledges and confirms that the Bank is relying upon such representations and warranties in executing this agreement and in extending credit hereunder: (a) STATUS AND POWER. The Borrower and each of its Restricted Subsidiaries is a corporation duly incorporated, amalgamated or continued, as the case may be, 31 27. organized and validly subsisting in good standing under the laws of its jurisdiction of incorporation. The Borrower and each of its Restricted Subsidiaries is duly qualified, registered or licensed in all jurisdictions where such qualification, registration or licensing is required except where the failure to be so qualified, registered or licensed would not have a Material Adverse Effect. The Borrower and each of its Restricted Subsidiaries has all requisite corporate capacity, power and authority to own, hold under licence or lease its properties, to carry on its business as now conducted and to otherwise enter into, and carry out the transactions contemplated by, the Loan Documents to which it is a signatory. (b) AUTHORIZATION AND ENFORCEMENT OF DOCUMENTS. All necessary action, corporate or otherwise, has been taken to authorize the execution, delivery and performance of the Loan Documents by the Borrower. The Borrower has duly executed and delivered this agreement and the Borrower will duly execute and deliver the Loan Documents to which it is a signatory. The Loan Documents are, or will be upon their execution, legal, valid and binding obligations of the Borrower, enforceable against the Borrower by the Bank in accordance with their respective terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, moratorium, reorganization and other laws of general application limiting the enforcement of creditors' rights and the fact that the courts may deny the granting or enforcement of equitable remedies. (c) COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and performance by the Borrower of the Loan Documents, and the consummation of the transactions contemplated herein and therein do not and will not conflict with, result in any material breach or violation of, or constitute a material default under, the terms, conditions or provisions of the charter or constating documents or by-laws of, or any shareholder agreement relating to, the Borrower or of any law, regulation, judgment, decree or order binding on or applicable to the Borrower or to which its property is subject or of any material agreement, lease, licence, permit or other instrument to which the Borrower is a party or is otherwise bound or by which the Borrower benefits or to which its property is subject and do not require the consent or approval of any Official Body or any other party. (d) FINANCIAL STATEMENTS. The audited financial statements of the Borrower for its Fiscal Year ended December 31, 1994 and the unaudited financial statements of the Borrower for its Fiscal Quarter ended September 30, 1995 were prepared in accordance with generally accepted accounting principles and no Material Adverse Change has occurred in the condition, financial or otherwise, of the Borrower since September 30, 1995, save and except for costs associated with the acquisition and development of the Kemess South property as disclosed to the Bank. The balance sheet of the aforesaid financial statements present a fair statement of the financial condition and assets and liability of the Borrower as at the respective dates hereof and the statement of income and retained earnings and changes in the financial condition contained in the aforesaid financial statements fairly present the results of the operations of the Borrower throughout the periods 32 28. covered thereby. Except to the extent reflected or reserved against in the aforesaid balance sheet (including the notes thereto) and except as incurred in the ordinary and usual course of the business of the Borrower, the Borrower does not have any outstanding indebtedness or any liability or obligations (whether accrued, absolute, contingent or otherwise) of a nature customarily reflected or reserved against in a balance sheet (including the notes thereto) prepared in accordance with generally accepted accounting principles. (e) LITIGATION. There are no actions, suits, inquiries, claims or proceedings (whether or not purportedly on behalf of the Borrower or any of its Subsidiaries) pending or threatened in writing against or affecting the Borrower or any of its Subsidiaries before any Official Body which in any case or in the aggregate could reasonably be expected to have a Material Adverse Effect other than those set out in Schedule F hereto. (f) TITLE TO ASSETS. The Borrower and each of its Subsidiaries has a good and marketable title to all of its property, assets and undertaking, free from any Lien other than the Permitted Encumbrances. (g) CONDUCT OF BUSINESS. The Borrower and each of its Subsidiaries is not in violation of any mortgage, franchise, licence, judgment, decree, order, statute, rule or regulation relating in any way to itself or to the operation of its business or to its property or assets (including, without limitation, Environmental Laws or laws relating to the discharge, spill, disposal or emission of any Hazardous Materials) and which could reasonably be expected to have a Material Adverse Effect. The Borrower and each of its Restricted Subsidiaries has all material licenses, permits and consents which are required to operate its businesses where they are currently being operated except when the failure to have such licences, certificates of approval, approvals, registrations, permits and consents could not reasonably be expected to have a Material Adverse Effect. (h) OUTSTANDING DEFAULTS. No event has occurred which constitutes or which, with the giving of notice, lapse of time or both, would constitute a default under or in respect of any material agreement, undertaking or instrument to which the Borrower or any of its Subsidiaries is a party or to which their property or assets may be subject and which could reasonably be expected to have a Material Adverse Effect. (i) SOLVENCY. The Borrower and each of its Subsidiaries has not: (i) admitted its inability to pay its debts generally as they become due or failed to pay its debts generally as they become due; (ii) filed a notice of intention to file a proposal, an assignment or petition in bankruptcy or a petition to take advantage of any insolvency statute; 33 29. (iii) made an assignment for the benefit of its creditors; (iv) consented to the appointment of a receiver of the whole or any substantial part of its assets; (v) filed a petition or answer seeking a reorganization, arrangement, adjustment or composition under applicable bankruptcy laws or any other applicable law or statute of Canada or the United States; or (vi) been adjudged by a court having jurisdiction a bankrupt or insolvent; nor has a decree or order of a court having jurisdiction been entered for the appointment of a receiver, liquidator, trustee or assignee in bankruptcy with such decree or order having remained in force and undischarged or unstayed for a period of thirty days. (j) MARKETABLE TITLE. The Borrower and each of its Restricted Subsidiaries has good and marketable title to all of their respective right, title and interest in and to the Principal Properties and other properties, subject only to the existing securities interests described in Schedule B. (k) LEASED PROPERTIES. Each mining lease in respect of the Principal Properties and other leased property of the Borrower or any Restricted Subsidiary is in good standing and all amounts owing thereunder have been paid to the date hereof. (l) SUBSIDIARIES. Schedule E sets out a complete and correct list of all Restricted Subsidiaries of the Borrower at the date hereof and such Restricted Subsidiaries and the other Subsidiaries mentioned therein are the only Subsidiaries material to the conduct of the business of the Borrower and its Subsidiaries as carried on the date hereof. (m) TAX RETURNS AND TAXES. Upon each extension of credit hereunder, the Borrower and each of its Subsidiaries will have filed all tax returns and tax reports required by law to have been filed by it and will have paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with generally accepted accounting principles shall have been set aside on its books. (n) EXPROPRIATION. Subject to completion of the settlement reached with the Government of British Columbia on the Windy Craggy property, there is no present or threatened (in writing) expropriation of the property or assets of the Borrower or any of its Subsidiaries, which expropriation could reasonably be expected to have a Material Adverse Effect. (o) PARTNERSHIP, ETC. The Borrower or any of its Subsidiaries is not, directly or indirectly, a member of or participant in any partnership, joint venture or syndicate 34 30. where the joint liability arising from such membership or participation could reasonably be expected to have a Material Adverse Effect. (p) FRENCH FORM OF NAMES. There is no French form of the corporate name of the Borrower or any of its Subsidiaries. (q) OFFICES AND PLACES OF BUSINESS. The address of the registered or corporate office of the Borrower is c/o Royal Oak Mines (USA) Inc., 5501 Lakeview Drive, Kirkland, Washington, 98033. (r) TRADE NAMES, ETC. Save and except for Arctic Precious Metals, Inc. which carries on business under the name "Royal Oak Mines (USA) Inc.", neither the Borrower nor any of its Subsidiaries carries on any business under any business name, business style or trade name other than their corporate names. (s) NO OMISSIONS. None of the representations and statements of fact set forth in this Section 10.01 omits to state any material fact necessary to make any such representation or statement of fact not misleading in any nature and respect. 10.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Borrower contained in Section 10.01 shall survive the execution and delivery of this agreement until all credit outstanding hereunder has been repaid in full and the Credit Facility has been cancelled notwithstanding any investigation made at any time by or on behalf of the Bank. ARTICLE 11 COVENANTS 11.01 AFFIRMATIVE COVENANTS. The Borrower hereby covenants and agrees with the Bank that, until all credit outstanding hereunder has been repaid in full and the Credit Facility has been cancelled, and unless the Bank otherwise expressly consents in writing: (a) FINANCIAL REPORTING. The Borrower shall furnish the Bank with the following statements and reports: (i) within 120 days after the end of each Fiscal Year of the Borrower, copies of the Borrower's audited consolidated financial statements with respect thereto and the auditors' reports thereon; (ii) within 120 days after the end of each Fiscal Year of the Borrower, copies of the Borrower's unaudited unconsolidated financial statements with respect thereto; 35 31. (iii) within 60 days after the end of each Fiscal Quarter of the Borrower, a copy of the Borrower's unaudited consolidated financial statements with respect thereto; (iv) within 30 days after the end of each calendar month, a duly executed and completed compliance certificate, in the form attached as Schedule C hereto, evidencing compliance with the terms of this agreement and certifying the information contained therein; (v) such additional financial or operating reports or statements as the Bank may, from time to time, reasonably require. (b) COPIES OF PUBLIC FILINGS. The Borrower shall upon request, furnish the Bank with copies of all documents filed with any securities commission in compliance with applicable securities legislation except those filed on a confidential basis until confidentiality is waived by the Borrower. (c) CORPORATE EXISTENCE. The Borrower shall maintain and preserve and cause each of its Restricted Subsidiaries to maintain and preserve its corporate existence in good standing and shall qualify and remain duly qualified to carry on business and own property in each jurisdiction in which such qualification is necessary and where failure to so qualify would have a Material Adverse Effect. (d) CONDUCT OF BUSINESS. The Borrower shall conduct, and cause each of its Restricted Subsidiaries to conduct, its business in such a manner so as to comply in all material respects with all material laws and regulations, (including, without limitation, Environmental Laws) so as to observe and perform all its obligations under leases, licences and agreements necessary for the proper conduct of its business and so as to preserve and protect its property and assets and the earnings, income and profits therefrom including, without limitation, laws intended to protect the environment or relating to the discharge, spill, disposal or emission of Hazardous Materials. The Borrower shall perform, and cause each of its Restricted Subsidiaries to perform all material obligations incidental to any trust imposed upon it by statute and shall ensure that any material breaches of the said obligations and the consequences of any such breach shall be promptly remedied. The Borrower shall obtain and maintain, and cause each of its Restricted Subsidiaries to obtain and maintain, all material licenses, permits, government approvals, franchises, authorizations and other rights necessary for the operation of its respective business where failure to do so could reasonably be expected to have a Material Adverse Change. (e) USE OF PROCEEDS. The Borrower shall apply all of the proceeds of the credit obtained under the Credit Facility for general corporate purposes. (f) INSURANCE. The Borrower shall insure, and cause each of its Restricted Subsidiaries to insure, and keep insured, with insurers, for risks, in amounts and 36 32. otherwise upon terms satisfactory to the Bank, all of its tangible property and assets. The Borrower shall deliver to the Bank certificates of insurance in respect of the aforesaid insurance. (g) TAXES. The Borrower shall pay and cause each of its Restricted Subsidiaries to pay all material taxes, rates, government