fv10
Registration No. 333-
As filed with the Securities and Exchange Commission on May 7, 2007
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-10
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GOLD RESERVE INC.
(Exact name of Registrant as specified in its charter)
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Yukon Territory
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1040
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Not Applicable |
(Province or other Jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer |
Incorporation or Organization)
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Classification Code Number)
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Identification Number, if any) |
926 West Sprague Ave., Suite 200
Spokane, WA 99201
(509) 623-1500
(Address and telephone number of Registrants principal executive offices)
Gold Reserve Corporation
926 West Sprague Ave., Suite 200
Spokane, WA 99201
(509) 623-1500
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)
Copies to:
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Robert A. McGuinness
Gold Reserve Inc.
926 West Sprague Ave.
Suite 200
Spokane, WA 99201
(509) 623-1500
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Charles L.K. Higgins
Fasken Martineau DuMolin LLP
Toronto Dominion Centre
66 Wellington St. W., #4200
Toronto, ON M5K 1N6
(416) 865-4392
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Jonathan B. Newton
Baker & McKenzie LLP
Pennzoil Place, South Tower
711 Louisiana St., Suite 3400
Houston, TX 77002
(713) 427-5000
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Kevin Rooney
Heenan Blaikie LLP
Royal Bank Plaza
Suite 2600
Toronto, ON M5S 2J4
(416) 360-6336
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Riccardo Leofanti
Skadden, Arps, Slate,
Meagher & Flom LLP
222 Bay Street, Suite 1750
Toronto, ON M5K 1J5
(416) 777-4700 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
Province of Ontario, Canada
(Principal jurisdiction regulating this offering)
It is proposed that this filing shall become effective (check appropriate box below):
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A. |
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upon filing with the Commission, pursuant to Rule 467(a) (if in connection with an offering being made contemporaneously in the
United States and Canada). |
B. |
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at some future date (check appropriate box below) |
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1. |
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pursuant to Rule 467(b) on ( ) at ( ) (designate a time not sooner than seven calendar days after filing). |
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2. |
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pursuant to Rule 467(b) on ( ) at ( ) (designate a time seven calendar days or sooner after filing) because the
securities regulatory authority in the review jurisdiction has issued a receipt or notification of clearance on ( ). |
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3. |
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pursuant to Rule 467(b) as soon as practicable after notification of the Commission by the Registrant or the Canadian securities
regulatory authority of the review jurisdiction that a receipt or notification of clearance has been issued with respect hereto. |
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4. |
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after the filing of the next amendment to this Form (if preliminary material is being filed). |
If any of the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to the home jurisdictions shelf prospectus offering procedures, check
the following box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Amount of |
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Title of each Class of |
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Amount to be |
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Offering Price per |
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Aggregate Offering |
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Registration |
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Securities to be Registered |
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Registered |
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Unit |
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Price (1) |
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Fee |
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%
Senior Subordinated Convertible Notes due 2022 |
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$86,250,000 |
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100% |
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$86,250,000 |
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$2,648 |
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Class A common shares, no par value |
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11,962,875(2) |
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N/A |
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N/A |
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N/A(3) |
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Class A common share purchase rights |
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11,962,875(2) |
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N/A |
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N/A |
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N/A(4) |
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(1) |
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Includes an additional $11,250,000 of
% Senior Subordinated Convertible
Notes due 2022 (the notes) that the underwriters have the option to purchase to cover over-allotments, if
any. |
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(2) |
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This number represents the number of Class A common shares (including a corresponding number of Class A common share purchase rights) that may be
initially issuable upon conversion of the notes registered hereby, and such additional indeterminate number of Class A common shares as may issuable as
a result of adjustments to the conversion rate of the debentures being registered hereunder. For purposes of estimating the number of Class A common
shares to be included in the registration statement upon the conversion of the notes, we calculated the number of Class A common shares issuable upon
conversion of the notes based on a conversion rate of 138.70 Class A common shares per US$1,000 principal amount of the notes. In addition to the Class A
common shares set forth in the table, pursuant to Rule 416 under the Securities Act of 1933, as amended, this registration statement also shall cover any
additional Class A common shares which become issuable in connection with the Class A common shares registered for sale hereby by reason of any stock
dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the
number of our outstanding Class A common shares. |
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In accordance with Rule 457(i), no additional registration fee is required in respect of the Class A common shares. |
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In accordance with Rule 457(g), no additional registration fee is required in respect of the Class A common share purchase rights. |
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registration Statement shall become effective
as provided in Rule 467 under the Securities Act of 1933 or on such date as the Commission,
acting pursuant to Section 8(a) of the Act, may determine.
PART I
INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities, and we are not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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Subject
to completion, dated May 7, 2007
Prospectus
US$
75,000,000
% Senior
Subordinated Convertible Notes due June 15, 2022
Interest
payable June 15 and December 15
Issue
price: 100%
The notes will bear interest at a rate of % per
year. Interest will be payable semiannually in arrears on
June 15 and December 15 of each year, beginning
December 15, 2007. The notes will mature on June 15,
2022.
The notes will be unsecured obligations and will rank
(1) subordinate in right of payment to future
unsubordinated indebtedness for the construction and development
of our Brisas project, and will be effectively subordinate to
the extent of the collateral securing such indebtedness,
(2) subordinate to senior secured bank indebtedness in
right of payment, and will be effectively subordinate to the
extent of the collateral securing such indebtedness,
(3) subordinate in right of payment to any guarantee of the
indebtedness described in (1) or (2) by us or any of
our subsidiaries for the period that the guarantee is in effect,
(4) equal in right of payment to any of our other existing
and future unsecured and unsubordinated indebtedness, and
(5) senior in right of payment to all of our future
subordinated debt. However, the notes will be effectively
subordinated to all future secured debt to the extent of the
security on such other indebtedness and to all existing and
future obligations of our subsidiaries.
Holders may convert their notes into Class A common shares
(common shares) based on a conversion rate
of
common shares per US$1,000 principal amount of notes, equivalent
to a conversion price of approximately
US$ per share, subject to
adjustment, at their option at any time prior to maturity.
Subject to the satisfaction of certain conditions, we may, in
lieu of delivering common shares upon conversion of all or a
portion of the notes, elect to pay cash or a combination of cash
and common shares. In addition, following certain corporate
transactions described in this prospectus, we will increase the
conversion rate for holders who elect to convert notes in
connection with such corporate transactions in certain
circumstances.
We may redeem for cash all or a portion of the notes at any time
on or after June 16, 2010, until June 15, 2012, at a
purchase price equal to 100% of the principal amount being
redeemed, plus accrued and unpaid interest, if any, if the
closing price of our common shares reaches a specified
threshold. Beginning on June 16, 2012, we may redeem for
cash all or a portion of the notes at a price equal to 100% of
the principal amount being redeemed, plus accrued and unpaid
interest, if any. We may not otherwise redeem any of the notes
at our option prior to maturity, except upon the occurrence of
certain changes to the laws governing Canadian withholding taxes.
Holders may require us to purchase all or a portion of their
notes on June 15, 2012 at a price equal to 100% of the
principal amount of the notes to be purchased, plus accrued and
unpaid interest, if any. In addition, if we experience specified
types of fundamental changes, holders may require us to
repurchase all or a portion of their notes at a price equal to
100% of the principal amount of the notes to be purchased, plus
accrued and unpaid interest, if any. We may choose to pay the
purchase price in connection with a purchase of the notes at the
option of the holder or upon a fundamental change in cash,
common shares or any combination of cash and common shares.
For a more detailed description of the notes, see the
Description of notes section of this prospectus.
The notes will not be listed on any securities exchange. Our
common shares are listed for trading on the American Stock
Exchange (AMEX) and on the Toronto Stock Exchange
(the TSX) under the symbol GRZ. On May
4, 2007, the closing price of the common shares on AMEX and the
TSX was US$7.19 and Cdn$7.96, respectively.
Investing in the notes involves a high degree of
risk. See Risk factors beginning on
page 1.
This offering is made by a foreign issuer that is permitted,
under a multijurisdictional disclosure system adopted by the
United States and Canada, to prepare this prospectus in
accordance with Canadian disclosure requirements. Prospective
investors should be aware that such requirements are different
from those of the United States. Financial statements included
or incorporated herein have been prepared in accordance with
Canadian generally accepted accounting principles, and may be
subject to Canadian auditing and auditor independence standards,
and thus may not be comparable to financial statements of United
States companies.
Prospective investors should be aware that the acquisition of
the securities described herein is subject to complex tax rules
and may have tax consequences both in the United States and in
Canada. See Income tax considerations. Such
consequences for investors who are resident in, or citizens of,
the United States may not be described fully herein.
The enforcement by investors of civil liabilities under the
federal securities laws may be affected adversely by the fact
that the company is organized under the laws of the Yukon
Territory, Canada, that some of its officers and directors are
residents of Canada, that some of the underwriters or experts
named in the prospectus are residents of Canada, and that a
substantial portion of the assets of the company and said
persons are located outside the United States.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The notes will be ready for delivery in book-entry form through
the facilities of The Depository Trust Company on or about
May , 2007.
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JPMorgan |
RBC
Capital Markets |
Cormark
Securities
Table of
contents
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vii
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In making your investment decision, you should rely only on
the information contained or incorporated by reference in this
prospectus. We and the underwriters have not authorized anyone
to provide you with any other information. If you receive any
other information, you should not rely on it.
We and the underwriters are offering to sell the securities
only in places where offers and sales are permitted.
You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the
front cover of this prospectus. You should not assume that the
information contained in the documents incorporated by reference
in this prospectus is accurate as of any date other than the
respective dates of those documents. Our business, financial
condition, results of operations and prospects may have changed
since those dates.
Unless stated otherwise, all references to US$,
$, or dollars in this prospectus are
references to United States dollars and references to
Cdn. $ are to Canadian dollars. See
Exchange rate information. Our financial statements
that are incorporated by reference into this prospectus have
been prepared in United States dollars in accordance with
generally accepted accounting principles in Canada
(Canadian GAAP), and are reconciled to generally
accepted accounting principles in the United States
(U.S. GAAP) as described in note 11 to our
audited consolidated financial statements for the year ended
December 31, 2006.
References throughout this prospectus to the
Company or the terms we, us
and our, except as otherwise indicated in this
prospectus, refer primarily to Gold Reserve Inc. and its
wholly-owned subsidiaries.
Cautionary note
to United States investors
This prospectus, including the documents incorporated by
reference in this prospectus, has been prepared in accordance
with the requirements of securities laws in effect in Canada,
which differ from the requirements of U.S. securities laws.