fees and dues levied, assessed or imposed upon it and upon its property or assets or any part thereof, as and when the same become due and payable, save and except when and so long as the validity of any such taxes, rates, fees, dues, levies, assessments or imposts is being contested in good faith by appropriate proceedings and reserves are being maintained in accordance with generally accepted accounting principles while forfeiture of any part of the property or assets of any of them may result from the failure to so pay during the period of any such contest, and the Borrower shall deliver to the Bank, when requested, certified copies of the receipts and vouchers establishing such payment. (h) REIMBURSEMENT OF EXPENSES. The Borrower shall reimburse the Bank, on demand, for all reasonable out-of-pocket costs, charges and expenses incurred by or on behalf of the Bank including, without limitation, the reasonable fees and out-of-pocket disbursements of counsel to the Bank in connection with: (i) the development, negotiation, preparation, execution and delivery of the Loan Documents and all closing documentation ancillary to the completion of the transactions contemplated thereby (limited to a maximum of $10,000 for legal fees incurred in connection with the preparation of the Loan Documents) and any amendments and waivers thereto (whether or not consummated or entered into); and (ii) any lien search fees and recording and filing fees. The Borrower shall also reimburse the Bank, on demand, for all reasonable out-of-pocket costs, charges and expenses incurred by the Bank (including, without limitation, the reasonable fees and out-of-pocket disbursements of counsel to the Bank) in connection with the interpretation and enforcement of the rights of the Bank under the Loan Documents or any other documentation ancillary to the completion of the transactions contemplated thereby. (i) INSPECTION OF ASSETS AND OPERATIONS. The Borrower shall permit, and cause each of its Restricted Subsidiaries to permit, representatives of the Bank to inspect the tangible property and assets and the operations of the Principal Properties and for that purpose to enter its premises and any other location where any of its tangible property or assets may be situated during reasonable business hours and, unless a Default has occurred and is continuing, upon reasonable notice, not more than once a year. 37 33. (j) BOOKS AND RECORDS. The Borrower shall keep, and cause each of its Restricted Subsidiaries to keep, proper books of account and records covering all its business and affairs on a current basis. (k) CHANGE OF NAME OR PLACE OF BUSINESS. If the Borrower changes its corporate or head office or its principal place of business or if it adopts a French form of its corporate name, the Borrower shall promptly notify the Bank in writing of the details of such change. (l) NOTICE OF LITIGATION. The Borrower shall promptly notify, and cause each of its Restricted Subsidiaries to promptly notify, the Bank of any actions, suits, inquiries, claims or proceedings (whether or not purportedly on behalf of the Borrower or any of its Subsidiaries) commenced or threatened in writing against or affecting the Borrower or any of its Subsidiaries before any Official Body which affects the Principal Properties singly or in the aggregate and which could reasonably be expected to have a Material Adverse Effect. (m) PROPERTIES IN GOOD CONDITION. The Borrower shall keep, and cause each of its Restricted Subsidiaries to keep, the Principal Properties and its other properties in all material respects in good repair, working order and condition (reasonable wear and tear excepted) and, from time to time, make or cause to make all needful and proper repairs, renewals, replacements, additions and improvements thereto, so that the business carried on may be properly and advantageously conducted at all times in accordance with prudent business management. (n) DEBT TO TANGIBLE NET WORTH. At all times and from time to time the Consolidated Debt to Consolidated Tangible Net Worth Ratio shall be equal to or less than 0.15:1. (o) INTEREST COVERAGE. At all times and from time to time the Interest Coverage Ratio shall be greater than or equal to 2.0:1. 11.02 PERFORMANCE OF COVENANTS BY THE BANK. The Bank may, in its sole discretion and upon reasonable notice by the Bank to the Borrower, perform any covenant of the Borrower under this agreement which the Borrower fails to perform or cause to be performed and which the Bank is capable of performing, including any covenants the performance of which requires the payment of money, provided that the Bank shall not be obligated to perform any such covenant on behalf of the Borrower and no such performance by the Bank shall require the Bank to further perform the Borrower's covenants or shall operate as a derogation of the rights and remedies of the Bank under this agreement. Any amounts paid by the Bank as aforesaid shall be repaid by the Borrower to the Bank on demand. 11.03 RESTRICTIVE COVENANTS. The Borrower hereby covenants and agrees with the Bank that, until all credit outstanding hereunder has been repaid in full and the Credit Facility has been cancelled, and unless the Bank otherwise expressly consents in writing: 38 34. (a) ENCUMBRANCES. The Borrower and its Restricted Subsidiaries shall not enter into or grant, create, assume or suffer to exist any Lien affecting any of its properties or assets, save and except only for the Permitted Encumbrances. (b) CORPORATE EXISTENCE. The Borrower shall not, except with direct and indirect Subsidiaries of the Borrower, take part in any amalgamation, merger, dissolution, winding up, reorganization or similar proceeding or arrangement or discontinue any material businesses. (c) OWNERSHIP OF RESTRICTED SUBSIDIARIES. The Borrower shall not sell or otherwise dispose of any shares in the capital of any Restricted Subsidiary or permit any Restricted Subsidiary to issue, sell or otherwise dispose of any shares of its capital, or the capital of any other Restricted Subsidiary except to the Borrower. (d) OWNERSHIP OF PRINCIPAL PROPERTIES. Neither the Borrower nor any Restricted Subsidiary shall sell or transfer or otherwise dispose of any of the Principal Properties. (e) LEASE-BACKS. The Borrower shall not enter into, or permit any of its Restricted Subsidiaries to enter into, any arrangements, directly or indirectly, with any Person, whereby the Borrower or one of its Restricted Subsidiaries, as the case may be, shall sell or transfer any Principal Property or other property, whether now owned or hereafter acquired, used or useful in its business, in connection with the rental or lease of the property so sold or transferred or of other property used for substantially the same purpose or purposes as the property so sold or transferred; provided that lease-back arrangements with respect to property hereafter acquired will be permitted in circumstances where the only recourse with respect to the debt owing thereunder will be to the hereafter acquired property. (f) AMENDMENTS TO ARTICLES. The Borrower shall not amend, or suffer or permit the amendment of, the articles of incorporation (or similar constating document) of itself or each of its Restricted Subsidiaries. ARTICLE 12 CONDITIONS PRECEDENT TO OBTAINING CREDIT 12.01 CONDITIONS PRECEDENT TO ALL CREDIT. The obligation of the Bank to extend credit hereunder is subject to fulfilment of the following conditions precedent on the date such credit is extended: (a) no Default has occurred and is continuing or would arise immediately after giving effect to or as a result of such extension of credit; (b) the Borrower shall have complied with the requirements of Article 4, 5 or 6, as the case may be, in respect of the relevant credit; 39 35. (c) the representations and warranties of the Borrower contained in Section 10.01 shall be true and correct in all material respects at the time such credit is extended as if such representations and warranties were made on such date; and (d) there has not occurred a material adverse change in the financial condition, operations, assets, business, properties or prospects of the Borrower or any of its Subsidiaries or in the ability of the Borrower to perform its obligations under this agreement or in the ability of the Bank to enforce any of such obligations. 12.02 CONDITIONS PRECEDENT TO INITIAL DRAWDOWN. The obligation of the Bank to extend credit for the first time hereunder is subject to fulfilment of the following conditions precedent on the date such credit is extended: (a) the conditions precedent set forth in Section 12.01 have been fulfilled; (b) there has not occurred a Material Adverse Change; (c) the Bank had received the certificates of insurance referred to in Section 11.01(g); (d) the Bank has received in form and substance satisfactory to the Bank: (i) a duly certified resolution of the board of directors of the Borrower authorizing the Borrower to execute, deliver and perform its obligations under this agreement; (ii) a certificate of a senior officer of the Borrower setting forth specimen signatures of the individuals authorized to sign this agreement, (iii) a certificate of a senior officer of the Borrower certifying that, to the best of his/her knowledge after due inquiry, (A) no Default has occurred and is continuing and (B) there are no Subsidiaries of the Borrower of which the Borrower is aware other than those set out in Schedule E; (iv) a specimen Compliance Certificate in the form of Schedule C using values as at the most recently completed month end; and (e) the Bank has received in the form and substance satisfactory to the Bank, opinions of the Borrower's counsel addressed to the Bank and to the Bank's counsel, Messrs. Smith Lyons relating to the status and capacity of the Borrower, the due authorization, execution and delivery and the validity and enforceability of the Loan Documents in the jurisdictions of incorporation of the signatories thereto and other appropriate jurisdictions and such other matters as the Bank may reasonably request. 12.03 WAIVER. The terms and conditions of Sections 12.01 and 12.02 are inserted for the sole benefit of the Bank and the Bank may waive them in whole or in part, with or without terms or 40 36. conditions, in respect of any extension of credit, without prejudicing the Bank's right to assert them in whole or in part in respect of any other extension of credit. ARTICLE 13 DEFAULT AND REMEDIES 13.01 EVENTS OF DEFAULT. Upon the occurrence of any one or more of the following events, unless expressly waived in writing by the Bank. (a) the breach by the Borrower of the provisions of Section 9.01; (b) the non-payment of any amount due hereunder (other than amount due pursuant to Section 9.01) within three Banking Days after payment is due; (c) the commencement of proceedings for the dissolution, liquidation or winding-up of the Borrower or any of its Restricted Subsidiaries (other than as permitted herein) or for the suspension of the operations of the Borrower or any of its Restricted Subsidiaries unless such proceedings are approved by the Bank or are commenced by another party and such proceedings are being diligently defended and have been discharged, vacated or stayed within sixty days after commencement; (d) the Borrower or any of its Restricted Subsidiaries ceases or threatens to cease to carry on its business or is adjudged or declared bankrupt or insolvent or admits in writing its inability to pay debts as they become due or files a notice of intention to file a proposal or makes an assignment for the general benefit of creditors, petitions or applies to any tribunal for the appointment of a receiver or trustee for it or for any part of its property (or such a receiver or trustee is appointed for it or any part of its property), or commences (or any other person commences) any proceedings relating to it under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction whether now or hereafter in effect, or by any act indicates its consent to, approval of, or acquiescence in, any such proceeding for it or for any material part of its property, or suffers the appointment of any receiver or trustee, sequestrator or other custodian (unless, such proceedings are commenced by another person, such proceedings are being diligently defended and have been discharged, vacated or stayed within sixty days after commencement); (e) any representation or warranty made by the Borrower in any Loan Document or in any other document, agreement or instrument delivered pursuant thereto or referred to therein or any material information furnished in writing to the Bank by the Borrower proves to have been incorrect in any material respect when made or furnished; 41 37. (f) a writ, execution, attachment or similar process is issued or levied against all or any material portion of the property of the Borrower or any of its Restricted Subsidiaries in connection with any judgment against it in any amount which could reasonably be expected to have a Material Adverse Effect, and such writ, execution, attachment or similar process is not being diligently defended by the Borrower and is not released, bonded, satisfied, discharged, vacated or stayed within sixty days after its entry, commencement or levy; (g) the breach or failure of due observance or performance by the Borrower or any of its Restricted Subsidiaries of any covenant or provision of this agreement, other than those heretofore or hereafter dealt with in this Section 13.01, or of any other document, agreement or instrument delivered pursuant hereto or referred to herein or entered into between the Bank and the Borrower which is not remedied within ten days after written notice to do so has been given by the Bank to the Borrower; (h) one or more encumbrancers, lienors or landlords take possession of any part of the property of the Borrower or any of its Restricted Subsidiaries or attempt to enforce their security or other remedies against such property and their claims remain unsatisfied for such period as would permit such property to be sold thereunder and such property which has been repossessed or is capable of being sold has an aggregate fair market value of at least $10,000,000; or (i) a default or an event of default under any one or more agreements, indentures or instruments under which the Borrower or any of its Restricted Subsidiaries has outstanding indebtedness in an amount greater than $10,000,000 or under which any other person has outstanding indebtedness in an amount greater than $10,000,000 which is guaranteed by the Borrower or any of its Restricted Subsidiaries shall happen and be continuing, or if any indebtedness of or guaranteed by the Borrower or any of its Restricted Subsidiaries in an amount greater than $10,000,000 which is payable on demand is not paid on demand. 