Without limiting the foregoing, this prospectus, including the
documents incorporated by reference in this prospectus, uses the
terms measured, indicated and
inferred resources. U.S. investors are advised
that, while such terms are recognized and required by Canadian
securities laws, the United States Securities and Exchange
Commission (the SEC) does not recognize them,
including under its Industry Guide 7. As further described in
our annual information form incorporated by reference in this
prospectus, under U.S. standards, mineralization may not be
classified as a reserve unless the determination has
been made that the mineralization could be economically and
legally produced or extracted at the time the reserve
determination is made. See Documents incorporated by
reference. U.S. investors are cautioned not to assume
that all or any part of measured or indicated resources will
ever be converted into reserves. Further, inferred
resources have a great amount of uncertainty as to their
existence and as to whether they can be mined legally or
economically. It cannot be assumed that all or any part of the
inferred resources will ever be upgraded to a higher
category. Therefore, U.S. investors are also cautioned not
to assume that all or any part of the inferred resources exist,
or that they can be mined legally or economically. Under
Canadian disclosure rules, estimates of inferred mineral
resources may not form the basis of feasibility or
prefeasibility studies, except in rare cases. Disclosure of
contained ounces is permitted disclosure under
Canadian securities laws, however, the SEC normally only permits
issuers to report resources as in place tonnage and
grade without reference to unit measures. Accordingly,
information concerning descriptions of mineralization, resources
and reserves contained in this prospectus or in the documents
incorporated by reference in this prospectus may not be
comparable to information made public by U.S. companies
subject only to the reporting and disclosure requirements of the
SEC.
National Instrument
43-101-Standards
of Disclosure for Mineral Projects (NI
43-101)
is a rule developed by the Canadian Securities Administrators
that establishes standards for all public disclosure an issuer
makes of scientific and technical information concerning mineral
projects. Unless otherwise indicated, all reserve and resource
estimates contained in or incorporated by reference in this
prospectus have been prepared in accordance with NI
43-101 and
the Canadian Institute of Mining, Metallurgy and Petroleum
Classification System and not the SECs Industry Guide 7.
These standards differ significantly from the requirements of
the SEC (including under its Industry Guide 7), and reserve and
resource information contained or incorporated by reference in
this prospectus may not be comparable to similar information
disclosed by U.S. companies or in a
U.S.-style
prospectus.
See Glossary of Significant Terms in the
Companys annual information form incorporated by reference
in this prospectus for a description of certain of the mining
terms used in this prospectus and in the documents incorporated
by reference in this prospectus.
i
The
Company
Overview
We are a mining company and have been engaged in the business of
exploration and development of mining projects since 1956. We
are presently focusing our management and financial resources on
our most significant asset, the Brisas gold and copper project
(Brisas), located in Bolivar State, Venezuela.
We acquired Brisas in 1992 and since then we have expended over
$100 million on the property. Brisas is one of the largest
undeveloped gold and copper deposits in the world, as measured
by its proven and probable reserves of 10.4 million ounces of
gold and 1.3 billion pounds of copper. We believe Brisas has
many competitive strengths, including:
Attractive production profile Upon
start-up, currently expected in 2010, Brisas is expected to
yield average annual production of 456,000 ounces of gold and 60
million pounds of copper over an estimated mine life of 18.5
years.
Low cost production Cash operating
costs are currently anticipated to be in the lower quartile of
the worldwide gold industry cost curve. Brisas benefits from
access to low-cost energy in Venezuela and also from by-product
credits related to copper production. Cash operating costs are
estimated at $126 per ounce of gold, net of copper credits at
$1.80 per pound of copper. Cash operating costs at Brisas are
highly leveraged to copper, and at current copper prices Brisas
would have negative cash operating costs per ounce of gold
produced.
Pre-existing infrastructure Brisas is
located approximately three kilometers from a paved highway, a
400 kilovolt transmission line and a power substation.
Additionally, the nearby industrial center of Puerto Ordaz has a
seagoing port, and is accessible by highway.
Attractive geography/geology Brisas is
located within a tropical climate zone, near sea level and has
relatively flat topography. Large, disseminated mineralization
is conducive to a low-cost, bulk mining method (conventional
open-pit mining and flotation processing using large-scale
equipment).
Advanced level of permitting In early
2007, the Ministry of Environment (the
MINAMB)
accepted the Brisas Environmental and Social Impact Study for
the Construction of Infrastructure and for the Exploitation and
Processing of Gold and Copper Ore (ESIA), which is
the basis for the issuance of all MINAMB permits and
authorizations that we require to ultimately exploit the gold
and copper mineralization at Brisas. On March 27, 2007, the
MINAMB issued to us the Authorization for the Affectation of
Natural Resources for the Construction of the Infrastructure and
Services Phase of Brisas which allows us to commence certain
infrastructure and construction activities at or near the mine
site.
Established position in Venezuela with successful track
record We have been present in Venezuela for
approximately 15 years and maintain a constructive relationship
with the relevant regulatory authorities in the country.
ii
Properties
The following description summarizes selected information about
Brisas, as well as our Choco 5 exploration property. Please
refer to the our annual information form for the fiscal year
ended December 31, 2006, which is incorporated by reference
in this prospectus, for a further description of our properties.
Brisas
Our primary mining asset, Brisas, is located in the State of
Bolivar in south-eastern Venezuela. Brisas is approximately
373 kilometers (230 miles), by paved highway, from
Puerto Ordaz. The mine site is three kilometers from the highway
and accessible by an all-weather road.
The principal component of Brisas is a 500-hectare land parcel
consisting of the Brisas alluvial concession and the Brisas
hardrock concession beneath the alluvial concession. Together
these concessions contain substantially all of the
mineralization identified in the Brisas Report,as defined below.
Brisas also includes a number of other concessions,
Corporación Venezolana de Guayana (CVG) work
contracts and pending applications for land use authorizations
and easements relating to as much as 11,000 hectares of land
parcels adjacent to or near the existing Brisas concessions.
The predecessor to the Ministry of Basic Industries and Mining
(the MIBAM) approved the Brisas operating plan
during 2003. Approval of the operating plan by the MIBAM was a
prerequisite for submitting the ESIA to the MINAMB.
Our ESIA was submitted to the MINAMB during July 2005. In early
2007 the MINAMB accepted the ESIA, which is the basis for the
issuance of all MINAMB permits and authorizations that we
iii
require to ultimately exploit the gold and copper mineralization
at Brisas, and on March 27, 2007 issued the Authorization
for the Affectation of Natural Resources for the Construction of
Infrastructure and Services Phase of Brisas.
While the issuance of the Authorization for the Affectation of
Natural Resources for the Construction of Infrastructure and
Services Phase of Brisas does not permit us to exploit the gold
and copper mineralization at Brisas at this time, this permit
allows us to commence certain infrastructure work detailed
below, including various construction activities at or near the
mine site.
We expect to proceed with initial construction activities at
Brisas shortly after the completion of this offering. The
activities will include mobilization of SNC-Lavalin, our
Engineering Procurement and Construction Management
(EPCM) contractor, pit dewatering, construction of a
man-camp and office complex, clearing and earthworks for the
mill site, and construction of a tailings management facility
footprint, eight sedimentation ponds, a power-line corridor, a
5.7 km conveyor belt and service road corridor, lay down
areas, a rock quarry, a sanitary fill and all other related mine
site preparation works. In addition we will continue key
activities related to the detailed engineering and the pursuit
of additional authorizations and permits. The timeline for the
activities covered by the recently approved permit is estimated
to be
14-16 months
at an estimated cost of approximately $100 million.
We are currently working with the MINAMB on an environmental and
social evaluation related to the collective environmental impact
of Brisas and surrounding mining and infrastructure projects.
During this assessment period and upon the completion of the
evaluation, we expect to receive additional permits or
authorizations from the MINAMB that relate to additional
infrastructure approval and the approval of the exploitation
phase. We also continue to pursue additional permits and
authorizations from various local, state and federal agencies.
We anticipate an overall 30 month construction period for
Brisas and, assuming we receive the required exploitation
permits and appropriate authorizations, we expect commissioning
and achievement of commercial production shortly thereafter. Our
current estimate of the capital cost for Brisas is
$638 million over the remaining construction period. Our
current capital cost estimate excludes value added taxes and
import duties, which we expect will be refundable, but could
total as much as $50 million.
Project debt
financing
In November 2006, we appointed Corporación Andina de
Fomento, Export Development Canada, UniCredit Group and WestLB
AG as mandated lead arrangers to arrange up to $425 million
of project debt for Brisas. Any future project debt funding is,
among other things, subject to satisfactory due diligence
findings, sufficient equity capital being raised for Brisas,
market conditions, final credit committee approval and other
conditions precedent.
Brisas
Report
In February 2005, we, together with independent consultants,
completed the Brisas Project Bankable Feasibility Study. In
November 2006, Pincock, Allen & Holt (PAH)
updated the mineral resource and reserve estimate and prepared a
43-101 report (the Brisas Report) for Brisas, which
is summarized below.
iv
The Brisas operating plan assumes a large open-pit mine
containing proven and probable reserves of approximately
10.4 million ounces of gold and 1.3 billion pounds of
copper contained in 485 million tonnes of ore grading 0.67
grams of gold per tonne and 0.13% copper, at a revenue cutoff
grade of $3.04 per tonne for hard rock and $3.24 per tonne for
saprolite. Mineral reserves were estimated within a final pit
design based on $400 per ounce of gold and $1.15 per pound
of copper.
The Brisas Report anticipates that Brisas, at full production
levels, utilizing conventional truck and shovel mining methods
and processing ore at 70,000 tonnes per day, would yield an
average annual production of 456,000 ounces of gold and
60 million pounds of copper over an estimated mine life of
approximately 18.5 years.
For purposes of economic analysis, the base case economic model
utilized an average price of $470 per ounce of gold and
$1.80 per pound of copper resulting in $126 per ounce of gold
cash operating costs net of copper credits and excluding
production taxes.
The Brisas Report included the following updated sensitivity
analysis:
Economic
EvaluationBase Case and Price Sensitivity (Metal prices
move together)
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Metal
prices
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Pre-tax
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Net
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Net
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Cash
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present
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present
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Gold
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Copper
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cost
per
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Internal
rate
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value
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value
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Payback
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($/oz)
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($/lb)
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Au
oz(1)
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of
return
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at 0%
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at 5%
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(years)(2)
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($
millions)
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$570
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$
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2.80
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$
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24
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25.8%
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$
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3,756
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$
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1,812
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4.3
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520
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2.30
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82
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20.9%
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2,833
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1,298
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5.2
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470
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1.80
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142
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15.4%
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1,909
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783
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6.7
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420
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1.30
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194
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9.5%
|
|
|
1,043
|
|
|
303
|
|
|
10.2
|
|
|
|
|
(1)
|
|
Net of copper by-product credit and
includes production taxes.
|
|
(2)
|
|
Payback (years) relates to recovery
of equity invested as the financial model has been prepared on
an after tax, un-leveraged equity only basis
|
Brisas mineral
reserve as at November 2006
Brisas is estimated to contain a proven and probable mineral
reserve of approximately 10.4 million ounces of gold and
1.3 billion pounds of copper. The estimated proven and
probable mineral reserve utilizing traditional flotation and
off-site smelter processes is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
|
|
Au
|
|
Cu
|
|
|
|
|
|
Waste
|
|
Total
|
|
|
|
|
tonnes
|
|
Grade
|
|
Grade
|
|
Au oz.
|
|
Cu lb.
|
|
tonnes
|
|
tonnes
|
|
Strip
|
Class
|
|
(millions)
|
|
(gpt)
|
|
(%)
|
|
(thousands)
|
|
(millions)
|
|
(millions)
|
|
(millions)
|
|
Ratio
|
|
|
Proven
|
|
|
226.3
|
|
|
0.69
|
|
|
0.12
|
|
|
5,032
|
|
|
601
|
|
|
|
|
|
|
|
|
|
Probable
|
|
|
258.4
|
|
|
0.64
|
|
|
0.13
|
|
|
5,357
|
|
|
737
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
484.7
|
|
|
0.67
|
|
|
0.13
|
|
|
10,389
|
|
|
1,338
|
|
|
952.3
|
|
|
1,437.0
|
|
|
1.96
|
|
v
The mineral reserve (within a pit design) has been estimated
using average recovery rates for gold and copper of
approximately 83% and 87% respectively, metal prices of $400 per
ounce gold and $1.15 per pound copper and an internal revenue
cut-off of $3.04 per tonne for hard rock and $3.24 per tonne for
saprolite.
Brisas mineral resource estimate as at November 2006
The estimated measured and indicated mineral resource utilizing
an off-site smelter process is summarized in the following table
and includes the mineral reserve estimate shown above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured
|
|
Indicated
|
|
Measured and
Indicated
|
|
|
|
|
|
|
|
Au
Eq Cut-off Grade
|
|
Au
|
|
Cu
|
|
Au
|
|
Cu
|
|
Au
|
|
Cu
|
(In
millions)
|
|
(oz)
|
|
(lb)
|
|
(oz)
|
|
(lb)
|
|
(oz)
|
|
(lb)
|
|
|
0.40
|
|
|
5.527
|
|
|
657
|
|
|
6.621
|
|
|
927
|
|
|
12.148
|
|
|
1,584
|
|
The mineral resource and gold equivalent (AuEq) cut-off is based
on $400 per gold ounce and $1.15 per pound copper. The
inferred mineral resource, based on an off-site smelter process
(0.4 gram per tonne gold equivalent cutoff), is estimated
at 114.9 million tonnes containing 0.590 grams gold per
tonne and 0.12 percent copper, or 2.18 million ounces
of gold and 294 million pounds of copper.
The Choco 5
property
The Choco 5 property is an early stage gold exploration property
located in the El Callao mining district in southeastern
Venezuela. Several mining companies are active in the area and
adjacent to the property is a producing gold mine owned and
operated by Gold Fields Limited. The Choco 5 property has
substantially the same regional infrastructure as Brisas, being
the same highway system and regional and local services and is
5,000 hectares in land size. Choco 5 is not currently a material
property for purposes of
NI 43-101.
Corporate offices
and registered agent
Our registered agent is Austring, Fendrick, Fairman &
Parkkari, The Drury Building, 3801 Third Avenue, Whitehorse,
Yukon Y1A 4Z7. Telephone and fax numbers for our registered
office are
(867) 668-4405
and
(867) 668-3710,
respectively. Our Brisas corporate administrative office is
located at 926 West Sprague Avenue, Suite 200, Spokane,
Washington 99201. Our Venezuelan administrative and technical
offices are located in Caracas and Puerto Ordaz, Venezuela. The
telephone and fax numbers for our administrative office located
in Spokane, Washington are
(509) 623-1500
and
(509) 623-1634,
respectively. We also maintain technical staff in Toronto,
Canada and Denver, Colorado.
vi
The
offering
The following summary contains basic information about the notes
and is not intended to be complete. It does not contain all the
information that is or could be important to you. For a more
complete understanding of the notes, please refer to the
sections of this prospectus entitled Description of
notes and Description of share capital. Unless
otherwise indicated, the information in this prospectus assumes
that the underwriters do not exercise their option to purchase
additional notes.
|
|
|
Issuer |
|
Gold Reserve Inc. |
|
Notes offered |
|
$75,000,000 (or $86,250,000 aggregate principal amount if
the underwriters exercise their over-allotment option in full)
aggregate principal amount of % Senior Subordinated
Convertible Notes due June 15, 2022. |
|
Maturity date |
|
June 15, 2022. |
|
Interest |
|
%. Interest on the notes will
accrue from May , 2007. Interest will be
payable semiannually in arrears on June 15 and
December 15 of each year, beginning December 15, 2007. |
|
Conversion rights |
|
Holders may convert their notes into common shares at the
applicable conversion rate, prior to the close of business on
the business day immediately preceding the maturity date, in
multiples of $1,000 principal amount. |
|
|
|
The initial conversion rate for the notes
is common
shares per $1,000 principal amount of notes (equal to a
conversion price of approximately
$ per share), subject to
adjustment. |
|
|
|
Upon conversion, we will have the option to deliver cash, common
shares or a combination of cash and common shares. |
|
|
|
In addition, following certain corporate transactions that occur
prior to maturity, we will increase the conversion rate for a
holder who elects to convert its notes in connection with such
corporate transactions by a number of additional common shares
as described under Description of notesConversion
rightsAdjustments to shares delivered upon conversion upon
certain fundamental changes. |
|
|
|
You will not receive any additional cash payment or additional
shares representing accrued and unpaid interest and additional
interest, if any, upon conversion of a note, except in limited
circumstances. Instead, interest will be deemed paid by the
common shares and cash, if any, issued to you upon conversion. |
|
Fundamental change |
|
If we undergo a fundamental change as defined in this
prospectus, we will be required to offer to purchase all of the
outstanding notes at a price equal to 100% of the principal
amount of the notes to be purchased plus any accrued and unpaid
interest to, but excluding, the fundamental change repurchase
date, subject to certain |
vii
|
|
|
|
|
exceptions. We may choose to pay cash, common shares or a
combination of cash and common shares for all notes so
repurchased. |
|
Purchase of the notes by us at the option of the holder |
|
You have the right to require us to purchase all or a portion of
your notes on June 15, 2012 at a repurchase price equal to
100% of the principal amount of the notes to be repurchased,
plus accrued and unpaid interest to, but excluding, June 15,
2012. We may choose to pay cash, common shares or a combination
of cash and common shares for all notes so repurchased. |
|
Optional redemption |
|
At any time on or after June 16, 2010, until June 15,
2012, we may redeem the notes, in whole or in part, for cash at
a price equal to 100% of the principal amount being redeemed
plus accrued and unpaid interest to, but excluding, the
redemption date, if the closing sale price of our common shares
is equal to or greater than 150% of the applicable conversion
price then in effect for at least 20 trading days in the period
of 30 consecutive trading days ending on the trading day prior
to the date of mailing of the notice of redemption. Beginning on
June 16, 2012, we may redeem for cash all or a portion of
the notes at a price equal to 100% of the principal amount being
redeemed, plus accrued and unpaid interest to, but excluding,
the redemption date. |
|
Redemption for tax reasons |
|
In the event of certain changes to the laws governing Canadian
withholding taxes, we will have the option to redeem, in whole
but not in part, the notes for a purchase price equal to 100% of
the principal amount of the notes to be purchased plus any
accrued and unpaid interest to, but excluding, the repurchase
date but without reduction for applicable Canadian taxes (except
in respect of certain excluded holders). Upon our giving a
notice of redemption, a holder may elect not to have its notes
redeemed, in which case such holder would not be entitled to
receive the additional amounts referred to in
Additional amounts below after the redemption
date. |
|
Additional amounts |
|
All payments made by us with respect to the notes will be made
without withholding or deduction for Canadian taxes unless we
are legally required to do so, in which case we will pay such
additional amounts as may be necessary so that the net amount
received by holders of the notes (other than certain excluded
holders) after such withholding or deduction will not be less
than the amount that would have been received in the absence of
such withholding or deduction. |
|
Events of default |
|
If there is an event of default under the notes, the principal
amount of the notes, plus accrued and unpaid interest, if any,
may be declared immediately due and payable. These amounts
automatically become due and payable if an event of default
relating to certain events of bankruptcy, insolvency or
reorganization occurs. |
viii
|
|
|
Ranking |
|
The notes will be unsecured obligations and will rank
(1) subordinate in right of payment to future
unsubordinated indebtedness for the construction and development
of Brisas, and will be effectively subordinate to the extent of
the collateral securing such indebtedness, (2) subordinate
to senior secured bank indebtedness in right of payment, and
will be effectively subordinate to the extent of the collateral
securing such indebtedness, (3) subordinate in right of
payment to any guarantee of the indebtedness described in
(1) or (2) by us or any of our subsidiaries for the
period that the guarantee is in effect, (4) equal in right
of payment to any of our other existing and future unsecured and
unsubordinated indebtedness, and (5) senior in right of
payment to all of our future subordinated debt. However, the
notes will be effectively subordinated to all future secured
debt to the extent of the security on such other indebtedness
and to all existing and future obligations of our subsidiaries.
As of December 31, 2006, we had no outstanding long-term
indebtedness and our subsidiaries had no outstanding
indebtedness, other than intercompany indebtedness and trade
payables. |
|
Concurrent offering |
|
Concurrently with this offering, we are offering to the public
16,000,000 of our common shares (18,400,000 common shares if the
underwriters exercise their over-allotment option in full).