42 43 38. the right of the Borrower to obtain any credit hereunder and all of the obligations of the Bank hereunder to extend such credit shall automatically terminate and the Bank, may, by notice to the Borrower, declare all indebtedness of the Borrower to the Bank pursuant to this agreement to be immediately due and payable whereupon all such indebtedness shall immediately become and be due and payable without further demand or other notice of any kind, all of which are expressly waived by the Borrower (provided, however, that all such indebtedness of the Borrower to the Bank shall automatically become due and payable, without notice of any kind, upon the occurrence of an event described in clause (c) above). Upon the payment by the Borrower to the Bank of the present value of the face amount of all Bankers' Acceptances issued and outstanding hereunder, the Borrower shall have no further liability to the Bank with respect to such Bankers' Acceptances. 13.02 REMEDIES CUMULATIVE. The Borrower expressly agrees that the rights and remedies of the Bank under this agreement are cumulative and in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by the Bank of any right or remedy for a default or breach of any term, covenant or condition in this agreement does not waive, alter, affect or prejudice any other right or remedy to which the Bank may be lawfully entitled for the same default or breach, any waiver by the Bank of the strict observance, performance or compliance with any term, covenant or condition of this agreement is not a waiver of any subsequent default and any indulgence by the Bank with respect to any failure to strictly observe, perform or comply with any term, covenant or condition of this agreement is not a waiver of the entire term, covenant or condition or any subsequent default. 13.03 SET-OFF. Subject to any rights now or hereafter granted under applicable law, and not by way of limitation of any such rights, when an event of default has occurred and is subsisting the Bank is authorized, without notice to the Borrower or to any other person, any such notice being expressly waived by the Borrower, to set-off, appropriate and apply any and all deposits, matured or unmatured, general or special, and any other indebtedness at any time held by or owing by the Bank to or for the credit of or the account of the Borrower against and on account of the obligations and liabilities of the Borrower which are due and payable to the Bank under this agreement. ARTICLE 14 MISCELLANEOUS 14.01 WAIVERS. No failure or delay by the Bank in exercising any right shall operate as a waiver of such right nor shall any single or partial exercise of any power or right preclude its further exercise or the exercise of any other power or right. 14.02 NOTICES. All notices and other communications provided for herein shall be in writing and shall be personally delivered to an officer or other responsible employee of the addressee or sent by facsimile, charges prepaid, at or to the applicable addresses or facsimile numbers, as the case may be, set opposite the party's name on the signature page hereof or at or to such other address or addresses or facsimile number or numbers as any party hereto may from time to time designate to the other parties in such manner. Any communication which is personally delivered 44 39. as aforesaid shall be deemed to have been validly and effectively given on the date of such delivery if such date is a Banking Day and such delivery was made during normal business hours of the recipient, otherwise, it shall be deemed to have been validly and effectively given on the Banking Day next following such date of delivery. Any communication which is transmitted by facsimile as aforesaid shall be deemed to have been validly and effectively given on the date of transmission if such date is a Banking day and such transmission was made during normal business hours of the recipient; otherwise, it shall be deemed to have been validly and effectively given on the Banking Day next following such date of transmission. 14.03 SEVERABILITY. Any provision hereof which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 14.04 COUNTERPARTS. This agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument. 14.05 SUCCESSORS AND ASSIGNS. This agreement shall enure to the benefit of and shall be binding upon the parties hereto and their respective successors and permitted assigns. 14.06 ASSIGNMENT. Neither this agreement nor the benefit thereof may be assigned by the Borrower. The rights and obligations of the Bank hereunder may be assigned or participated by the Bank in whole or in part. 14.07 ENTIRE AGREEMENT. This agreement and the agreements referred to herein and delivered pursuant hereto constitute the entire agreement between the parties hereto and supersede any prior agreements, undertakings, declarations, representations and understandings, both written and verbal, in respect of the subject matter hereof. 14.08 FURTHER ASSURANCES. The Borrower shall do, execute and deliver or shall cause to be done, executed and delivered all such further acts, documents and things as the Bank may reasonably request for the purpose of giving effect to this agreement and to each and every provision hereof. 14.09 JUDGMENT CURRENCY. (a) If, for the purpose of obtaining or enforcing judgment against the Borrower in any court in any jurisdiction, it becomes necessary to convert into a particular currency (such currency being hereinafter in this Section 14.09 referred to as the "Judgment Currency") an amount due in another currency (such other currency being hereinafter in this Section 14.09 referred to as the "Indebtedness Currency") under this agreement, the conversion shall be made at the rate of exchange prevailing on the Banking Day immediately preceding: (i) the date of actual payment of the amount due, in the case of any proceeding in the courts of the Province of Ontario or in the courts of any 45 40. other jurisdiction that will give effect to such conversion being made on such date; or (ii) the date on which the judgment is given, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this Section 14.09(a)(ii) being hereinafter in this Section 14.09 referred to as the "Judgment Conversion Date"). (b) If, in the case of any proceeding in the court of any jurisdiction referred to in Section 14.09(a)(ii), there is a change in the rate of exchange prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the Borrower shall pay to the Bank such additional amount (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Indebtedness Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the rate of exchange prevailing on the Judgment Conversion Date. (c) Any amount due from the Borrower under the provisions of Section 14.09(b) shall be due to the Bank as a separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of this agreement. The term "rate of exchange" in this Section 14.09 means the noon spot rate of exchange for Canadian interbank transactions applied in converting the Indebtedness Currency into the Judgment Currency published by the Bank of Canada for the day in question. 46 41. IN WITNESS WHEREOF the parties hereto have executed this agreement. THE BANK OF NOVA SCOTIA THE BANK OF NOVA SCOTIA Corporate Banking 16th Floor 44 King Street West By:______________________________ Toronto, Ontario M5H 1H1 By:______________________________ Attention: Vice-President Corporate Banking-Mining Telefax: (416) 866-2009 ROYAL OAK MINES INC. ROYAL OAK MINES INC. c/o Royal Oak Mines (USA), Inc. 5501 Lakeview Drive Kirkland, Washington 98033 By: /s/ M. K. Witte U.S.A. --------------- Attention: Chief Financial Officer By: /s/ James H. Wood Telefax: (206) 822-3552 ----------------- 47 A-1 SCHEDULE A FORM OF DRAWDOWN/ROLLOVER NOTICE TO: The Bank of Nova Scotia RE: Credit Agreement made as of February 15, 1996 (the "Credit Agreement") between Royal Oak Mines Inc. and The Bank of Nova Scotia Pursuant to the terms of the Credit Agreement, the undersigned hereby irrevocably notifies you that it wishes to draw down [ROLLOVER] the Credit Facility on [DATE OF DRAWDOWN] as follows: 1. Availment Option:___________________________________________ 2. Currency & Amount:__________________________________________ 3. If LIBO Loan, Interest Period:______________________________ 4. If Banker's Acceptance, term:_______________________________ [YOU ARE HEREBY IRREVOCABLY AUTHORIZED AND DIRECTED TO PAY THE PROCEEDS OF THE DRAWDOWN TO - AND THIS SHALL BE YOUR GOOD AND SUFFICIENT AUTHORITY FOR SO DOING.] All capitalized terms defined in the Credit Agreement and used herein shall have the meeting ascribed thereto in the Credit Agreement. DATED the day of , 1996. ROYAL OAK MINES INC. Per:____________________________ Name: Title: 48 B-1 SCHEDULE B EXISTING SECURITY INTERESTS MATERIALITY $100,000 1. Royal Bank of Canada 5 - 300M LHD John Clark Loaders Serial No. 64493, 64693, 64893, 64993, 65293 Rental Payment: $18,581.88 monthly plus tax Lease Term: January 24, 1994 to January 23, 1998 Purchase option end of lease $83,888.50 2. Royal Bank of Canada 1 - Solo Drill H1066 RA Serial No. 1523 Rental Payment: $10,510.15 monthly plus taxes Lease Term: November 1993 to October 1997 Purchase option end of lease: $47,500 3. Associates Leasing 2 - Toro 501 D/LHD scoop trams Serial No. 24005/303, 24005/300 Rental Payment: $21,840 monthly plus taxes Lease Term: August 1, 1994 to July 31, 1999 Purchase option $100 at end of lease 4. Royal Bank of Canada Mortgage on 18 Windsor Street, Corner Brook, Newfoundland Balance at December 31, 1995: $133,708 5. Continuous Mining Systems 2 - CD 360 Auto Drills S/N 2146 & 2147 2 - CHB Water Boosters S/N 2105 & 2158 Rental Payments (based on cost per foot of 97(cent)): Minimum annual payment $388,000 Lease Term: 36 months from June 1995 Purchase option at end of lease: $266,200 49 C-1 SCHEDULE C COMPLIANCE CERTIFICATE TO: THE BANK OF NOVA SCOTIA I, - the chief financial officer of Royal Oak Mines Inc., hereby certify that: 1. I am the duly appointed chief financial officer of Royal Oak Mines Inc., the Borrower named in the credit agreement dated as of February 15, 1996 between Royal Oak Mines Inc. and The Bank of Nova Scotia, as the Bank (the "Credit Agreement") and as such I am providing this Certificate for and on behalf of the Borrower pursuant to the Credit Agreement. 2. I am familiar with and have examined the provisions of the Credit Agreement including, without limitation, those of Articles 10, 11 and 13 therein. 3. To the best of my knowledge, information and belief and after due inquiry no Default has occurred and is continuing as at the date hereof. 4. Unless the context otherwise requires, capitalized terms in the Credit Agreement which appear herein without definitions shall have the meanings ascribed thereto in the Credit Agreement. 5. As at - (the most recently completed month end), the ratio of Consolidated Debt to Consolidated Tangible Net Worth was calculated as follows: 6. As at - (the most recently completed month end), the Interest Coverage Ratio was calculated as follows: DATED this - day of -, 19-. ------------------------------- (Signature) ------------------------------- (Name - please print) Chief Financial Office 50 D-1 SCHEDULE D PRINCIPAL PLACES OF BUSINESS COMPANY CORPORATE HEAD OFFICE Borrower c/o Royal Oak Mines (USA), Inc. 5501 Lakeview Drive Kirkland, WA 98033 USA Registered Head Office c/o W.J.V. Sheridan Suite 2500 BCE Place, 181 Bay Street Toronto, Ontario M5J 2T7 51 E-1 SCHEDULE E LIST OF RESTRICTED AND MATERIAL SUBSIDIARIES OF ROYAL OAK MINES INC. Restricted Subsidiaries 1. Ronnoco Gold Mines Limited Material Subsidiaries 1. Arctic Precious Metals, Inc. - Oz Investments, Inc. 2. Kemess Mines Inc. (formerly Geddes Resources Limited) 3. El Condor Resources Ltd. 4. St. Philips Resources Inc. - Stock Ventures Ltd. 5. Witteck Development Inc. 6. Beaverhouse Resources Ltd. 7. 934962 Ontario Inc. 8. Northbelt Yellowknife Mines Limited 52 F-1 SCHEDULE F LIST OF MATERIAL ACTIONS 1. Giant Mine Explosion: On September 18, 1992, nine miners were murdered in an underground explosion at the Company's Giant Mine. A member of the union which was on strike at the time was charged and convicted of nine counts of second degree murder. In September, 1994, dependants of the deceased miners sued the Company and two of its officers and directors, along with 23 other named defendants including Procon Miners Inc., Pinkerton's of Canada Limited, the Government of the Northwest Territories, and National Automobile, Aerospace and Agricultural Implement Workers Union of Canada, for losses allegedly suffered as a result of the explosion. The claim against the Company and all defendants but one, totals approximately $10.8 million plus taxes, interest and costs. The claim against the two officers and directors and all other defendants, excluding the Company, totals approximately $33.65 million plus taxes, interest and costs. The claim is being vigorously defended. Counsel for the Company's insurer has stated that, based on allegations in the amended Statement of Claim - -- being the only pleading filed to date, any liability that might be imposed would be within the Company's liability insurance coverage. The Company believes that the claim is without merit. 