Neither this offering, nor the common share offering, is
contingent on the completion of the other. See Concurrent
offering. |
|
Use of proceeds |
|
We estimate that the net proceeds from this offering will be
approximately $71.0 million (or approximately
$81.8 million if the underwriters exercise their
over-allotment option in full), after deducting underwriting
fees and estimated expenses. We estimate that the net proceeds
from the concurrent common share offering will be approximately
$108.1 million (or approximately $124.4 million if the
underwriters exercise their over-allotment option in full),
after deducting underwriting fees. We intend to use the net
proceeds of this offering and the concurrent offering to fund
construction activities, equipment purchases and ongoing
development of Brisas. |
|
Book-entry form |
|
The notes will be issued in book-entry form and will be
represented by permanent global certificates deposited with, or
on behalf of, The Depository Trust Company, or DTC, and
registered in the name of a nominee of DTC. Beneficial interests
in any of the notes will be shown on, and transfers will be
effected only through, records maintained by DTC or its nominee
and any such interest may not be exchanged for certificated
securities, except in limited circumstances. |
ix
|
|
|
American Stock Exchange and Toronto Stock Exchange symbol for
our common shares |
|
The notes will not be listed on any securities exchange. Our
common shares are listed on the American Stock Exchange and on
the Toronto Stock Exchange under the symbol GRZ. |
|
U.S. and Canadian federal income tax considerations |
|
The notes and common shares issuable upon conversion of the
notes will be subject to special and complex tax rules. Holders
are urged to consult their own tax advisors with respect to the
U.S. and Canadian federal, state, provincial, local and foreign
tax consequences of purchasing, owning and disposing of the
notes and the common shares issuable upon conversion of the
notes. See Income tax considerations. |
|
|
|
Potential investors that are U.S. taxpayers should be aware
that we believe we are currently a passive foreign
investment company, or PFIC, and we expect to be a PFIC
for all taxable years prior to the time Brisas begins
production. For more information on tax considerations related
to our PFIC status see Income tax considerations
U.S. federal income tax considerations. |
|
Risk factors |
|
See Risk factors in this prospectus for a discussion
of factors you should carefully consider before deciding to
invest in the notes. |
x
Risk
factors
Our securities should be considered a speculative investment
involving a high degree of risk due to the nature of our
business. Prospective investors should carefully consider all of
the information disclosed in this prospectus, including all
documents incorporated by reference, prior to making an
investment decision regarding our securities. The following risk
factors, as well as risks not currently known to us, could
materially adversely affect our business, financial condition
and results of operations and could cause actual events to
differ materially from those described in forward-looking
statements relating to us. In that event, the market price of
our securities could decline and an investor could lose all or
part of its investment.
Risks relating to
the Company
Our mining
assets are concentrated in Venezuela and our operations are
subject to inherent local risks.
Our exploration and development activities in Venezuela are
affected by certain factors, including those listed below, some
of which are beyond our control. Any one of these factors could
have a material adverse affect on our financial condition and
results of operations.
Political and
economic environment
All of our mineral properties are located in Venezuela and, as
such, we are subject to political and economic risks, including:
|
|
|
the effects of local political, labor and economic developments,
instability and unrest;
|
|
significant or abrupt changes in the applicable regulatory or
legal climate;
|
|
corruption, requests for improper payments or other actions that
may violate Canadian and U.S. foreign corrupt practices
acts, uncertain legal enforcement and physical security;
|
|
limitations on mineral exports;
|
|
invalidation, confiscation, expropriation or rescission of
permits, authorizations, agreements, property rights or
governmental orders;
|
|
exchange controls and export or sale restrictions;
|
|
currency fluctuations and repatriation restrictions;
|
|
competition with companies from countries that are not subject
to Canadian and U.S. laws and regulations; and
|
|
laws or policies of foreign countries and Canada affecting
trade, investment and taxation.
|
The Venezuelan government has in the past exercised, and
continues to exercise, significant influence over what the
government considers to be strategic Venezuelan industries. For
example, on May 1, 2007, foreign oil companies agreed to
cede operational control of their projects to the Venezuelan
national oil company as demanded by the Venezuelan government.
These actions have created uncertainty about the business
environment in Venezuela for foreign companies. There can be no
assurance that the Venezuelan government will not take similar
measures relating to other sectors of the Venezuelan economy,
including foreign mining operations.
These risks may limit or disrupt any of our operations or result
in the deprivation of contractual rights or the taking of
property by nationalization, expropriation or other means
without fair compensation. We do not currently maintain any
insurance covering losses or obligations related to political
risks and will only do so in the future if it is available on a
cost-effective basis.
1
Required permits
or authorizations for Brisas
We are dependent on Venezuelan regulatory authorities issuing to
us various permits and authorizations relating to Brisas that we
require prior to completing construction of, and subsequently
operating, Brisas. Consistent with other mining projects of this
magnitude and in addition to permits or authorizations that must
be received from the MINAMB, we need to receive a number of
other permits or authorizations from various local, state and
federal agencies.
In early 2007 the MINAMB accepted the ESIA, which is the basis
for the issuance of all MINAMB permits and authorizations that
we require to ultimately exploit the gold and copper
mineralization at Brisas. On March 27, 2007, the MINAMB
issued to us the Authorization for the Affectation of Natural
Resources for the Construction of Infrastructure and Services
Phase of Brisas, which allow us to commence certain
infrastructure and construction activities at or near the mine
site. We can give no assurance that the issuance of additional
local, state and federal permits and authorizations that we
require for Brisas will not be delayed or withheld, or that any
existing rights or approvals already issued or granted to us for
our operations in Venezuela will not be rescinded or otherwise
challenged. The reasons for any such action could relate to a
number of factors noted in this prospectus and in the documents
incorporated by reference in this prospectus, some of which are
outside of our control. As a result, we are unable to provide
any assurance as to if and when the remaining required
Venezuelan permits and authorizations will be issued to us.
Failure to obtain any permit or authorization required for the
construction or operation of Brisas would result in a material
adverse affect on our financial condition and results of
operations.
Government review
of contracts and concessions for compliance
In 2005, the Venezuelan government announced that it intended to
review all foreign investments in non-oil basic industries,
including gold projects. As part of that review, the Venezuelan
government announced that it would be changing the
countrys existing mining title regime to a system where
all new economic interests would be granted in the
form of joint ventures or operating contracts. In order to
effect this change, a new draft mining law was submitted to the
National Assembly which provided, among other things, for the
control of primary mining activities exclusively by the state.
This would occur either directly through a national mining
company or via a joint venture with private entities in which
the state would hold more than 50% of the capital stock of the
joint venture. The Venezuelan government also announced that it
would review existing concessions and contracts to determine if
the holder was in compliance with the existing terms and
conditions of such concessions and contracts and whether the
holder was entitled to continue their original work under the
original terms and conditions and qualify under the new regime.
Although we believe that all of our properties are in compliance
with applicable regulations, the formal public announcement of
the results of the compliance review has not been made and it is
unclear when such formal public announcement will take place or
whether the final policy when announced will be consistent with
prior public statements. In addition, the draft mining law has
yet to be enacted and implemented. Although we believe the draft
law does not propose to extinguish pre-existing mining
concessions that are in compliance with and granted under
previous mining legislation, such as those held by us, it is
unclear what provisions the final law will contain, if or when
they will be enacted, or how those final provisions will impact
our operations in Venezuela in the future. Among other things,
this law when enacted
2
may adversely affect our ability to renew, or otherwise render
unenforceable the renewal clauses contained in, any or all of
our mining concessions. If the renewal of any of our significant
concessions relating to Brisas is denied, this would have a
material adverse effect on us. Until the draft law is finalized
and enacted, the previous mining legislation remains in force.
We cannot provide any assurance that the creation of a state
mining company will not materially adversely affect our ability
to develop and operate our Venezuelan properties (including our
ability to renew our mining concessions) or that we will not be
required to enter into a joint-venture that is controlled by the
Venezuelan government in order to develop and operate Brisas.
Currency and
exchange controls
In 2003, the Central Bank of Venezuela (BCV) enacted
exchange control regulations as a measure to protect
international reserves. Since March 2005, the official exchange
rate has been set at approximately 2,150 Venezuelan Bolivars per
U.S. dollar. The Venezuelan government has also introduced
regulations concerning exports from Venezuela, which currently
require all goods and services to be invoiced in the currency of
the country of destination or in U.S. dollars. Although
these regulations have not to date adversely affected our
operations as we primarily transfer funds into Venezuela for our
operations, this will change in the future to the extent that we
begin producing and exporting gold and copper from Venezuela. We
are unable to predict at this time the future impact, if any,
that these currency and exchange controls will have on our
future operations. Both future fluctuations of the Venezuelan
Bolivar against the U.S. dollar as well as exchange
controls could negatively impact our financial condition.
The BCV allows gold mining companies to sell up to 85% of their
production on the international market. The remaining 15% may be
required by the government to be sold domestically at the
current market price, which is paid in Venezuelan currency. Gold
sold domestically to BCV is assessed a maximum tax of 1% of the
value of gold as compared to the amount stated in the mining
law. At this time there is no requirement to sell copper
domestically but we cannot be sure that the government will not
require domestic sales of copper in the future.
Unauthorized
small miners
Although we are not aware of any unauthorized small miners
currently located on Brisas, a significant number of
unauthorized small miners have from time to time occupied
various properties near or adjacent to Brisas. The methods used
by the small miners to extract gold from surface material are
typically environmentally unsound and in general their presence
can be disruptive to the rational development of a mining
project such as Brisas. Notwithstanding that we maintain a
security presence and have implemented other procedures to
mitigate the risk that the small miners might try to occupy
Brisas, we can give no assurances that such activities will not
occur in the future.
Imataca forest
reserve
Brisas is located within the boundaries of the 3.75 million
hectare Imataca Forest Reserve (the Imataca Forest)
in an area presently approved by Presidential Decree for mining
activities. On September 22, 2004, after public
consultation, Presidential Decree 3110 was published in the
Official Gazette identifying approximately 12% of the Imataca
Forest in south-eastern Venezuela to be used for mining
activities. Decree 3110 was issued in response to legal
challenges to prior Presidential Decree 1850, which opened an
even larger part of the Imataca Forest to mining and
3
other activities and which had become subject to a legal
challenge before the Venezuelan Supreme Court. In 1997, the
Venezuelan Supreme Court issued a cautionary pronouncement as an
interim measure pending a final ruling ordering the MIBAM to
abstain from granting concessions, authorization or other acts
relating to mining exploration or exploitation in the Imataca
Forest.
We have been advised that the legal proceeding before the
Venezuelan Supreme Court became moot upon the issuance of Decree
3110. Although since the issuance of Decree 3110, the MIBAM has,
on a selective basis, issued concessions, authorizations and
other acts relating to mining exploration or exploitation in the
Imataca Forest, we can give no assurances, given that the legal
proceeding has not been formally terminated in the Venezuelan
Supreme Court, that the MIBAM will, in the future, issue permits
or authorizations required to complete construction of, and
subsequently operate, Brisas.
Venezuelan
environmental laws and regulations
Venezuela maintains environmental laws and regulations for the
mining industry that impose specific obligations on companies
doing business in the country. The MINAMB, which administers
Venezuelan environmental laws and regulations, proscribes
certain mining recovery methods deemed harmful to the
environment and monitors mining activities to ensure compliance.
Venezuelas environmental legislation provides for the
submission and approval of environmental impact statements for
certain operations and provides for restrictions and
prohibitions on spills, releases or emissions of various
substances produced in association with certain mining industry
operations, such as seepage from tailings disposal areas, which
could result in environmental pollution. A breach of current or
future environmental legislation may result in the imposition of
fines and penalties or the suspension or closure of any future
operations, the extent of which cannot be predicted. Insurance
covering losses or obligations related to environmental
liabilities is not maintained and will only be maintained in the
future if available on a cost-effective basis. Although we
believe that we have adopted a high standard of environmental
compliance, failure to comply with or unanticipated changes in
such laws and regulations in the future could have a material
adverse impact on our financial condition and results of
operations.
Challenges to
mineral property titles or contract rights
Acquisition of title or contract rights to mineral properties is
a very detailed and time-consuming process under Venezuelan law.
Mining properties sometimes contain claims or transfer histories
that examiners cannot verify, and transfers can often be
complex. From 1992 to late 1994 we were involved in a lawsuit
relating to the ownership of Brisas. We successfully defended
our ownership rights in the Venezuelan courts and subsequently
settled the lawsuit for a substantial sum. Although we believe
that we have the necessary title and rights to all of the
properties for which we hold concessions or other contracts and
leases, we cannot be certain that someone will not challenge or
impugn title or contract rights to such properties in the future
or whether such challenges will be by third parties or a
government agency. We do not carry title insurance with respect
to our mineral properties. A claim that we do not have title or
contract rights to a property could have an adverse impact on
our business in the short-term, and a successful claim that we
do not have title or contract rights to a property could cause
us to lose our rights to build infrastructure on or mine that
property, perhaps without compensation for our prior
expenditures relating to that property.
4
In addition to the Brisas alluvial and hardrock concessions, we
have also applied to the appropriate government agencies for
various contracts, land use agreements and easements allowing
the use of certain land parcels contiguous to and nearby Brisas
for operational and infrastructure needs. Although these
applications were contained in an operating plan that has
already been approved by the appropriate regulatory agencies, we
can give no assurances when such applications will be approved,
if ever.
Compliance with
other laws and regulations
In addition to being subject to environmental laws and
regulations, our activities are subject to extensive laws and
regulations governing health and worker safety, employment
standards, waste disposal, protection of historic and
archaeological sites, explosives, mine development and
protection of endangered and protected species and other
matters. We are required to have a wide variety of permits from
governmental and regulatory authorities to carry out our
activities. Obtaining the necessary permits is critical to our
business.
Obtaining and maintaining permits is a complex, time consuming
process and, as a result, we cannot assess whether necessary
permits will be obtained or maintained on acceptable terms, in a
timely manner or at all. The failure of the Venezuelan
government to approve the required permits or authorizations
could have a material adverse impact on our future operating
results. Any failure to comply with applicable laws and
regulations or the failure to obtain or maintain permits or
authorizations, even if inadvertent, could result in the
interruption of our operations or civil or criminal fines or
penalties or enforcement actions, including orders issued by
authorities enjoining or curtailing operations or requiring
corrective measures, any of which could result in us incurring
significant expenditures.
Our future
results depend on Brisas.
We depend on a single project, Brisas, which is a development
stage project and which may never be developed into a
commercially viable ore body. Any adverse event affecting
Brisas, or our ability to finance
and/or
construct and operate this project, would have a material
adverse impact on our financial condition and results of
operations.
We do not
currently, and may never, have sufficient funds to develop our
mineral properties, including Brisas.
We have limited financial resources. As of April 30, 2007,
we had approximately $21 million in cash and investments.
We currently do not generate revenue from operations and have
historically financed operating activities primarily from the
sale of common shares or other equity securities. In the
near-term, we believe that cash and investment balances are
sufficient to enable us to fund our construction activities into
2008 (excluding any substantial Brisas construction activities).
The completion of, and the amount of the proceeds raised in,
this offering and the concurrent offering will directly affect
our ability to carry out our plans for further development of
Brisas. Specifically, if we do not successfully complete both
this offering and the concurrent offering, or if we receive less
than the total amount of proceeds we seek to raise in this
offering or the concurrent offering, we may not have sufficient
funding to carry out all of the planned purchases and
development regardless of whether we receive any additional
required permits or authorizations that would otherwise allow us
to proceed with additional development or, ultimately,
exploitation. See Use of proceeds. We cannot provide
any assurance that we will be able to complete this offering or
the concurrent offering or, if
5
completed, whether we will raise the total amount contemplated.
We also believe that, in addition to the proceeds we are seeking
to raise through this offering and the concurrent offering, we
will need additional funding to complete construction of and
begin mining, Brisas. We cannot provide any assurance that we
will be able to obtain the additional funding that will be
needed to construct Brisas on acceptable terms, or at all. If
sufficient financing is not available, we will be unable to
complete construction and begin operating Brisas.
Actual capital
costs, operating costs, production and economic returns may
differ significantly from those we have anticipated and there
are no assurances that our development activities will result in
profitable mining operations.
The Brisas Report contemplates an overall capital expenditure
relating to Brisas of approximately $638 million, excluding
value added taxes and import duties which could total as much as
$50 million. Although we are in the process of preparing
applications for tax exonerations or payment holidays for
certain taxes which are provided for by law, including value
added tax and import duty tax on the initial capital costs,
there can be no assurances that those exonerations and payment
holidays will be obtained. This would result in an increase in
the initial capital required to place Brisas into production.
Although actual costs will not be known until firm equipment
orders are placed with suppliers, due to the passage of time and
increases in the cost of certain mine equipment and components
of the milling facility, we expect overall capital expenditures
relating to Brisas to increase.
The Brisas Report was completed to update the economic viability
of the Brisas mineralized deposit. Many factors are involved in
the determination of the economic viability of mining a
mineralized deposit, including the delineation of satisfactory
mineral reserve estimates, the level of estimated metallurgical
recoveries, capital and operating cost estimates, construction,
operation, permit and environmental requirements, and the
estimate of future gold and copper prices. In particular, recent
increases in gold prices have led to increases in mining
exploration, development and construction activities, which have
resulted in increased demand for, and cost of, exploration,
development and construction services, personnel and equipment.
This could cause our project costs to increase materially and
result in delays if services, personnel or equipment cannot be
obtained in a timely manner. In addition, we may experience
potential scheduling difficulties and cost increases to the
extent that we need to coordinate the availability of services,
personnel or equipment. Capital and operating cost estimates are
based upon many factors, including anticipated tonnage and
grades of ore to be mined and processed, the configuration of
the ore body, ground and mining conditions and anticipated
environmental and regulatory compliance costs and continued low
energy costs. Each of these factors involves uncertainties and
the making of assumptions and, as a result, we cannot give any
assurance that the Brisas Report will prove accurate with
respect to construction and development of Brisas or that any
key finding or underlying assumption will not prove to be
inaccurate for reasons outside of our control, including changes
in costs as a result of the passage of time between the
completion of the Brisas Report and the date any construction
commences. It is not unusual in new mining operations to
experience unexpected problems during development. As a result,
the actual cost and time of placing Brisas into production could
differ significantly from estimates contained in Brisas Report.
Likewise, should Brisas be developed, actual operating results
may differ from those originally anticipated.
6
There are
differences in U.S. and Canadian practices for reporting
reserves and resources.
Our reserve and resource estimates are not directly comparable
to those made by companies subject to SEC reporting and
disclosure requirements, as we generally report reserves and
resources in accordance with Canadian practices. These practices
are different from the practices used to report reserve and
resource estimates in reports and other materials filed with the
SEC. It is Canadian accepted practice to report measured,
indicated and inferred resources, which are not permitted in
disclosure filed with the SEC by United States domestic issuers.
In the United States, mineralization may not be classified as a
reserve unless the determination has been made that
the mineralization could be economically and legally produced or
extracted at the time the reserve determination is made.
Prospective United States investors are cautioned not to assume
that all or any part of measured or indicated resources will
ever be converted into reserves. Further, inferred
resources have a great amount of uncertainty as to their
existence and as to whether they can be mined legally or
economically. Disclosure of contained ounces is
permitted disclosure under Canadian securities laws; however,
the SEC only permits issuers to report resources as
in place tonnage and grade without reference to unit measures.
Accordingly, information concerning descriptions of
mineralization, reserves and resources contained in this
prospectus may not be comparable to information made public by
domestic United States companies subject to the reporting and
disclosure requirements of the SEC. See Cautionary note to
United States investors.
Actual
mineralization may vary from current estimates in the
future.
Unless otherwise indicated, mineralization figures presented in
this prospectus and in our filings with securities regulatory
authorities, press releases and other public statements that may
be made from time to time are based upon estimates made by
independent geologists and our internal geologists. When making
determinations about whether to advance any of our projects to
development, we must rely upon such estimated calculations as to
the mineral reserves and grades of mineralization on our
properties. Until ore is actually mined and processed, mineral
reserves and grades of mineralization must be considered only as
estimates. These estimates are imprecise and depend upon
geological interpretation and statistical inferences drawn from
drilling and sampling analysis that may prove to be unreliable.
These estimates may require adjustments or downward revisions
based upon actual production experience. In addition, due to
geologic variations within areas mined, the grade of ore
ultimately mined, if any, may differ from that indicated by the
Brisas Report and drill results. There can be no assurance that
minerals recovered in small-scale tests will be duplicated in
large scale tests under
on-site
conditions or in production scale. Actual quality and
characteristics of deposits cannot be fully assessed until
mineralization is actually mined and, as a result, mineral
reserves may change over time to reflect actual experience.
The resource estimates contained in this prospectus have been
determined and valued based on assumed future prices, cut-off
grades and operating costs that may prove to be inaccurate.
Extended declines in market prices for gold or copper may render
portions of our mineralization uneconomic and result in reduced
reported mineralization or may adversely affect the commercial
viability of Brisas or our other properties. Any material
reductions in estimates of mineralization, or of our ability to
extract this mineralization, could have a material adverse
effect on our financial condition and results of operations.
7
Risks inherent
in the mining industry could have a significant impact on our
future operations.
Gold and copper projects are subject to all of the risks
inherent in the mining industry, including:
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environmental hazards;
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industrial accidents;
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fires, flooding and high-wall failure;
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inability to obtain suitable or adequate machinery, equipment or
labor;
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unusual or unexpected geologic formations; and
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periodic interruptions due to inclement or hazardous weather
conditions.
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These risks could result in damage to, or destruction of,
mineral properties and production facilities, personal injury,
environmental damage, delays, monetary losses and legal
liability. Insurance covering such catastrophic liabilities is
not maintained and will only be maintained in the future if
available on a cost-effective basis.
Operating
losses are expected to continue until we construct an operating
mine.
We have experienced losses from operations for each of the last
five years as the result of, among other factors, expenditures
associated with corporate activities on Brisas, as well as other
unrelated non-property expenses that are recorded in our
consolidated statement of operations. We expect this trend to
continue until sometime after Brisas is operational. In
addition, such losses may increase after this offering if we
obtain additional financing and begin substantial construction
of Brisas. Although this trend is expected to reverse if and
when gold and copper are produced at Brisas in commercial
quantities at prices equal to or in excess of the prices assumed
in Brisas Report, we can give no assurances that this trend will
ultimately be reversed as a result of any operations at Brisas.
We may incur
costs in connection with future reclamation activities that may
have a material adverse effect on our earnings and financial
condition.
We are required to obtain government approval of our plan to
reclaim Brisas after any minerals have been mined from the site.