2. Salamita Property: In October, 1983 Mack Lake Mining Corp. Ltd. sued Giant Yellowknife Mines Ltd. (a predecessor of Royal Oak) and eight other named defendants for damages in the sum of $10 million alleging a beneficial ownership in the Salamita gold property and a conspiracy on the part of the named defendants to transfer title to the said property without its knowledge or participation. The Company has defended the action on the grounds that it was a bona fide purchaser for value without notice of the plaintiff's alleged title. Outside counsel have opined that the defence is sound. In the absence of the matter proceeding, the Company moved in 1993 to dismiss the action for want of prosecution. That application was dismissed and is presently under appeal by the Company for determination by the Court of Appeal in April, 1996. Production is complete but discovery has not been held to date. EX-10.3 5 AMENDING AGREEMENT 1 Exhibit 10.3 AMENDING AGREEMENT made as of the 5th day of August, 1996. B E T W E E N: ROYAL OAK MINES INC. (hereinafter collectively called the "Borrower") OF THE FIRST PART - and - THE BANK OF NOVA SCOTIA (hereinafter called the "Lender") OF THE SECOND PART WHEREAS the Lender established a credit facility in favour of the Borrower pursuant to a credit agreement dated as of the 15th day of February, 1996 between the Borrower and the Lender (the "Credit Agreement"); AND WHEREAS the parties have agreed to amend certain provisions of the Credit Agreement; NOW THEREFORE it is agreed by the parties hereto as follows: SECTION 1.01 GENERAL: In this Amending Agreement, unless otherwise defined or the context otherwise requires, all capitalized terms shall have the respective meanings specified in the Credit Agreement. SECTION 1.02 TO BE READ WITH CREDIT AGREEMENT: This Amending Agreement is an amendment to the Credit Agreement. Unless the context of this Amending Agreement otherwise requires, the Credit Agreement and this Amending Agreement shall be read together and shall have effect as if the provisions of the Credit Agreement and this Amending Agreement were contained in one agreement. The term "Agreement" when used in the Credit Agreement and this Amending Agreement means the Credit Agreement as amended, supplemented or modified from time to time. 2 2. SECTION 1.03 AMENDMENTS: (a) AFFIRMATIVE COVENANTS: (i) Section 11.01(o) of the Credit Agreement is amended to read as follows: "(o) INTEREST COVERAGE. At all times and from time to time the Interest Coverage Ratio, for the most recently completed twelve-month period, shall be greater than or equal to 1.5:1." (b) MISCELLANEOUS: (i) Article 14 of the Credit Agreement is amended by the addition of the following thereto: "14.10 SENIOR INDEBTEDNESS. The parties hereto agree that this agreement qualifies as "Senior Indebtedness" as defined in an offering memorandum dated August 5, 1996 (the "Offering Memorandum") for a note offering of general unsecured obligations of the Borrower limited in the aggregate principal amount to US$175,000,000 and maturing in 2006 (the "Notes") in the United States." (c) SCHEDULES: (i) Paragraph 6 of Schedule C to the Credit Agreement is amended to read as follows: "6. As at - (the most recently completed month end), the Interest Coverage Ratio for the most recently completed twelve-month period was calculated as follows:" SECTION 1.03 ACKNOWLEDGEMENT: The Lender hereby acknowledges and agrees that the indebtedness of the Borrower evidenced by the Notes to be issued pursuant to the Offering Memorandum of the Borrower on or about August 12, 1996 will be "Subordinated Debt" for all purposes under the Credit Agreement. SECTION 1.04 REPRESENTATION AND WARRANTIES: In order to induce the Lender to enter into this Amending Agreement, the Borrower makes the following representations and warranties to the Lender which shall survive the execution and delivery hereof: (a) STATUS AND POWER. The Borrower and each of its Restricted Subsidiaries is a corporation duly incorporated, amalgamated or continued, as the case may be, organized and validly subsisting in good standing under the laws of its jurisdiction of incorporation. The Borrower and each of its Restricted Subsidiaries is duly qualified, registered or licensed in all jurisdictions where such qualification, registration or licensing is required except where the failure to be so qualified, 3 3. registered or licensed would not have a Material Adverse Effect. The Borrower and each of its Restricted Subsidiaries has all requisite corporate capacity, power and authority to own, hold under licence or lease its properties, to carry on its business as now conducted and to otherwise enter into, and carry out the transactions contemplated by this Amending Agreement. (b) AUTHORIZATION AND ENFORCEMENT OF DOCUMENTS. All necessary action, corporate or otherwise, has been taken to authorize the execution, delivery and performance of this Amending Agreement by the Borrower. The Borrower has duly executed and delivered this agreement. This Amending Agreement is, or will be upon its execution, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower by the Lender in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, moratorium, reorganization and other laws of general application limiting the enforcement of creditors' rights and the fact that the courts may deny the granting or enforcement of equitable remedies. (c) COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and performance by the Borrower of this Amending Agreement and the consummation of the transactions contemplated herein do not and will not conflict with, result in any material breach or violation of, or constitute a material default under, the terms, conditions or provisions of the charter or constating documents or by-laws of, or any shareholder agreement relating to, the Borrower or of any law, regulation, judgment, decree or order binding on or applicable to the Borrower or to which its property is subject or of any material agreement, lease, licence, permit or other instrument to which the Borrower is a party or is otherwise bound or by which the Borrower benefits or to which its property is subject and do not require the consent or approval of any Official Body or any other party. (d) The representations and warranties set forth in Article Ten of the Credit Agreement are true and correct as of the date hereof. SECTION 1.05 CONDITIONS PRECEDENT: This Amending Agreement shall be effective as of the date first above written. SECTION 1.06 EXPENSES: The Borrower shall pay all reasonable expenses, including, without limitation, the reasonable legal fees incurred by the Lender in connection with the preparation, negotiation, execution, delivery and review of this Amending Agreement and all other documents and instruments executed in connection with this transaction. SECTION 1.07 CONTINUANCE OF CREDIT AGREEMENT: The Credit Agreement, as changed, altered, amended or modified by this Amending Agreement, shall be and continue in full force and effect and is hereby confirmed and the rights and obligations of all parties thereunder shall not be affected or prejudiced in any manner except as specifically provided for herein. 4 4. SECTION 1.08 COUNTERPARTS: This Amending Agreement may be executed in any number of separate counterparts, each of which shall be deemed an original and all of said counterparts taken together shall be deemed to constitute one and the same instrument. SECTION 1.09 GOVERNING LAW: This Amending Agreement shall be construed and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. IN WITNESS WHEREOF the parties hereto have executed this Amending Agreement as of the day and year first above written. ROYAL OAK MINES INC. By: /s/ M. K. Witte --------------- Name: M. K. Witte Title: C.E.O. c/s By: /s/ James H. Wood ----------------- Name: James H. Wood Title: C.E.O. THE BANK OF NOVA SCOTIA By: /s/ J. W. Richmund ------------------ Name: J. W. Richmund Title: Senior Relationship Manager By: /s/ C. D. Thomas ---------------- Name: C. D. Thomas Title: EX-12.1 6 STATEMENTS RE: COMPUTATION OF RATIOS 1 Exhibit 12.1 RATIO OF EARNINGS TO FIXED CHARGES
JUNE 30, 1991 1992 1993 1994 1995 1995 1996 ------ ------- ------- ------ ------- ------ ------ Net income 8,641 11,437 15,623 22,166 23,169 13,251 5,105 Add: Income taxes 105 108 215 636 1,542 969 2,729 Minority portion of losses 0 (95) (136) 0 (594) 0 (30) Equity in losses of companies 0 0 102 449 869 115 71 ------ ------- ------- ------ ------- ------ ------ Adjusted net income 8,746 11,450 15,804 23,251 24,986 14,335 7,875 Add fixed charges Interest on debt (excluding capitalized int.) 2,553 0 97 62 298 96 86 ------ ------- ------- ------ ------- ------ ------ Net earnings available for fixed 11,299 11,450 15,901 23,313 25,284 14,431 7,961 charges Fixed charges Interest on debt 2,553 0 97 62 298 96 86 ------ ------- ------- ------ ------- ------ ------ Total fixed charges 2,553 0 97 62 298 96 86 ------ ------- ------- ------ ------- ------ ------ Ratio of earnings to fixed charges 4.43 NA 163.93 376.02 84.85 150.32 92.57 ====== ======= ======= ====== ======= ====== ======
EX-21.1 7 SUBSIDIARIES OF THE COMPANY 1 Exhibit 21.1 Subsidiaries of the Company 934962 Ontario Inc. 3194493 Canada Inc. Arctic Precious Metals, Inc. - Oz Investments, Inc. Beaverhouse Resources Ltd. Consolidated Professor Mines Limited El Condor Resources Ltd. Kemess Mines Inc. - Greenbush Minerals Limited - Alsek Mining Limited Northbelt Yellowknife Mines Ltd. Ronnoco Gold Mines Limited Royal Eagle Exploration Inc. - First Eagle Holdings, Inc. Royal Oak Hope Brook Ltd. Royal Oak Timmins Ltd. Royal Oak Yellowknife Ltd. St. Philips Resources Inc. - Stork Ventures Ltd. - V.A.B. 19965 Holdings Ltd. Witteck Development Inc. EX-23.1 8 CONSENT OF ARTHUR ANDERSEN & CO. 1 Exhibit 23.1 [Letterhead of Arthur Andersen & Co.] CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS Royal Oak Mines Inc. 5501 Lakeview Drive Kirkland, Washington 98033 United States Dear Sirs: As independent chartered accountants, we hereby consent to the use of our report dated February 16, 1996 (except as to note 14(b) of the consolidated financial statements, which is as of February 27, 1996) and to all references to our firm included in or made a part of this Form S-4 Registration Statement. /s/ Arthur Andersen & Co. ------------------------- Arthur Andersen & Co. August 28, 1996 Vancouver, British Columbia EX-25.1 9 STATEMENT OF ELIGIBILITY AND QUALIFICATION 1 Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________ FORM T-1 _______________________ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE _______________________ Check if an application to determine eligibility of a Trustee pursuant to Section 305(b)(2) / / MELLON BANK, F.S.B. (Exact name of Trustee as specified in its charter) 13-3680276 U.S. (I.R.S. Employer Identification No.) (Jurisdiction of incorporation)
MELLON BANK, F.S.B. 80 Route 4 East Paramus, New Jersey 07652 (Address of Principal Executive Office) ELAINE D. RENN Vice President MELLON BANK, N.A. ONE MELLON BANK CENTER PITTSBURGH, PENNSYLVANIA 15258-0001 (412) 234-4694 (Name, Address and Telephone Number of Agent for Service) _______________________ ROYAL OAK MINES INC. (Exact name of obligor as specified in its charter) Information on a subsidiary guarantor is listed on Schedule I hereto ONTARIO, CANADA (State or Other Jurisdiction of Incorporation or Organization) NONE (I.R.S. Employer Identification No.) 5501 Lakeview Drive, Kirkland, WA 98033 (Address of Principal Executive Offices) SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2006 (Title of Indenture Securities) 2 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE -- (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Office of Thrift Supervision Washington, D.C. Federal Deposit Insurance Corporation Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee. ITEMS 3-15 ARE NOT APPLICABLE SINCE THE OBLIGOR IS NOT IN DEFAULT ON SECURITIES ISSUED UNDER INDENTURES UNDER WHICH THE APPLICANT IS TRUSTEE. 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY. Exhibit 1 - A copy of the Trustee's Federal Stock Charter dated November 1, 1992; a copy of the Written Consent of Trustee's Sole Stockholder dated August 23, 1994 amending Trustee's Federal Stock Charter effective August 24, 1994. Exhibit 2 - Copy of Office of Thrift Supervision Order No.: 92-427 dated September 30, 1992 approving Trustee's application to convert to a federal savings bank pursuant to Section 5(o) of the Home Owners' Loan Act, 12 U.S.C. Sec. 1464(o); copy of Certificate of Corporate Existence of Trustee isssued by the Office of Thrift Supervision dated May 28, 1996. Exhibit 3 - Copy of letter from Angelo A. Vigna, Regional Director, Office of Thrift Supervision, dated October 11, 1995 authorizing Trustee to exercise corporate trust powers in New Jersey; copy of letter from Michael L. Simone, Assistant Director, Office of Thrift Supervision, dated April 5, 1996 providing non-objection to Trustee's exercise of corporate trust powers in Indiana, Maine, Michigan, New York, Ohio, Washington and Wyoming. Exhibit 4 - Copy of Trustee's By-Laws as amended August 3, 1993 and March 20, 1996. Exhibit 5 - Not Applicable. Exhibit 6 - Consent of the Trustee required by Section 321(b) dated July 8, 1996. Exhibit 7 - Trustee's audited balance sheets as of December 31, 1994 and December 31, 1995.
1 3 SIGNATURE PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939, THE TRUSTEE, MELLON BANK, F.S.B., A FEDERAL SAVINGS BANK ORGANIZED AND EXISTING UNDER THE LAWS OF THE UNITED STATES OF AMERICA, HAS DULY CAUSED THIS STATEMENT OF ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ALL IN THE CITY OF PITTSBURGH, AND COMMONWEALTH OF PENNSYLVANIA, ON THE 27TH DAY OF AUGUST, 1996. MELLON BANK, F.S.B. TRUSTEE /s/ Elaine D. Renn By:______________________ Elaine D. Renn Vice President 2 4 SCHEDULE I ---------- ADDITIONAL OBLIGOR ------------------ The following subsidiary guarantor is a wholly owned subsidiary of Royal Oak Mines Inc.
State or Other Jurisdiction of IRS Employer Incorporation or Identification Name and Address Organization Number - ----------------- ---------------- -------------- Kemess Mines Inc. Ontario, Canada None Unit 9 3167 Tatlow Road P. O. Box 3519 Smithers, British Columbia VOJ 2N0 (614) 847-5667
3 5 EXHIBIT 1 THE DREYFUS SECURITY SAVINGS BANK, F.S.B. WRITTEN CONSENT OF SOLE STOCKHOLDER The undersigned, being the holder of all the issued and outstanding capital stock of THE DREYFUS SECURITY SAVINGS BANK, F.S.B. (the "Bank"), does hereby adopt the following resolution by this its written consent, with full force and effect as if adopted by vote at a duly constituted meeting: RESOLVED, that effective August 24, 1994, the name of the Bank shall be "Mellon Bank, F.S.B." and Section 1 of the Bank's Federal Stock Charter shall be amended to read as follows: Section 1. Corporate title. The full corporate title of the savings bank is Mellon Bank, F.S.B.; and be it further RESOLVED, that the appropriate officers of the Bank, and any of them, be and hereby are authorized and directed, on behalf of the Bank, to take such actions as they may deem necessary or appropriate to effect the charter amendment or otherwise carry out the intent of the foregoing resolution. IN WITNESS WHEREOF, this consent has been executed as of the 23rd day of August, 1994. DREYFUS-LINCOLN, INC. (N.J.) By: /s/ William V. Healy -------------------- William V. Healy Secretary
6 Charter No. 5707 FEDERAL STOCK CHARTER Section 1. Corporate title. The full corporate title of the savings bank is The Dreyfus Security Savings Bank, F.S.B. Section 2. Office. The home office shall be located in Paramus, New Jersey. Section 3. Duration. The duration of the savings bank is perpetual. Section 4. Purpose and powers. The purpose of the savings bank is to pursue any or all of the lawful objectives of a Federal savings bank chartered under section 5 of the Home Owners' Loan Act and to exercise all of the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may be hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of Thrift Supervision ("Office"). Section 5. Capital stock. The total number of shares of all classes of the capital stock which the savings bank has the authority to issue is 10,000, all of which shall be common stock of par value of $300 per share. The shares may be issued from time to time as authorized by the board of directors without the approval of its shareholders, except as otherwise provided in this section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the savings bank. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted to the savings bank), labor, or services actually performed for the savings bank, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the savings bank, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the surplus of the savings bank which is transferred to stated capital upon the issuance of shares as a share dividend shall be deemed to be the consideration for their issuance. No shares of common stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the savings bank other than as part of a general public offering or as qualifying shares to a director, unless the issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting. 7 The holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder, except as to the cumulation of votes for the election of directors. Subject to any provision for a liquidation account, in the event of any liquidation, dissolution, or winding up of the savings bank, the holders of the common stock shall be entitled, after payment or provision for payment of all debts and liabilities of the savings bank, to receive the remaining assets of the savings bank available for distribution, in cash or in kind. Each share of common stock shall have the same relative rights as and be identical in all respects with the other shares of common stock. Section 6. Preemptive rights. Holders of the capital stock of the savings bank shall not be entitled to preemptive rights with respect to any shares of the savings bank which may be issued. Section 7. Directors. The savings bank shall be under the direction of a board of directors. The authorized number of directors, as stated in the savings bank's bylaws, shall not be fewer than seven nor more than fifteen except when a greater number is approved by the Director of the Office. Section 8. Amendment of charter. Except as provided in section 5, no amendment, addition, alteration, change or repeal of this charter shall be made, unless such is first proposed by the board of directors of the savings bank, then preliminarily approved by the Office, which preliminary approval may be granted by the Office pursuant to regulations specifying preapproved charter amendments, and thereafter approved by the shareholders by a majority of the total votes eligible to be cast at a legal meeting. Any amendment, addition, alteration, change, or repeal so acted upon shall be effective upon filing with the Office in accordance with regulatory procedures or on such other date as the Office may specify in its preliminary approval. Attest: /s/ Joni L. Charatan ----------------------------- Joni L. Charatan Secretary of the Savings Bank By: /s/ Philip L. Tora ----------------------------- Philip L. Tora President or Chief Executive Officer of the Savings Bank Attest: /s/ Nadine Y. Washington ----------------------------- Nadine Y. Washington Corporate Secretary of the Office of Thrift Supervision
8 By: /s/ Johnathan L. Lichter ------------------------ Acting Director of the Office of Thrift Supervision Declared effective this 1st day of November, 1992. 9 EXHIBIT 2 OFFICE OF THRIFT SUPERVISION Approval of an Election under Section 10(1) of the Home Owners' Loan Act, Conversion under Section 5(o) of the Home Owners' Loan Act, and Applications for Holding Company Acquisition Order No: 92-427 Date: September 30, 1992
Dreyfus Corporation, New York, New York, Dreyfus-Lincoln, Inc. (a Delaware Corporation), New York, New York, Dreyfus-Lincoln, Inc. (a New Jersey Corporation), New York, New York, (collectively the "Holding Company"), and The Dreyfus Consumer Bank, Paramus, New Jersey (collectively the "Applicants"), have applied for the approval of the Office of Thrift Supervision ("OTS"): (i) to elect to have their wholly owned subsidiary, Bank Insurance Fund member, state-chartered savings bank, The Dreyfus Savings Bank of New Jersey, Paramus, New Jersey, ("Interim"), treated as a savings association pursuant to section 10(1) of the Home Owners' Loan Act ("HOLA"), 12 U.S.C. Sec. 1467a(1); (ii) to acquire Interim under section 10(a) of the HOLA, 12 U.S.C. Sec. 1467a(a) and section 574.3(a) of the OTS's Acquisition of Control Regulations, 12 C.F.R. Sec. 574.3(a); and (iii) to convert Interim to a federal savings bank, to be known as The Dreyfus Security Savings Bank, F.S.B. ("New Thrift"), pursuant to section 5(o) of the HOLA, 12 U.S.C. Sec. 1464(o), all as described in the applications filed on June 5, 1992, as amended. (Collectively, the foregoing are referred to as the "Applications".) The OTS has considered the factors set forth in 12 U.S.C. Secs. 1464(o), 1467a(1), 1467a(o), and 12 C.F.R. Sec. 574.3 and has determined that the proposed transaction would be in compliance with all the standards and criteria therein. Accordingly, the Applications are hereby approved, subject to the following conditions: (1) the Applicants and the Interim must receive all required regulatory approvals prior to consummation of the proposed transaction with copies of all such approvals supplied to the OTS Northeast Regional Office; (2) on the business day prior to the date of consummation of the proposed transaction, the chief financial officers of the Applicants and the Interim shall certify in writing to the OTS Northeast Regional Director that no material adverse events or material adverse changes have occurred with respect to the financial condition or operations of the Applicants or the Interim since the date of the financial statements submitted with the Applicants: 10 (3) the proposed transaction must be consummated within one hundred and twenty (120) calendar days from the date of this Order or within such additional period as the OTC Northeast Regional Director, or his designee, may for good cause grant; (4) on the effective date of the proposed transaction Interim shall certify to the OTS Northeast Regional Director that as of such date, Interim's "qualifying thrift investments" equal or exceed 65 percent of Interim's "portfolio assets", as such terms are defined in 12 U.S.C. Sec. 1467a(m) and the OTS's regulations thereunder, and within five (5) calendar days of the effective date of the transaction, the Holding Company shall submit to the OTS Northeast Regional Director detailed accounting of New Thrift's compliance with such percentage test; (5) the Applicants must advise the OTS Northeast Regional Office in writing within thirty (30) calendar days after the effective date of the proposed transaction: (1) on the effective date of the transaction and (2) that the transaction was consummated in accordance with applicable laws and regulations, the Applications, and this Order: (6) the Applicants must submit a final accounting of the transaction to the OTS Northeast Regional Office within thirty (30) calendar days after the effective date of the proposed transaction; (7) within thirty (30) calendar days of the effective date of the transaction, the Applicants shall submit closing financial statement for the Interim, as of the effective date of the transaction; (8) within thirty (30) calendar days of the effective day of the transaction, the Holding company must submit to the OTS Northeast Regional Director, an executed copy of its tax sharing agreement with New Thrift; (9) within thirty (30) calendar days of the effective date of the transaction,the Holding must submit to the OTS Northeast Regional Director, a final version its "Statement of Policy Governing Relationships with Affiliates and their Employees"; and (10) New Thrift shall be subject to the restrictions contained in 12 C.F.R. Secs. 337.4(c), (e) and (h) as not or hereinafter in effect, in the same manner and to the same extent as if New Thrift were a bank and an insured nonmember bank, except that such provisions shall be administered and enforced by the OTS. For purposes of section 3201(3) of the Depository Institutions Management Interlocks Act, 12 U.S.C. Sec. 3201(3), management officials of investment companies that are currently 11 sponsored, advised, managed, administered, or whose securities are distributed by the Holding Company or its subsidiaries or that commence operations in the future, shall not be treated as management officials of an "affiliate" of a depository holding company for a period of two years from the date of this Order, or in the case of investment companies established after the date hereof, two years after the establishment of such investment company. The OTS Northeast Regional Director may approve requests for future extensions, and may deny an extension if continuation would be objectionable on supervisory grounds. By order of the Director of the Office of Thrift Supervision, or his designee, effective September 30, 1992. ------------ /s/ Jonathan L. Fischter ------------------------ Jonathan L. Fischter Deputy Director for Washington Operations 12 SECRETARY'S CERTIFICATE MELLON BANK, F.S.B. CERTIFICATE OF CORPORATE EXISTENCE I, Joni Lacks Charatan, Secretary of Mellon Bank, F.S.B., do hereby certify that: The attached copy of the Certificate of Corporate Existence issued by the Office of Thrift Supervision and dated May 28, 1996 is a true copy of the original of such certificate which is in full force and effect at the date hereof. In witness whereof, I have hereunto set my hand and affix the seal this 10th of July 1996. /s/ Joni Lacks Charatan Joni Lacks Charatan Secretary SEAL 13 May 28, 1996 CERTIFICATE OF CORPORATE EXISTENCE ---------------------------------- REFERENCE: Mellon Bank, F.S.B. Paramus, New Jersey
I, Nadine Y. Washington, Corporate Secretary, Office of Thrift Supervision, hereby certify, according to the records of the Office of Thrift Supervision, Department of the Treasury, Washington, D.C.: 1. Mellon Bank, F.S.B, Paramus, New Jersey, was chartered under the laws of the United States to transact the business of a Federal savings bank; 2. The charter of Mellon Bank, F.S.B., Paramus, New Jersey is in full force and effect; 3. The Office of Thrift Supervision has not appointed a conservator or receiver for Mellon Bank, F.S.B., Paramus, New Jersey; and 4. As of May 28, 1996, Mellon Bank, F.S.B., Paramus, New Jersey, is operating as a BIF-insured financial institution. /s/ Nadine Y. Washington Nadine Y. Washington Corporate Secretary SEAL 14 EXHIBIT 3 OTS No.: 10357 FAX NO (201) 587-1785 October 11, 1995 Mr. William V. Healey, President Mellon Bank, F.S.B. The Atrium 80 Route 4 East Paramus, New Jersey 07652 Dear Mr. Healey: We have reviewed the application by Mellon Bank, F.S.B. ("Applicant"), for permission to establish a trust department to exercise fiduciary powers pursuant to 12 C.F.R. Sec. 550.2. The factors contained in Sec. 550.2(b) have been considered and a determination has been made that the application is consistent therewith. Therefore, pursuant to authority delegated in OTS Order No. 95-177 dated September 26, 1995, the application is hereby approved subject to the following conditions: 1. Applicant is authorized to exercise only those corporate trust powers that are authorized by the State of New Jersey. The exercise of trust powers is limited to the Applicant's home office in New Jersey and to all future offices that may be located in New Jersey. 2. The exercise of corporate trust powers through offices located in additional states is subject to prior approval by the Northeast Regional Director, or his designee. Please be advised that, and consistent with the Applicant's submissions, the approval contained in this letter does not authorize the Applicant to engage in either personal trust powers or employment benefit trust powers. Upon submission by the Applicant of such additional pertinent information as may be required with respect thereto, the Northeast Regional Director, or his designee, may issue a notice of non-objection regarding the exercise of personal trust powers and employment benefit trust powers assuming continued compliance with applicable statutory and regulatory criteria. 15 William V. Healey October 11, 1995 Page 2 The operation of the trust department regarding corporate trust activities must be completed within one year of the date of this letter unless extended by the Regional Director, or his designee. Kindly advise Applications Coordinator Charles P. O'Toole when the trust activities commence. Very truly yours, /s/ Angelo A. Vigna Angelo A. Vigna Regional Director cc: Michael E. Bleier, Esq. Michael Simone, OTS/NE Thomas Barnes, OTS/NE
16 OTS No.: 10357 Fax No. (212) 922-6880 April 5, 1996 Mr. William V. Healey, President Mellon Bank, F.S.B. The Atrium 80 Route 4 East Paramus, New Jersey 07652 Dear Mr. Healey: This concerns the application by Mellon Bank, F.S.B. ("Mellon FSB"), filed pursuant to 12 C.F.R. Sec. 545.92 on October 27, 1995, for permission to establish nine interstate branch offices in seven states. The application was subsequently amended for permission, pursuant to Sec. 545.96(b), to establish Agency Offices rather than branch offices. Also, on December 1, 1995, Mellon FSB submitted a request for non-objection regarding the exercise of corporate trust powers in seven states through the subject Agency Offices. The submissions have been reviewed by this Office and I hereby provide my non-objection to (1) the exercise by Mellon FSB of corporate trust power limited to those authorized by the States of Indiana, Maine, Michigan, New York, Ohio, Washington, and Wyoming and (2) pursuant to authority delegated in OTS Order No. 95-177 dated September 26, 1995, the establishment of the Agency Offices to exercise the aforementioned corporate trust power at the following locations: Skylight Office Tower One Indiana Square 1660 W. Second Street Indianapolis, Indiana 46704 Cleveland, OH 44113 88 East Broad Street 3 Seagate Suite 616 Toledo, Ohio 43603 Columbus, Ohio 43215
17 William V. Healey April 5, 1996 Page 2 Market Place 1 Canal Plaza 303 Detroit Street Portland, Maine 04112 Ann Arbor, Michigan 48034 State Street Center 18th and Carey Avenue 80 State Street Cheyenne, Wyoming 82001 Albany, New York 12207 1113 3rd Avenue Seattle, Washington 98101