The Brisas reclamation plan has been incorporated into the
environmental studies submitted to the MINAMB. Reclaiming Brisas
is expected to take place during and after the active life of
the mine. In accordance with applicable laws, bonds or other
forms of financial assurances have been provided by us to
guarantee compliance with environmental and social measures
designed to mitigate, reduce or eliminate the impact of our
permitted activities for the initial phase of construction. We
will provide additional bonds for the reclamation of the mine.
We may incur costs in connection with these reclamation
activities in excess of such bonds or other financial
assurances, which costs may have a material adverse effect on
our earnings and financial condition. We expect to establish a
reserve for future site closure and mine reclamation costs based
on the estimated costs to comply with existing reclamation
standards. There can be no assurance that our reclamation and
closure accruals will be sufficient or that we will have
sufficient financial resources to fund such reclamation and
closure costs in the future.
8
The volatility
of the price of gold and copper could have a negative impact
upon our current and future operations.
The price of gold and copper has a significant influence on the
market price of our common shares and our business activities.
Fluctuation in gold and copper prices directly affects, among
other things, the overall economic viability of Brisas, our
ability to obtain sufficient financing required to construct
Brisas, including the terms of any such financing, and the
calculation of reserve estimates. The price of gold is affected
by numerous factors beyond our control, such as the level of
inflation, interest rates, fluctuation of the U.S. dollar
and foreign currencies, supply and demand, sale of gold by
central banks and other holders and the political and economic
conditions of major gold producing countries throughout the
world. Copper prices also fluctuate and are generally affected
by global and regional demand and existing inventories. As of
May 4, 2007, the closing price for gold was $688.50 per
ounce and the closing price for copper was $3.76 per pound, in
each case as reported by the London Metal Exchange. The
following table sets forth the average of the daily closing
price for gold and copper for the periods indicated as reported
by the London Metal Exchange:
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Year ended
December 31,
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5
yr. avg.
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2006
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2005
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2004
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2003
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2002
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Gold ($ per ounce)
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$
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426
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$
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603
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$
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445
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$
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410
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$
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363
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$
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310
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Copper ($ per pound)
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$
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1.51
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$
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3.05
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$
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1.67
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$
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1.30
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$
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0.81
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$
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0.71
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Future hedging
activities could negatively impact future operating
results.
We have not entered into forward contracts or other derivative
instruments to sell gold or copper that we may produce in the
future. Although we have no near term plans to enter into such
contracts or derivative instruments, we may do so in the future
if required for project financing. Forward contracts obligate
the holder to sell hedged production at a price set when the
holder enters into the contract, regardless of what the price is
when the product is actually mined. Accordingly, there is a risk
that the price of the product is higher at the time it is mined
than when we enter into the contracts, so that the product must
be sold at a price lower than that which could have been
realized had we not entered into the contract. We may enter into
option contracts for gold and copper to mitigate the effects of
such hedging.
As a foreign
private issuer, we are permitted to file less information with
the SEC than a company incorporated in the United
States.
We are a foreign private issuer under the United States
Securities Exchange Act of 1934, as amended (the
U.S. Exchange Act) and, as a result, are exempt
from certain rules under the U.S. Exchange Act. These rules
include the proxy rules that impose certain disclosure and
procedural requirements for proxy solicitations. In addition, we
are not required to file periodic reports and financial
statements with the SEC as frequently, promptly or in as much
detail as U.S. companies with securities registered under
the U.S. Exchange Act. We are not required to file
financial statements prepared in accordance with U.S. GAAP
(although we are required to reconcile our financial statements
to U.S. GAAP). We are not required to comply with
Regulation FD, which imposes certain restrictions on the
selective disclosure of material information. Moreover, our
officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery provisions of
Section 16 of the U.S. Exchange Act and the rules
under the U.S. Exchange Act with respect to their purchases
and sales of our common shares.
9
We expect to
lose our foreign private issuer status as a result of the
concurrent offering.
We expect to lose our foreign private issuer status as a result
of the concurrent offering. If a majority of our common shares
are not held directly or indirectly by non-residents of the
United States, we will no longer be exempt from the rules and
regulations discussed above and, among other things, we will not
be eligible to use the multijurisdictional disclosure system
adopted by the United States and Canada or other foreign issuer
forms and will be required to file periodic reports, proxy
statements and financial statements as if we were a company
incorporated in the United States. We will also lose the ability
to rely upon exemptions from AMEX corporate governance
requirements that are available to foreign private issuers. The
costs, expenses and burdens incurred in fulfilling these
additional regulatory requirements are expected to be
significant.
Changes in
critical accounting estimates could adversely affect our
financial results.
Our most significant accounting estimate relates to the carrying
value of Brisas, which is more fully discussed in our annual
financial statements and related footnotes, which are
incorporated by reference into this prospectus. Although we
regularly review the net carrying value of our mineral
properties, estimates of mineral prices, recoverable proven and
probable reserves, and operating, capital and reclamation costs
are subject to certain risks and uncertainties that may affect
the recoverability of mineral property costs. Where estimates of
future net cash flows are not available and where other
conditions suggest impairment, we assess if carrying value can
be recovered. Although we have made our best estimate of these
factors as they relate to our mineral properties, it is possible
that changes could occur in the near-term, which could adversely
affect the future net cash flows to be generated from the
properties.
Material
weaknesses relating to our internal controls over financial
reporting could adversely affect our financial results or
condition and share price or the price of the
notes.
While we believe there are no reportable material weaknesses in
our internal controls as defined in Section 404 of the
Sarbanes-Oxley Act of 2002 as of the date of this prospectus,
there can be no assurance that material weaknesses regarding our
internal controls will not be discovered in the future. If so,
this could result in costs to remediate such controls or
inaccuracies in our financial statements. In addition, a
material weakness in internal controls over financial reporting
may result in increased difficulty or expense in transactions
such as financings, and many result in an adverse reaction by
the market generally that would result in a decrease of our
share price or the price of the notes. We must, for our fiscal
year ending December 31, 2007, begin to comply with
additional requirements of Section 404 with which we have
not previously been required to comply. Among other things, this
will require our external auditors to issue an opinion on the
adequacy of managements assessment and their own
assessment of the effectiveness of our internal controls over
financial reporting.
Attracting and
retaining key personnel in the future could have a significant
impact on future operating results.
We are and will be dependent upon the abilities and continued
participation of key management personnel, as well as the
significant number of new personnel that will be necessary to
manage any construction and operation of Brisas. If the services
of our key employees were lost or we are unable to obtain the
new personnel necessary to construct, manage and operate Brisas,
it could have a material adverse effect on future operations.
10
We may
experience difficulties managing our anticipated
growth.
We anticipate that if we construct Brisas and put it into
production, we will experience significant growth in our
operations resulting in increased demands on our management,
internal controls and operating and financial systems. There can
be no assurance that we will successfully meet these demands and
effectively attract and retain additional qualified personnel to
manage our anticipated growth. The failure to manage growth
effectively could have a material adverse impact on our
business, financial condition and results of operations.
Risks related to
the notes
Your right to
receive payments on the notes is subordinated to certain future
indebtedness which may be incurred to finance Brisas or bank
indebtedness.
The indenture governing the notes permits us to incur certain
indebtedness which may be senior to the notes and secured by a
lien on substantially all of our assets, including, but not
limited to, the pledge of all rights, properties, equipment or
all or a portion of the capital stock of certain of our
subsidiaries holding such assets. We expect to incur such
indebtedness under credit facilities entered into for purposes
of financing the construction and development of Brisas, and
expect to secure such indebtedness with substantially all of our
assets related to Brisas. The notes also would be effectively
subordinated to such indebtedness and other secured debt to the
extent of the collateral securing the indebtedness. As a result,
upon any distributions to our creditors in a bankruptcy,
liquidation or reorganization or similar proceeding relating to
us or our property, the lenders of such indebtedness would have
the right to be paid in full before any payment could be made
with respect to the notes. Accordingly, all or a substantial
portion of our assets could be unavailable to satisfy the claims
of the holders of notes.
The notes are
effectively subordinated to all liabilities of our
subsidiaries.
We expect that all or a substantial portion of the indebtedness
we expect to incur to finance the construction and development
of Brisas will be incurred and/or guaranteed by our
subsidiaries. None of our subsidiaries has guaranteed or
otherwise become obligated with respect to the notes.
Accordingly, our right to receive assets from any of our
subsidiaries upon such subsidiarys bankruptcy, liquidation
or reorganization and the right of holders of the notes to
participate in those assets, is effectively subordinated to
claims of that subsidiarys creditors, including trade
creditors.
The ability of our subsidiaries and other interests to pay
dividends and make other payments to us may be restricted by,
among other things, applicable corporate and other laws and
regulations as well as agreements to which our subsidiaries may
become a party.
We expect to
incur substantially more debt and may take other actions which
may affect our ability to satisfy our obligations under the
notes.
We will not be restricted under the terms of the notes or the
indenture from incurring or guaranteeing additional
indebtedness, including secured debt, subject to anti-layering
limitations. In addition, the limited covenants applicable to
the notes do not require us to achieve or maintain any minimum
financial results relating to our financial position or results
of operations. We expect to incur substantial additional
indebtedness in connection with the financing of Brisas, and may
incur other additional substantial debt in the future. In
addition, we expect that such additional indebtedness will
contain covenants that, among other things, restrict our
11
ability to sell assets, incur additional secured indebtedness,
engage in mergers or consolidations and engage in transactions
with affiliates. We expect to also be required to comply with
specified financial ratios and terms. Our ability to
recapitalize, incur additional debt that may contain covenants
and take a number of other actions that are not limited by the
terms of the notes or the indenture could have important
consequences to holders of notes, including:
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impairment of our ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general
purposes and our ability to satisfy our obligations with respect
to the notes;
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dedication of a substantial portion of our cash flow from
operations to payments on our indebtedness, which would reduce
the availability of cash flow to fund our operations, working
capital and capital expenditures; and
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limitation of our flexibility to adjust to changing market
conditions and ability to withstand competitive pressures, and
increased vulnerability to a downturn in general economic
conditions or our business that could impair our ability to
carry out capital spending that is necessary or important to our
business strategy and the development of Brisas.
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In addition, we are not restricted from paying dividends to our
shareholders or repurchasing common shares by the terms of the
notes.
Our ability to
generate the cash needed to pay interest and principal amounts
on the notes and service any other debt depends on many factors,
some of which are beyond our control.
Because we expect to incur substantial indebtedness to finance
the development of Brisas, in order to fund our debt service
obligations we will require significant amounts of cash. Unless
and until production commences at Brisas, or we acquire or
develop other operating properties, cash to meet these
obligations will be sourced from cash on hand or the issuance of
additional equity or debt securities. If we are successful in
commencing production at Brisas, our ability to generate cash
from operations to meet scheduled payments or to refinance our
debt will depend on our financial and operating performance
which, in turn, is subject to the business risks described in
this prospectus, including the risks of operating mining
properties in Venezuela and prevailing economic conditions. Some
of these risks are beyond our control. If our cash flow and
capital resources are insufficient to fund our debt service
obligations, we may be forced to reduce or to delay capital
expenditures, sell assets, seek to obtain additional equity
capital or restructure our debt.