Should there be any changes in the above locations please contact Applications Coordinator Charles P. O'Toole of this Office. Also advise Mr. O'Toole when the activity commences. Very truly yours, /s/ Michael L. Simone Michael L. Simone Assistant Director cc: Joni Lacks Charatan, Mellon Bank, FSB 18 EXHIBIT 4 SECRETARY'S CERTIFICATE RESOLUTION ADOPTED BY THE BOARD OF DIRECTORS OF MELLON BANK, F.S.B. -------------------------------- (AUGUST 3, 1993) I, JONI LACKS CHARATAN, SECRETARY OF MELLON BANK, F.S.B., a Federal savings bank, hereby certify that at a meeting of the Board of Directors of the Bank duly called and held on August 3, 1993, the following resolution was duly adopted and is now in full force and effect: RESOLVED, that Article II, Section 2, of the By-laws of The Dreyfus Security Savings Bank, F.S.B shall be amended to read as follow: Section 2. Number and Term. The board of directors shall consist of 7 members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually. IN WITNESS WHEREOF, I have hereunto set my hand and affix the seal this 6th day of June, 1996. /s/ Joni Lacks Charatan Joni Lacks Charatan Secretary SEAL 19 SECRETARY'S CERTIFICATE RESOLUTION ADOPTED BY THE BOARD OF DIRECTORS OF MELLON BANK, F.S.B. -------------------------------- (MARCH 20, 1996) I, JONI LACKS CHARATAN, SECRETARY OF MELLON BANK, F.S.B., a Federal savings bank, hereby certify that at a meeting of the Board of Directors of the Bank duly called and held on March 20, 1996, the following resolution was duly adopted and is now in full force and effect: RESOLVED, that the By-Laws of Mellon Bank, F.S.B. be amended to add the following new Section 5 to Article VI: Section 5. Corporate Trust Department Signing Authority. The President, the Officer in charge of the Corporate Trust Department, or any Vice President in such Department shall have full power and authority, in the name and on behalf of the savings bank as trustee, administrator, executor, registrar, transfer agent, or in any other fiduciary capacity, under seal of the savings bank or otherwise: (a) To execute, acknowledge and deliver deeds, bonds, mortgages, agreements, bills of sale, powers of attorney and all other instruments in writing that may be necessary or proper in the management or in the sale, leasing or other disposition of any real or personal property held by the savings bank in any fiduciary capacity; and to execute, acknowledge, deliver or accept agreements, indentures, deeds of trust or mortgages that may be necessary or proper in the acceptance of trusts, depositaryships, agency, custodian, escrow or any other fiduciary accounts; (b) To execute, acknowledge and deliver any instrument in writing that may be necessary in order to assign, subordinate, release, satisfy or affect in any other manner of record the whole or part of any judgment or of any mortgage or other lien (except a corporate mortgage, deed of trust, indenture or other instrument executed and delivered to the savings bank as trustee for the purpose of securing an issue of corporate obligations) held by the savings bank in any fiduciary capacity; (c) To execute, acknowledge and deliver all authentications or certificates of the savings bank as trustee under any mortgage, deed of trust, indenture or agreement securing or providing for bonds, debentures, notes or other securities and all certificates as registrar or transfer agent, and all checks as disbursing agent, and all certificates of deposit, interim certificates and trust receipts or certificates; (d) To execute, acknowledge and deliver, pursuant to the terms of any corporate mortgage, deed of trust, indenture or other instrument executed and delivered to the savings bank as trustee for the purpose of securing an issue of corporate obligations, any instrument in writing that may be necessary to assign, modify, release or satisfy any such mortgage, deed of trust, indenture or other instrument or that may be necessary to release all or any part of the property covered by such mortgage, deed of trust, indenture or other instrument from lien thereof; (e) To appear in any court of record and to enter upon the record in such court an assignment, subordination, release or satisfaction, in whole or in part, of any judgment held by or controlled by the savings bank in fiduciary capacity; 20 (f) To verify under oath all pleadings and all other instruments of every nature and description that may be prepared by or on behalf of the savings bank in any fiduciary capacity and of which such verification may be necessary or proper. Any such agreement, instrument, or other document may also be executed, acknowledged and delivered in the name and on behalf of the savings bank in any fiduciary capacity, under seal of the savings bank or otherwise, by such other officers, employees or agents of the savings bank as the Board of Directors, the President or the Officer in charge of the Corporate Trust Department or the authorized delegate of any of them may from time to time authorize. Any officer, employee or agent authorized herder to execute, acknowledge and deliver any such agreement, instrument or document is also authorized to cause any other officer of the savings bank to affix the seal of the savings bank thereto and to attest it. IN WITNESS WHEREOF, I have hereunto set my hand and affix the seal this 6th day of June, 1996. /s/ Joni Lacks Charatan Joni Lacks Charatan Secretary SEAL 21 BYLAWS OF THE DREYFUS SECURITY SAVINGS BANK, F.S.B. Article I-Home Office The home office of the savings bank shall be at 80 Route 4 East, Paramus in the county of Bergen, in the state of New Jersey. Article II-Shareholders Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the home office of the savings bank or at such other place in the State in which the principal place of business of the savings bank is located as the board of directors may determine. Section 2. Annual Meetings. A meeting of the shareholders of the savings bank for the election of directors and for the transaction of any other business of the savings bank shall be held annually within 120 days after the end of the savings bank's fiscal year on the fourth Tuesday of April if not a legal holiday, and if a legal holiday, then on the next day following which is not a legal holiday at 10:00 a.m., or at such other date and time within such 120-day period as the board of directors may determine. Section 3. Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the regulations of the Office of Thrift Supervision ("Office"), may be called at any time by the chairman of the board, the president, or a majority of the board of directors, and shall be called by the chairman of the board, the president, or the secretary upon the written request of the holders of not less than one-tenth of all of the outstanding capital stock of the savings bank entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered to the home office of the savings bank addressed to the chairman of the board, the president or the secretary. Section 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the most current edition of Robert's Rules of Order unless otherwise prescribed by regulations of the Office or these bylaws. The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings. Section 5. Notice of Meetings. Written notice stating the place, day, and hour of the meeting and the purpose(s) for which the meeting is called shall be 22 delivered not fewer than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, or the secretary, or the directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the savings bank as of the record date prescribed in section 6 of this article II with postage prepaid. When any shareholders' meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken. Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment. Section 7. Voting Lists. At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the savings bank shall make a complete list of the shareholders entitled to vote at such meeting, or any adjournment, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the savings bank and shall be subject to inspection by any shareholder at any time during usual business hours for a period of 20 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. In lieu of making the shareholder list available for inspection by shareholders as provided in the preceding paragraph, the board of directors may elect to follow the procedures prescribed in Sec. 552.6(d) of the Office's regulations as now or hereafter in effect. 3 23 Section 8. Quorum. A majority of the outstanding shares of the savings bank entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his or her duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest. Section 10. Voting of Shares in the Name of Two or More Persons. When ownership stands in the name of two or more persons, in the absence of written directions to the savings bank to the contrary, at any meeting of the shareholders of the savings bank any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree. Section 11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent, or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian, or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his or her name if authority to do so is contained in 4 24 an appropriate order of the court or the public authority by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the savings bank nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the savings bank, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. Section 12. Cumulative Voting. Every shareholder entitled to vote at an election for directors shall have the right to vote, in person or by proxy, the number of shares owned by the shareholder for as many persons as there are directors to be elected and for whose election the shareholder has a right to vote, or to cumulate the votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of shares shall equal or by distributing such votes on the same principle among any number of candidates. Section 13. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any person other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may, or on the request of not fewer than 10 percent of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by regulations of the Office, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such 5 25 acts as may be proper to conduct the election or vote with fairness to all shareholders. Section 14. Nominating Committee. The board or directors shall act as a nominating committee for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the savings bank. No nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the savings bank at least five days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the association. Ballots bearing the names of all persons nominated by the nominating committee and by shareholders shall be provided for use at the annual meeting. However, if the nominating committee shall fail or refuse to act at least 20 days prior to the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon. Section 15. New Business. Any new business to be taken up at the annual meting shall be stated in writing and filed with the secretary of the savings bank at least five days before the date of the annual meeting, and all business so stated, proposed, and filed shall be considered at the annual meeting; but no other proposal shall be acted upon at the annual meeting. Any shareholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless stated in writing and filed with the secretary at least five days before the meeting, such proposal shall be laid over for action at an adjourned, special, or annual meeting of the shareholders taking place 30 days or more thereafter. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors, and committees; but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated and filed as herein provided. Section 16. Informal Action by Shareholders. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter. 6 26 Article III-Board of Directors Section 1. General Powers. The business and affairs of the savings bank shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board and a president from among its members and shall designate, when present, either the chairman of the board or the president to preside at its meetings. Section 2. Number and Term. The board of directors shall consist of 8 members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually. Section 3. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place, within the savings bank's normal lending territory, for the holding of additional regular meetings without other notice than such resolution. Members of the board of directors may participate in regular meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person but shall not constitute attendance for the purpose of compensation pursuant to section 12 of this article. Section 4. Qualifications. Each director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the savings bank unless the savings bank is a wholly owned subsidiary of a holding company. Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president, or one-third of the directors. The persons authorized to call special meetings of the board of directors, may fix any place, within the savings bank's normal lending territory, as the place for holding any special meeting of the board of directors called by such persons. Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such 7 27 participation shall constitute presence in person but shall not constitute attendance for the purpose of compensation pursuant to Section 12 of this article. Section 6. Notice. Written notice of any special meeting shall be given to each director at least two days prior thereto when delivered personally or by telegram or at least five days prior thereto when delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage prepaid if mailed or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice of waiver of notice of such meeting. Section 7. Quorum. A majority of the number of directors fixed by Section 2 of this article III shall constitute a quorum for the transaction of business at any meeting of the board of directors; but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 5 of this article III. Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of the directors, unless a greater number is prescribed by regulation of the Office or by these bylaws. Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. Section 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the savings bank addressed to the chairman of the board or the president. Unless otherwise specified, such resignation shall take effect upon receipt by the chairman of the board or the president. More than three consecutive absences from regular meetings of the board of directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors. 8 28 Section 11. Vacancies. Any vacancy occurring on the board of directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders. Section 12. Compensation. Directors, as such, may receive a stated salary for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine. Section 13. Presumption of Assent. A director of the savings bank who is present at a meeting of the board of directors at which action on any savings bank matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the savings bank within five days after the date of copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action. Section 14. Removal of Directors. At a meeting of shareholders called expressly for that purpose, any director may be removed for cause by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. If less than the entire board is to be removed, no one of the directors may be removed if the votes cast against the removal would be sufficient to elect a director if then cumulatively voted at an election of the class of directors of which such director is a part. Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. 9 29 Article IV-Executive and Other Committees Section 1. Appointment. The board of directors, by resolution adopted by a majority of the full board, may designate the chief executive officer and two or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation. Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the charter or bylaws of the savings bank, or recommending to the stockholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all or substantially all of the property and assets of the savings bank otherwise than in the usual and regular course of its business; a voluntary dissolution of the association; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, had any material beneficial interests. Section 3. Tenure. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee. Section 4. Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date, and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting. Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by 10 30 the affirmative vote of a majority of the members present at a meeting at which a quorum is present. Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee. Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors. Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the president or secretary of the association. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective. Section 9. Procedure. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred. Section 10. Other Committees. The board of directors may by resolution establish an audit, loan, or other committee composed of directors as they may determine to be necessary or appropriate for the conduct of the business of the savings bank and may prescribe the duties, constitution, and procedures thereof. Article V-Officers Section 1. Position. The officers of the savings bank shall be a president, one or more vice presidents, a secretary, and a treasurer, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The President shall be the chief executive officer. The president shall be a director of the savings bank. The offices of the secretary and treasurer may be held by the same 11 31 person and a vice president may also be either the secretary or the treasurer. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the savings bank may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors the officers shall have such powers and duties as generally pertain to their respective offices. Section 2. Election and Term of Office. The officers of the savings bank shall be elected annually at the first meeting of the board of directors held after each annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer's death, resignation, or removal in the manner hereinafter provided. Election or appointment of an officer, employee, or agent shall not of itself create contractual rights. The board of directors may authorize the savings bank to enter into an employment contract with any officer in accordance with regulations of the Office; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V. Section 3. Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the savings bank will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the board of directors for the unexpired portion of the term. Section 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors. Article VI-Contracts, Loans, Checks, and Deposits Section 1. Contracts. To the extent permitted by regulations of the Office, and except as otherwise prescribed by these bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the savings bank to enter into any contract or execute 12 32 and deliver any instrument in the name of and on behalf of the savings bank. Such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the savings bank and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. Section 3. Checks; Drafts; etc. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the savings bank shall be signed by one or more officers, employees or agents of the savings bank in such manner as shall from time to time be determined by the board of directors. Section 4. Deposits. All funds of the savings bank not otherwise employed shall be deposited from time to time to the credit of the savings bank in any duly authorized depositories as the board of directors may select. Article VII-Certificates for Shares and Their Transfer Section 1. Certificates for Shares. Certificates representing shares of capital stock of the savings bank shall be in such form as shall be determined by the board of directors and approved by the Office. Such certificates shall be signed by the chief executive officer or by any other officer of the savings bank authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the savings bank itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the savings bank. All certificates surrendered to the savings bank for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and canceled, except that in the case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the savings bank as the board of directors may prescribe. Section 2. Transfer of Shares. Transfer of shares of capital stock of the savings bank shall be made only on its stock transfer books. Authority for 13 33 such transfer shall be given only by the holder of record or by his or her legal representative, who shall furnish proper evidence of such authority, or by his or her attorney authorized by a duly executed power of attorney and filed with the savings bank. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the savings bank shall be deemed by the savings bank to be the owner for all purposes. Article VIII-Fiscal Year; Annual Audit The fiscal year of the savings bank shall end on the 31st day of December of each year. The savings bank shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. The appointment of such accountants shall be subject to annual ratification by the shareholders. Article IX-Dividends Subject to the terms of the savings bank's charter and the regulations and order of the Office, the board of directors may, from time to time, declare, and the savings bank may pay, dividends on its outstanding shares of capital stock. Article X-Corporate Seal The board of directors shall provide a savings bank seal which shall be two concentric circles between which shall be the name of the savings bank. The year of incorporation or an emblem may appear in the center. Article XI-Amendments These bylaws may be amended in a manner consistent with regulations of the Office at any time by a majority vote of the full board of directors or by a majority vote of the votes cast by the stockholders of the savings bank at any legal meeting. 14 34 Article XII-Indemnification The savings bank shall, to the extent specified herein, indemnify each person made or threatened to be made a party to any civil or criminal action or proceeding by reason of the fact that he, or his testator or intestate, is or was a director, officer or employee of the savings bank or served any other entity of any kind, domestic or foreign, in any capacity at the request of the savings bank. Officers and directors of the savings bank shall be so indemnified to the full extent permitted by law and persons other than officers and directors of the savings bank shall be so indemnified to the same extent as officers and directors of the savings bank. 15 35 EXHIBIT 6 CONSENT ------- Mellon Bank, F.S.B. hereby consents that reports by federal, state, territorial, or district authorities regarding Mellon Bank, F.S.B., may be furnished to the Securities and Exchange Commission upon request. This consent is provided in compliance with the requirements of Section 321(b) of the Trust Indenture Act of 1939 Mellon Bank, F.S.B. DATE: July 8, 1996 By: /s/William V. Healey ------------ --------------------------------- William V. Healey President and Chief Executive Officer
36 EXHIBIT 7 MELLON BANK, F.S.B. Balance Sheets
December 31, 1995 1994 ----------- ----------- Assets: Cash and due from banks $342,260 $437,050 Federal funds sold 6,571,060 13,074,495 Securities (Note 2) Held-to-maturity, at amortized cost 9,299,676 7,740,001 Available-for-sale, at estimated fair value 3,975,391 2,703 Federal Home Loan Bank of New York stock, at cost 87,900 110,600 Mortgage loans held for sale 2,035,455 50,414 Loans: Real estate mortgages 6,331,107 6,764,949 Consumer 336,622 492,906 ----------- ----------- 6,667,729 7,257,855 Less: allowance for loan losses (Note 3) (50,904) (87,155) ----------- ----------- Net loans 6,616,825 7,170,700 Accrued income receivable 233,615 185,085 Other assets 310,197 502,700 ----------- ----------- TOTAL ASSETS $29,472,379 $29,273,748 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY: Liabilities Deposits (Note 4): Interest bearing: Savings, time and money market accounts $20,849,872 $20,677,606 Noninterest bearing 64,659 383,679 ----------- ----------- Total deposits 20,914,531 21,061,285 Due to related affiliates (Note 11) 426,271 143,695 Sundry liabilities and accrued expenses 98,454 115,374 ----------- ----------- TOTAL LIABILITIES 21,439,256 21,320,354 ----------- ----------- Stockholder's Equity: Common stock, ($300 par value; 10,000 shares authorized, issued and outstanding) 3,000,000 3,000,000 Capital surplus 4,832,382 4,832,382 Retained earnings 171,719 119,418 ----------- ----------- 8,004,101 7,951,800 Net unrealized gain on available-for-sale securities, net of tax 29,022 1,594 ----------- ----------- TOTAL STOCKHOLDER'S EQUITY 8,033,123 7,953,394 ----------- ----------- COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 8) TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $29,472,379 $29,273,748 =========== ===========
See accompanying notes to financial statements EX-99.1 10 LETTER OF TRANSMITTAL 1 Exhibit 99.1 LETTER OF TRANSMITTAL ROYAL OAK MINES INC. OFFER TO EXCHANGE SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2006 FOR ANY AND ALL OF THE OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2006 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996 UNLESS THE OFFER IS EXTENDED Mellon Bank, F.S.B (the "Exchange Agent") BY MAIL, HAND OR OVERNIGHT COURIER: Mellon Bank, F.S.B. c/o Mellon Bank, N.A. Corporate Trust Operations 2 Mellon Bank Center, Room 335 Pittsburgh, PA 15259-0001 BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (412) 236-2807 CONFIRM BY TELEPHONE: (412) 234-2089 Delivery of this instrument to an address other than as set forth above or transmission of instructions via a facsimile number other than the ones listed above will not constitute a valid delivery. The instructions accompanying this Letter of Transmittal should be read carefully before this Letter of Transmittal is completed. The undersigned hereby acknowledges receipt of the Prospectus dated , 1996 (the "Prospectus") of Royal Oak Mines Inc. (the "Company") and this Letter of Transmittal, which together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its Series B 11% Senior Subordinated Notes due 2006 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for each $1,000 principal amount of its outstanding 11% Senior Subordinated Notes due 2006 (the "Notes"), respectively. The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1996, unless the Company, in its reasonable judgment, extends the Exchange Offer, in which case the term shall mean the latest date and time to which the Exchange Offer is extended. Capitalized terms used but not defined herein have the meaning given to them in the Prospectus. YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT. List on the next page the Notes to which this Letter of Transmittal relates. If the space indicated is inadequate, the Certificate or Registration Numbers and Principal Amounts should be listed on a separately signed schedule affixed hereto. 2 - ------------------------------------------------------------------------------------------------ DESCRIPTION OF SENIOR SUBORDINATED NOTES TENDERED HEREBY - ------------------------------------------------------------------------------------------------ AGGREGATE CERTIFICATE PRINCIPAL NAME(S) AND ADDRESS(ES) OR AMOUNT PRINCIPAL OF REGISTERED OWNER(S) REGISTRATION REPRESENTED AMOUNT (PLEASE FILL IN) NUMBER(S)* BY NOTES TENDERED** - ------------------------------------------------------------------------------------------------ ----------------------------------------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------- TOTAL - ------------------------------------------------------------------------------------------------ * NEED NOT BE COMPLETED BY BOOK-ENTRY HOLDERS. ** UNLESS OTHERWISE INDICATED, THE HOLDER WILL BE DEEMED TO HAVE TENDERED THE FULL AGGREGATE PRINCIPAL AMOUNT REPRESENTED BY SUCH NOTES. ALL TENDERS MUST BE IN INTEGRAL MULTIPLES OF $1,000. - ------------------------------------------------------------------------------------------------
This Letter of Transmittal is to be used (i) if certificates of Notes are to be forwarded herewith, (ii) if delivery of Notes is to be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company (the "Depository"), pursuant to the procedures set forth in "The Exchange Offer -- Procedures for Tendering Notes" in the Prospectus or (iii) tender of the Notes is to be made according to the guaranteed delivery procedures described in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2. Delivery of documents to a book-entry transfer facility does not constitute delivery to the Exchange Agent. The term "Holder" with respect to the Exchange Offer means any person in whose name Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Notes must complete this letter in its entirety. / / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DEPOSITORY AND COMPLETE THE FOLLOWING: Name of Tendering Institution __ / / The Depository Trust Company Account Number __ Transaction Code Number __ Holders whose Notes are not immediately available or who cannot deliver their Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedure set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2. / / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) __ Name of Eligible Institution that Guaranteed Delivery __ --------------------------------------------------------------------------- If delivery by book-entry transfer: Account Number __ Transaction Code Number __ / / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name __ Address __ 3 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of the Notes indicated above. Subject to, and effective upon, the acceptance for exchange of such Notes tendered hereby, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Notes as are being tendered hereby, including all rights to accrued and unpaid interest thereon as of the Expiration Date. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that said Exchange Agent acts as the agent of the Company in connection with the Exchange Offer) to cause the Notes to be assigned, transferred and exchanged. The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Notes, and that when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned represents to the Company that (i) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the undersigned, and (ii) neither the undersigned nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes. If the undersigned or the person receiving the Exchange Notes covered hereby is a broker-dealer that is receiving the Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, the undersigned acknowledges that it or such other person will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned and any such other person acknowledge that, if they are participating in the Exchange Offer for the purpose of distributing the Exchange Notes, (i) they cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in Exxon Capital Holdings Corporation (available April 13, 1989), Morgan Stanley & Co., Inc. (available June 5, 1991) or similar no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale transaction and (ii) failure to comply with such requirements in such instance could result in the undersigned or any such other person incurring liability under the Securities Act for which such persons are not indemnified by the Company. If the undersigned or the person receiving the Exchange Notes covered by this letter is an affiliate (as defined under Rule 405 of the Securities Act) of the Company, the undersigned represents to the Company that the undersigned understands and acknowledges that such Exchange Notes may not be offered for resale, resold or otherwise transferred by the undersigned or such other person without registration under the Securities Act or an exemption therefrom. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of tendered Notes or transfer ownership of such Notes on the account books maintained by a book-entry transfer facility. The undersigned further agrees that acceptance of any tendered Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the Registration Rights Agreement and that the Company shall have no further obligations or liabilities thereunder for the registration of the Notes or the Exchange Notes. The Exchange Offer is subject to certain conditions set forth in the Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned recognizes that as a result of these conditions (which may be waived, in whole or in part, by the Company), as more particularly set forth in the Prospectus, the Company may not be required to exchange any of the Notes tendered hereby and, in such event, the Notes not exchanged will be returned to the undersigned at the address shown below the signature of the undersigned. 4 All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tendered Notes may be withdrawn at any time prior to the Expiration Date. Unless otherwise indicated in the box entitled "Special Registration Instructions" or the box entitled "Special Delivery Instructions" in this Letter of Transmittal, certificates for all Exchange Notes delivered in exchange for tendered Notes, and any Notes delivered herewith but not exchanged, will be registered in the name of the undersigned and shall be delivered to the undersigned at the address shown below the signature of the undersigned. If an Exchange Note is to be issued to a person other than the person(s) signing this Letter of Transmittal, or if the Exchange Note is to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address different than the address shown on this Letter of Transmittal, the appropriate boxes of this Letter of Transmittal should be completed. If Notes are surrendered by Holder(s) that have completed either the box entitled "Special Registration Instructions" or the box entitled "Special Delivery Instructions" in this Letter of Transmittal, signature(s) on this Letter of Transmittal must be guaranteed by an Eligible Institution (defined in Instruction 4). 5 - ------------------------------------------------------ SPECIAL REGISTRATION INSTRUCTIONS To be completed ONLY if the Exchange Notes are to be issued in the name of someone other than the undersigned. Name: Address: Book-Entry Transfer Facility Account: Employee Identification or Social Security Number: ----------------------------------------------------- (Please print or type) - ------------------------------------------------------ - ------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS To be completed ONLY if the Exchange Notes are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown under "Description of Notes Tendered Hereby." Name: Address: ----------------------------------------------------- (Please print or type) - ------------------------------------------------------ REGISTERED HOLDER(S) OF NOTES SIGN HERE (In addition, complete Substitute Form W-9 Below) X - -------------------------------------------------------------------------------- X - -------------------------------------------------------------------------------- (Signature(s) of Registered Holder(s)) Must be signed by registered holder(s) exactly as name(s) appear(s) on the Notes or on a security position listing as the owner of the Notes or by person(s) authorized to become registered holder(s) by properly completed bond powers transmitted herewith. If signature is by attorney-in-fact, trustee, executor, administrator, guardian, officer of a corporation or other person acting in a fiduciary capacity, please provide the following information. (Please print or type): Name and Capacity (full title): - -------------------------------------------------------------------------- Address (including zip code): - ---------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Area Code and Telephone Number: - --------------------------------------------------------------------- Taxpayer Identification or Social Security No.: - ---------------------------------------------------------- Dated: - -------------------------------------------------- SIGNATURE GUARANTEE (If Required -- See Instruction 4) Authorized Signature: - -------------------------------------------------------------------------------- (Signature of Representative of Signature Guarantor) Name and Title: - -------------------------------------------------------------------------------- Name of Plan: - -------------------------------------------------------------------------------- Area Code and Telephone Number: - -------------------------------------------------------------------- (Please print or type) Dated: - -------------------------------------------- 6 PAYOR'S NAME: ROYAL OAK MINES INC. THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION NUMBER ON THE FOLLOWING SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING. - ---------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX ------------------------ FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DAT- SOCIAL SECURITY ING BELOW NUMBER OR EMPLOYER DEPARTMENT OF THE IDENTIFICATION TREASURY INTERNAL PART 2 -- CHECK THE BOX IF YOU ARE NOT SUB- NUMBER REVENUE SERVICE JECT TO BACKUP WITHHOLDING UNDER THE PROVISIONS OF SECTION 3406(A)(1)(C) OF THE PAYOR'S REQUEST INTERNAL REVENUE CODE BECAUSE (1) YOU ARE FOR TAXPAYER EXEMPT FROM BACKUP WITHHOLDING, (2) YOU IDENTIFICATION HAVE NOT BEEN NOTIFIED THAT YOU ARE SUBJECT NUMBER ("TIN") TO BACKUP WITHOLDING AS A RESULT OF FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR (3) THE INTERNAL REVENUE SERVICE HAS NOTIFIED YOU THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING. / / --------------------------------------------------------------------- CERTIFICATION -- UNDER THE PENALTIES OF PART 3 -- PERJURY, I CERTIFY THAT THE INFORMATION AWAITING TIN / / PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. SIGNATURE ____ DATE - ---------------------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS IN EXCESS OF $10.00 MADE TO YOU. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. - ---------------------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS NOT BEEN ISSUED TO ME, AND EITHER (A) I HAVE MAILED OR DELIVERED AN APPLICATION TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE, OR (B) I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN SIXTY (60) DAYS, 31% OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD UNTIL I PROVIDE A NUMBER. --------------------------------------------------- --------------------------------------------------- SIGNATURE DATE ---------------------------------------------------------------------------------------------