We may not
have the ability to repurchase the notes in cash upon the
occurrence of a fundamental change, or to pay cash upon the
conversion of notes, as required by the indenture.
We will be required to make an offer to repurchase the notes
upon the occurrence of a fundamental change as described under
Description of notes. We may not have sufficient
funds to repurchase the notes in cash or to make the required
repayment at such time or have the ability to arrange necessary
financing on acceptable terms.
A fundamental change may also constitute an event of default or
require prepayment under, or result in the acceleration of the
maturity of, our other indebtedness outstanding at the time. Our
ability to repurchase the notes in cash or make any other
required payments may be limited by law or the terms of other
agreements relating to our indebtedness outstanding at the time.
Our failure to repurchase the notes or pay cash or issue our
common shares in respect of conversions when required would
result in an event of default with respect to the notes.
12
Some
significant restructuring transactions may not constitute a
fundamental change, in which case we would not be obligated to
offer to repurchase the notes.
Upon the occurrence of a fundamental change, we will be required
to make an offer to repurchase the notes. The fundamental change
provisions, however, will not afford protection to holders of
the notes in the event of certain transactions. For example, any
leveraged recapitalization, refinancing, restructuring, or
acquisition initiated by us will generally not constitute a
fundamental change requiring us to make an offer to repurchase
the notes, even though any of these transactions could increase
the amount of our indebtedness, or otherwise adversely affect
our capital structure or any credit ratings, thereby adversely
affecting the holders of the notes.
Upon the
occurrence of a fundamental change and in connection with your
right to require us to repurchase the notes, we may satisfy our
obligations through the issuance of our common
shares.
You may not receive cash for notes you hold in connection with
our offer to repurchase the notes upon the occurrence of a
fundamental change or in connection with your right to require
us to repurchase the notes if we elect to satisfy our
obligations by issuing to you common shares. The number of
common shares we will issue will depend on the market price of
our common shares at the time. Because the value of the common
shares we may issue upon the occurrence of a fundamental change
or in connection with your right to require us to repurchase the
notes will be determined prior to the settlement of the shares,
you will bear the risk that the value of the common shares may
decrease between the time the price is set and settlement.
Upon
conversion of the notes, we will have the option to deliver cash
in lieu of some or all the common shares to be delivered upon
conversion, the amount of cash to be delivered per note being
calculated on the basis of average prices over a specified
period, and you may receive less proceeds than
expected.
Upon conversion of the notes, we will have the option to deliver
cash in lieu of some or all the common shares to be delivered
upon conversion. As described below under Description of
notesConversion rights, the amount of cash to be
delivered per note will be equal to the number of common shares
in respect of which the cash payment is being made multiplied by
the average of the daily volume-weighted average price of the
common shares on the corresponding Bloomberg screen for the 10
trading days commencing one day after the date of our notice of
election to deliver all or part of the conversion consideration
in cash if we have not given notice of redemption or the
conversion date, in the case of conversion following notice of
redemption specifying our intention to deliver cash upon
conversion. Accordingly, upon conversion of a note, holders
might not receive any common shares and, if the above-referred
prices decline over the
10-day
period, they might receive less proceeds than expected. Our
failure to convert the notes into cash or a combination of cash
and common shares upon exercise of a holders conversion
right in accordance with the provisions of the indenture would
constitute a default under the indenture. In addition, a default
under the indenture could lead to a default under future
agreements governing our indebtedness. If, due to a default, the
repayment of related indebtedness were to be accelerated after
any applicable notice or grace periods, we may not have
sufficient funds to repay such indebtedness and the notes.
13
The adjustment
to the conversion rate for notes converted in connection with a
specified corporate transaction may not adequately compensate
you for any lost value of your notes as a result of such
transaction.
If a specified corporate transaction that constitutes a
fundamental change occurs, under certain circumstances we will
increase the conversion rate by a number of additional common
shares for notes converted in connection with such specified
corporate transaction. The increase in the conversion rate will
be determined based on the date on which the specified corporate
transaction becomes effective and the price paid per common
share in such transaction, as described below under
Description of notesConversion
rightsAdjustments to shares delivered upon conversion upon
certain fundamental changes. The adjustment to the
conversion rate for notes converted in connection with a
specified corporate transaction may not adequately compensate
you for any lost value of your notes as a result of such
transaction. In addition, if the price of our common shares in
the transaction is greater than
$ per share or less than
$ (in each case, subject to
adjustment), no adjustment will be made to the conversion rate.
The conversion
rate of the notes may not be adjusted for all dilutive
events.
The conversion rate of the notes will be subject to adjustment
for certain events, including, but not limited to, the issuance
of dividends on our common shares, the issuance of certain
rights or warrants, subdivisions, combinations, distributions of
share capital, indebtedness or assets, cash dividends and
certain issuer tender or exchange offers as described under
Description of notes. However, the conversion rate
will not be adjusted for other events, such as a third-party
tender or exchange offer, an issuance of common shares for cash
or an issuance of options pursuant to our incentive plans, that
may adversely affect the trading price of the notes or the
common shares. An event that adversely affects the value of the
notes may occur, and that event may not result in an adjustment
to the conversion rate.
The notes may
not have an active market and their price may be volatile. You
may be unable to sell your notes at the price you desire or at
all.
There is no existing trading market for the notes and we will
not have any obligation to list the notes at any time. As a
result, there can be no assurance that a liquid market will
develop or be maintained for the notes, that you will be able to
sell any of the notes at a particular time (if at all) or that
the prices you receive if or when you sell the notes will be
above their initial offering price. We do not intend to list the
notes on any national securities exchange or the TSX. The
underwriters may make a market in the notes after this offering
is completed, but the underwriters have no obligation to do so
and, if they do, they may cease such market-making at any time
without notice.
The notes may
not be rated or may receive a lower rating than
anticipated.
We do not intend to seek a rating on the notes. However, if one
or more rating agencies rates the notes and assigns the notes a
rating lower than the rating expected by investors, or reduces
their rating in the future, the market price of the notes and
our common shares could be harmed.
14
If you hold
notes, you will not be entitled to any rights with respect to
our common shares, but you will be subject to all changes made
with respect to our common shares.
If you hold notes, you will not be entitled to any rights with
respect to our common shares (including, without limitation,
voting rights and rights to receive any dividends or other
distributions on our common shares, other than any extraordinary
distribution that our board of directors designates as payable
to the holders of the notes), but if you subsequently convert
your notes into common shares, you will be subject to all
changes affecting the common shares. You will have rights with
respect to our common shares only if and when we deliver common
shares to you upon conversion of your notes and, to a limited
extent, under the conversion rate adjustments applicable to the
notes. For example, in the event that an amendment is proposed
to our constating documents requiring shareholder approval and
the record date for determining the shareholders of record
entitled to vote on the amendment occurs prior to delivery of
common shares to you, you will not be entitled to vote on the
amendment, although you will nevertheless be subject to any
changes in the powers or rights of our common shares that result
from such amendment.
The notes will
initially be held in book-entry form and, therefore, you must
rely on the procedures and the relevant clearing systems to
exercise your rights and remedies.
Unless and until certificated notes are issued in exchange for
book-entry interests in the notes, owners of the book-entry
interests will not be considered owners or holders of notes.
Instead, the common depository, or its nominee, will be the sole
holder of the notes. Payments of principal, interest and other
amounts owing on or in respect of the notes in global form will
be made to the paying agent, which will make payments to DTC.
Thereafter, such payments will be credited to DTC
participants accounts that hold book-entry interests in
the notes in global form and will thereafter be credited by such
participants to indirect participants. Unlike holders of the
notes themselves, owners of book-entry interests will not have
the direct right to act upon our solicitations for consents or
requests for waivers or other actions from holders of the notes.
Instead, if you own a book-entry interest, you will be permitted
to act only to the extent you have received appropriate proxies
to do so from DTC or, if applicable, a participant. We cannot
assure you that procedures implemented for the granting of such
proxies will be sufficient to enable you to vote on any
requested actions on a timely basis.
We may not be
able to refinance the notes if required or if we so
desire.
We may need or desire to refinance all or a portion of the notes
or any other future indebtedness that we incur on or before the
maturity of the notes. There can be no assurance that we will be
able to refinance any of our indebtedness or incur additional
indebtedness necessary for our pre-construction, construction or
operative phases on commercially reasonable terms, if at all.
We have
determined that we are currently a passive foreign
investment company under the U.S. Internal Revenue Code
and, as a result, there may be adverse U.S. tax consequences for
certain investors.
Potential investors that are U.S. Holders, as defined under
Income tax considerationsCertain United States
federal income tax considerationsU.S. Holders,
should be aware that we have determined that we were a
passive foreign investment company (a
PFIC) under Section 1297(a) of the U.S.
Internal Revenue Code for the taxable year ended
December 31, 2006
15
and expect to be a PFIC for the taxable year ending
December 31, 2007. Moreover, we expect to be a PFIC for
each taxable year prior to the year in which Brisas begins
production. As a result, a U.S. Holder generally will be subject
to adverse U.S. federal income tax consequences, such as
(i) being subject to U.S. federal income tax at the highest
rates applicable to ordinary income on at least a portion of any
excess distribution and gain on the sale of common
shares, as well as incurring an interest charge on the tax due
thereon, or (ii) at the election of the U.S. Holder,
current taxation on either (A) certain of our income or
gains, regardless of whether any cash representing such income
or gain has been distributed, or (B) any increase in the
fair market value of the common shares as of the taxable year
end, regardless of whether such gain has been realized on a
disposition of such common shares. These adverse U.S. federal
income tax consequences are described more fully under
Income tax considerationsCertain U.S. federal income
tax considerationsThe Common SharesU.S. Federal
Income Tax Consequences to U.S. HoldersPassive foreign
investment company.
We do not believe that any of our subsidiaries were PFICs as to
any of our shareholders for the taxable year ended
December 31, 2006, and do not expect that any such
subsidiaries will be PFICs as to any of our shareholders for any
subsequent taxable year (including the taxable year ending
December 31, 2007). Additional adverse tax consequences
could result to U.S. Holders of the common shares for any
taxable year in which we are a PFIC and have one or more
non-U.S.
subsidiaries that is also a PFIC as to such U.S. Holders. These
adverse U.S. federal income tax consequences are described
more fully under Income tax considerationsCertain
U.S. federal income tax considerationsThe Common
SharesU.S. Federal Income Tax Consequences to U.S.
HoldersPassive foreign investment company.