7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. All physically delivered Notes or confirmations of any book-entry transfer to the Exchange Agent's account at a book-entry transfer facility of Notes tendered by book-entry transfer, as well as a properly completed and duly executed copy of this Letter of Transmittal or facsimile thereof, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at any of its addresses set forth herein on or prior to the Expiration Date (as defined in the Prospectus). The method of delivery of this Letter of Transmittal, the Notes and any other required documents is at the election and risk of the Holder, and except as otherwise provided below, the delivery will be deemed made only when actually received by the Exchange Agent. If such delivery is by mail, it is suggested that registered mail with return receipt requested, properly insured, be used. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering Holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Notes for exchange. Delivery to an address other than as set forth herein, or instructions via a facsimile number other than the ones set forth herein, will not constitute a valid delivery. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes, but whose Notes are not immediately available and thus cannot deliver their Notes, the Letter of Transmittal or any other required documents to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date, may effect a tender if: (a) the tender is made through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"); (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder, the registration number(s) of such Notes and the principal amount of Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the Depository) and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as all tendered Notes in proper form for transfer (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the Depository) and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Notes according to the guaranteed delivery procedures set forth above. Any Holder who wishes to tender Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery relating to such Notes prior to the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by a Holder who attempted to use the guaranteed delivery procedures. 3. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of Notes evidenced by a submitted certificate is tendered, the tendering Holder should fill in the principal amount tendered in the column entitled "Principal Amount Tendered" of the box entitled "Description of Notes Tendered Hereby." A newly issued Note for the principal amount of Notes submitted but not tendered will be sent to such Holder as soon as practicable after the Expiration Date. All Notes delivered to the Exchange Agent will be deemed to have been tendered in full unless otherwise indicated. 8 Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date, after which tenders of Notes are irrevocable. To be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent. Any such notice of withdrawal must (i) specify the name of the person having deposited the Notes to be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn (including the registration number(s) and principal amount of such Notes, or, in the case of Notes transferred by book-entry transfer, the name and number of the account at the Depository to be credited), (iii) be signed by the Holder in the same manner as the original signature on this Letter of Transmittal (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Notes register the transfer of such Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Notes so withdrawn are validly retendered. Any Notes which have been tendered but which are not accepted for exchange, will be returned to the Holder thereof without cost to such Holder as soon as practicable after withdrawal, rejection of tender or termination of Exchange Offer. 4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered Holder(s) of the Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificates without alteration or enlargement or any change whatsoever. If this Letter of Transmittal is signed by a participant in the Depository, the signature must correspond with the name as it appears on the security position listing as the owner of the Notes. If any of the Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If a number of Notes registered in different names is tendered, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Notes. Signatures on this Letter of Transmittal or on a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution unless the Notes tendered hereby are tendered (i) by a registered Holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If this Letter of Transmittal is signed by the registered Holder or Holders of Notes (which term, for the purposes described herein, shall include a participant in the Depository whose name appears on a security listing as the owner of the Notes) listed and tendered hereby, no endorsements of the tendered Notes or separate written instruments of transfer or exchange are required. In any other case, the registered Holder (or acting Holder) must either properly endorse the Notes or transmit properly completed bond powers with this Letter of Transmittal (in either case, executed exactly as the name(s) of the registered Holder(s) appear(s) on the Notes, and, with respect to a participant in the Depository whose name appears on a security position listing as the owner of Notes, exactly as the name of the participant appears on such security position listing), with the signature on the Notes or bond power guaranteed by an Eligible Institution (except where the Notes are tendered for the account of an Eligible Institution). If this Letter of Transmittal, any certificates or separate written instruments of transfer or exchange are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted. 5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders should indicate, in the applicable box, the name and address (or account at the Depository) in which the Exchange Notes or substitute Notes for principal amounts not tendered or not accepted for exchange are to be issued (or deposited), if different from the names and addresses or accounts of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification number or social security number of the person named must also be indicated and the tendering Holder should complete the applicable box. 9 If no instructions are given, the Exchange Notes (and any Notes not tendered or not accepted) will be issued in the name of and sent to the acting Holder of the Notes or deposited at such Holder's account at the Depository. 6. TRANSFER TAXES. The Company shall pay all transfer taxes, if any, applicable to the transfer and exchange of Notes to it or its order pursuant to the Exchange Offer. If a transfer tax is imposed for any other reason other than the transfer and exchange of Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered Holder or any other person) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exception therefrom is not submitted herewith, the amount of such transfer taxes will be collected from the tendering Holder by the Exchange Agent. Except as provided in this Instruction 6, it will not be necessary for transfer stamps to be affixed to the Notes listed in this Letter of Transmittal. 7. WAIVER OF CONDITIONS. The Company reserves the right, in its reasonable judgment, to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus. 8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number(s) set forth above. In addition, all questions relating to the Exchange Offer, as well as requests for assistance or additional copies of the Prospectus and this Letter of Transmittal, may be directed to Royal Oak Mines Inc., 5501 Lakeview Drive, Kirkland, Washington, 98033, telephone (206) 822-8992. 10. VALIDITY AND FORM. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Notes not properly tendered or any Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right, in its reasonable judgment, to waive any defects, irregularities or conditions of tender as to particular Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. Although the Company intends to notify Holders of defects or irregularities with respect to tenders of Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holder as soon as practicable following the Expiration Date. IMPORTANT TAX INFORMATION Under federal income tax law, a Holder tendering Notes is required to provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9 above. If such Holder is an individual, the TIN is the Holder's social security number. The Certificate of Awaiting Taxpayer Identification Number should be completed if the tendering Holder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the Exchange Agent is not provided with the correct TIN, the Holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such Holder with respect to tendered Notes may be subject to backup withholding. Certain Holders (including, among others, all domestic corporations and certain foreign individuals and foreign entities) are not subject to these backup withholding and reporting requirements. Such a Holder who satisfies one or more of the conditions set forth in Part 2 of the Substitute Form W-9 should execute the 10 certification following such Part 2. In order for a foreign Holder to qualify as an exempt recipient, that Holder must submit to the Exchange Agent a properly completed Internal Revenue Service Form W-9, signed under penalties of perjury, attesting to that Holder's exempt status. Such forms can be obtained from the Exchange Agent. If backup withholding applies, the Exchange Agent is required to withhold 31% of any amounts otherwise payable to the Holder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a Holder with respect to Notes tendered for exchange, the Holder is required to notify the Exchange Agent of his or her correct TIN by completing the form herein certifying that the TIN provided on Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (i) each Holder is exempt, (ii) such Holder has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of failure to report all interest or dividends or (iii) the Internal Revenue Service has notified such Holder that he or she is no longer subject to backup withholding. WHAT NUMBER TO GIVE THE EXCHANGE AGENT Each Holder is required to give the Exchange Agent the social security number or employer identification number of the record Holder(s) of the Notes. If Notes are in more than one name or are not in the name of the actual Holder, consult the instructions on Internal Revenue Service Form W-9, which may be obtained from the Exchange Agent, for additional guidance on which number to report. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER If the tendering Holder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, check the box in Part 3 of Substitute Form W-9, sign and date the form and the Certificate of Awaiting Taxpayer Identification Number and return them to the Exchange Agent. If such certificate is completed and the Exchange Agent is not provided with the TIN within 60 days, the Exchange Agent will withhold 31% of all payments made thereafter until a TIN is provided to the Exchange Agent. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. EX-99.2 11 GUIDELINES FOR CERTIFICATION 1 Exhibit 99.2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 IRS INSTRUCTIONS (SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.) PURPOSE OF FORM. -- A person who is required to file an information return with the Internal Revenue Service (the IRS) must obtain your correct taxpayer identification number (TIN) to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an individual retirement account (IRA). Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN), and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN A W-9 TO REQUEST YOUR TIN, YOU MUST USE THE REQUESTER'S FORM. HOW TO OBTAIN A TIN. -- If you do not have a TIN, apply for one immediately. To apply, get FORM SS-5, Application for a Social Security Card (SSN) (for individuals), from your local office of the Social Security Administration, or FORM SS-4, Application for Employer Identification Number (EIN) (for businesses and all other entities), from your local IRS office. To complete Form W-9, if you do not have a TIN, check the box in Part 3 of the substitute Form W-9, sign and date the form, and give it to the requester. Generally, you will then have 60 days to obtain a TIN and furnish it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. For reportable interest or dividend payments, the payer must exercise one of the following options concerning backup withholding during this 60-day period. Under option (1), a payer must backup withhold on any withdrawals you make from your account after 7 business days after the requester receives this form back from you. Under option (2), the payer must backup withhold on any reportable interest or dividend payments made to your account, regardless of whether you make any withdrawals. The backup withholding under option (2) must begin no later than 7 business days after the requester receives this form back. Under option (2), the payer is required to refund the amounts withheld if your certified TIN is received within the 60-day period and you were not subject to backup withholding during the period. NOTE: CHECKING THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9 MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date this form, and give it to the requester. WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you after 1992 are required to withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: (1) You do not furnish your TIN to the requester, or (2) The IRS notifies the requester that you furnished an incorrect TIN, or (3) You are notified by the IRS that you are subject to backup withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or (4) You fail to certify to the requester that you are not subject to backup withholding under (3) above (for reportable interest and dividend accounts opened after 1983 only), or (5) You fail to certify your TIN. This applies only to reportable interest, dividend, broker or barter exchange accounts opened after 1983, or broker accounts considered inactive in 1983. Except as explained in (5) above, other reportable payments are subject to backup withholding only if (1) or (2) above applies. Certain payees and payments are exempt from backup withholding and information reporting. See PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING, below, and EXEMPT PAYEES AND PAYMENTS under SPECIFIC INSTRUCTIONS, on page 2, if you are an exempt payee. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in Items (1) through (7), except that a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under Section 501(a), or an IRA, or a custodial account under section 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the U.S. or a possession of the U.S. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporation Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends generally not subject to backup withholding also include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in trade or business in the U.S. and that have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. Payments of interest generally not subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR MORE AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT PROVIDED YOUR CORRECT TIN TO THE PAYER. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid by you. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, and 6050N, and their regulations. PENALTIES FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. 2 SPECIFIC INSTRUCTIONS NAME. -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card and your new last name. If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4. SIGNING THE CERTIFICATION. -- (1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. -- You are required to furnish your correct TIN, but you are not required to sign the certification. (2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. -- You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item (2) in the certification before signing the form. (3) REAL ESTATE TRANSACTIONS. -- You must sign the certification. You may cross out item (2) of the certification. (4) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified of an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services, payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. (5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY, OR IRA CONTRIBUTIONS. -- You are requested to furnish your correct TIN, but you are not required to sign the certification. (6) EXEMPT PAYEES AND PAYMENTS. -- If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part 1, write "EXEMPT" in the block in Part 2, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a completed Form W-8, Certificate of Foreign Status. (7) "AWAITING TIN". -- Follow the instructions under HOW TO OBTAIN A TIN, on page 1, check the box in Part 3 of the Substitute Form W-9 and sign and date the form. SIGNATURE. -- For a joint account, only the person whose TIN is shown in Part 1 should sign the form. PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a TIN to a payer. Certain penalties may also apply. WHAT NAME AND NUMBER TO GIVE THE REQUESTER --------------------------------------------------------------- GIVE THE NAME AND FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF: - --------------------------------------------------------------- 1. Individual The individual 2. Two or more individuals (joint account) The actual owner of the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor (Uniform The minor(2) Gift to Minors Act) 4. a. The usual revocable savings trust The (grantor is also trustee) grantor-trustee(1) b. So-called trust account that is not The actual owner(1) a legal or valid trust under state law 5. Sole proprietorship The owner(3) --------------------------------------------------------------- GIVE THE NAME AND EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF: - --------------------------------------------------------------- 6. Sole proprietorship The owner(3) 7. A valid trust, estate or pension trust Legal entity(4) 8. Corporate The corporation 9. Association, club, religious, The organization charitable, educational, or other tax-exempt organization 10. Partnership The partnership 11. A broker or registered nominee The broker or nominee 12. Account with the Department of The public entity Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments
- -------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the individual's name. You may also enter your business name. You may use your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL BE CONSIDERED TO BE THAT OF THE FIRST NAME LISTED. -----END PRIVACY-ENHANCED MESSAGE-----