Under certain circumstances, a U.S. Holder that makes a
timely and effective qualified electing fund
election (a QEF election) will not be subject
to the adverse taxation rules for PFICs discussed above with
respect to gains or excess distributions. Instead, such
U.S. Holder will be subject to U.S. federal income tax
on its pro rata share of our net capital gain and
ordinary earnings (calculated under
U.S. federal income tax rules), regardless of whether such
amounts are actually distributed by us. We will satisfy record
keeping requirements and supply U.S. Holders with required
information under the QEF election rules in the event that we
are a PFIC and a U.S. Holder wishes to make a QEF election.
Alternatively, a U.S. Holder may make a
mark-to-market
election if we are a PFIC and the common shares are
marketable stock (as specifically defined). We
believe the common shares are marketable stock for
this purpose. A U.S. Holder that makes a
mark-to-market
election generally will include in gross income, for each
taxable year in which we are a PFIC, an amount equal to the
excess, if any, of (a) the fair market value of the common
shares as of the close of such taxable year over (b) such
U.S. Holders adjusted tax basis in such common shares
regardless of whether we have made any distributions to the
U.S. Holder.
A U.S. Holder of a note may not make a QEF election with
respect to the note. As a result, a holder of common shares
arising from the conversion of the note cannot make a timely and
effective QEF election with respect to such shares if we are a
PFIC at any time during the period that such U.S. Holder
holds the note, unless, as of the first day of the taxable year
immediately following the conversion, such holder elects to
recognize and be taxed under the PFIC rules discussed above on
the difference between the fair market value of the shares and
his adjusted tax basis in the shares. With respect to a
U.S. Holder who holds a note, the holding period with
respect to our common shares acquired upon conversion of such
note shall include the period that the note was held. The
general effect of these rules is that (a) under the adverse
taxation rules for PFICs discussed above, excess distributions
and gains realized on the disposition of
16
common shares received upon conversion of notes in a PFIC will
be spread over the entire holding period for the notes and the
common shares acquired thereby and (b) if a
U.S. Holder makes a QEF election upon conversion of the
notes and receipt of the common shares, that election generally
will not be a timely QEF election with respect to such common
shares and thus the adverse taxation rules with respect to PFICs
discussed above will continue to apply. However, it appears that
a U.S. Holder receiving common shares upon the conversion
of a note should be able to avoid the adverse taxation rules for
PFICs discussed above with respect to future excess
distributions and gains if such U.S. Holder makes a QEF
election effective as of the first day of the taxable year of
such U.S. Holder beginning after the receipt of such common
shares and such U.S. Holder also makes an election to
recognize gain (which will be taxed under the adverse taxation
rules for PFICs rules discussed above) as if such common shares
were sold on such date at fair market value. In addition, under
the Treasury Regulations, a disposition, other than by exercise,
of a note generally will be subject to the adverse taxation
rules for PFICs discussed above. See Income tax
considerationsCertain U.S. federal income tax
considerations.
The determination of whether we and any subsidiary will be a
PFIC for a future taxable year (including the taxable year in
which Brisas begins production or any subsequent taxable year)
will depend on (i) the application of complex
U.S. federal income tax rules, which are subject to
differing interpretations, and (ii) our assets and income
of the and our subsidiaries over the course of each such taxable
year. As a result, our status and that of any subsidiary as a
PFIC in any future taxable year cannot be predicted with
certainty as of the date of this prospectus. Accordingly, we
cannot assure you that the we and any subsidiary will not be a
PFIC for any future taxable year, including years after Brisas
begins production.
The PFIC rules are complex. You should consult your own
financial advisor, legal counsel or accountant regarding the
application of the PFIC rules on an investment in the notes or
common shares.
Risks related to
our common shares
Sales of a
significant number of our common shares in the public markets,
or the perception of such sales, could depress the price of our
common shares, the fair market value of the notes or
both.
Sales of a substantial number of our common shares in the public
markets could depress the price of our common shares, the fair
market value of the notes or both, and impair our ability to
raise capital through the sale of additional equity securities.
We cannot predict the effect that future sales, or the
perception of such sales, of our common shares would have on the
market price of our common shares or the fair market value of
the notes. The price of our common shares may be affected by
possible sales of our common shares by investors who view the
notes as a more attractive means than equity participation in
our company and by hedging or arbitrage trading activity which
we expect to occur involving our common shares. This hedging or
arbitrage could, in turn, affect the fair market value of the
notes.
17
We may raise
funds for future operations through the issuance of common
shares, debt instruments convertible into common shares or other
equity-based instruments, and such financings would result in
the dilution of present and prospective shareholdings (including
through this offering and the concurrent
offering).
In order to finance the construction of Brisas, we may raise
additional funds through the issuance of common shares, debt
instruments convertible into common shares or other equity-based
instruments, such as warrants. We cannot predict the size of any
such future issuances of securities, or the effect, if any, that
future issuances and sales of our securities will have on the
market price of our common shares or the fair market value of
the notes. Any transaction involving the issuance of previously
authorized but unissued shares, or securities convertible into
shares, will result in dilution, possibly of a substantial
nature, to present and prospective holders of shares.
We expect to raise additional funds through a public offering of
16,000,000 common shares. See Concurrent
offering. While we cannot predict the effect that the sale
of these securities may have on the market price of our common
shares or the fair market value of the notes, the issuance of
common shares could have a negative effect on the market price
of our common shares or the fair market value of the notes.
The price of
the common shares may be volatile.
The common shares are publicly traded and are subject to various
factors that have historically made their price volatile.
During the fiscal year ended December 31, 2006, the sale
price of our common shares on the TSX and AMEX ranged from
Cdn.$3.40 to Cdn.$11.05 and US$2.99 to US$9.75 per share,
respectively, and the closing sale price on May 4, 2007 was
Cdn.$7.96 and US$7.19 per share, respectively. The market price
of the common shares on the TSX and AMEX could fluctuate
significantly in the future. The market price of the common
shares may fluctuate based on a number of factors, including:
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economic and political developments in Venezuela, including any
new regulatory rules or actions;
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our operating performance, and financial condition and the
performance of competitors and other similar companies;
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the publics reaction to our press releases, other public
announcements and our filings with the various securities
regulatory authorities;
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the price of gold and copper and other metal prices, as well as
metal production volatility;
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changes in recommendations by research analysts who track our
common shares or the shares of other companies in the resource
sector;
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changes in general economic conditions;
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the number of the common shares to be publicly traded after this
offering;
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the arrival or departure of key personnel;
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acquisitions, strategic alliances or joint ventures involving us
or our competitors;
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the publics reaction to press releases and other public
announcements of our competitors regarding mining development or
other matters;
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general worldwide and overall market perceptions of the
attractiveness of particular industries;
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18
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the dilutive effect of the sale by us of significantly more
common shares in order to finance our activities; and
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other factors listed under Cautionary statement regarding
forward-looking statements.
|
In addition, the market price of the common shares is affected
by many variables not directly related to our performance and
that are therefore not within our control. These include other
developments that affect the market for all resource sector
shares, the breadth of the public market for the common shares,
and the attractiveness of alternative investments. The effect of
these and other factors on the market price of the common shares
on the TSX and AMEX has historically made our share price
volatile and suggests that our share price will continue to be
volatile in the future. Because the notes are convertible into
common shares, volatility or depressed prices of our common
shares could have a similar effect on the fair market value of
our notes. Holders who receive common shares upon conversion of
the notes also will be subject to the risk of volatility and
depressed prices of our common shares. In addition, the
existence of the notes may encourage short selling in our common
shares by market participants because the conversion of the
notes could depress the price of our common shares.
We do not
intend to pay any cash dividends in the foreseeable
future.
We have not declared or paid any dividends on our common shares
since 1984. We intend to retain earnings, if any, to finance the
growth and development of our business and do not intend to pay
cash dividends on the common shares in the foreseeable future.
Any return on an investment in our common shares will come from
the appreciation, if any, in the value of the common shares. The
payment of future cash dividends, if any, will be reviewed
periodically by our board of directors and will depend upon,
among other things, conditions then existing including earnings,
financial condition and capital requirements, restrictions in
financing agreements, business opportunities and conditions and
other factors.
Additional
risks
Investors in
the United States or in other jurisdictions outside of Canada
may have difficulty bringing actions and enforcing judgments
against us, our directors, our executive officers and some of
the experts named in this prospectus based on civil liability
provisions of federal securities laws or other laws of the
United States or any state thereof or the equivalent laws of
other jurisdictions of residence.
We are organized under the laws of the Yukon Territory, Canada.
Some of our directors and officers, and some of the experts
named in this prospectus, are residents of Canada or otherwise
reside outside of the United States, and all or a substantial
portion of their assets, and a substantial portion of our
assets, are located outside of the United States. As a result,
it may be difficult for investors in the United States or
outside of Canada to bring an action in the United States
against directors, officers or experts who are not resident in
the United States. It may also be difficult for an investor to
enforce a judgment obtained in a United States court or a court
of another jurisdiction of residence predicated upon the civil
liability provisions of Canadian security laws or federal
securities laws or other laws of the United States or any state
thereof against us or those persons.
19
Cautionary
statement regarding
forward-looking statements
The information presented or incorporated by reference in this
prospectus contains both historical information and
forward-looking statements (including within the meaning of
Section 27A of the United States Securities Act of 1933, as
amended (the U.S. Securities Act), and
Section 21E of the U.S. Exchange Act. These
forward-looking statements involve risks and uncertainties, as
well as assumptions that, if they never materialize, prove
incorrect or materialize other than as currently contemplated,
could cause our results and the results of our consolidated
subsidiaries to differ materially from those expressed or
implied by such forward-looking statements.
Numerous factors could cause actual results to differ materially
from those in the forward-looking statements, including without
limitation the following:
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Our mining assets are concentrated in Venezuela and our
operations are subject to inherent local risks;
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Our future results depend on Brisas;
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We do not currently, and may never, have sufficient funds to
develop our mineral properties, including Brisas;
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Actual capital costs, operating costs, production and economic
returns may differ significantly from those we have anticipated
and there are no assurances that our development activities will
result in profitable mining operations;
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Actual mineralization may vary from current estimates in the
future;
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Risks inherent in the mining industry could have a significant
impact on our future operations;
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Operating losses are expected to continue until we construct an
operating mine;
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We may incur costs in connection with future reclamation
activities that may have a material adverse effect on our
earnings and financial condition;
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The volatility of the price of gold and copper could have a
negative impact upon our current and future operations;
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Future hedging activities could negatively impact future
operating results;
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We expect to lose our foreign private issuer status as a result
of the concurrent offering;
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Changes in critical accounting estimates could adversely affect
our financial results;
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Material weaknesses relating to our internal controls over
financial reporting could adversely affect our financial results
or condition and share price; and
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Any inability to attract and retain key personnel in the future
could have a significant impact on future operating results.
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This list is not exhaustive of the factors that may affect any
of our forward-looking statements. See Risk factors
beginning on page 1.
Statements concerning reserves and mineral resource estimates
may also be deemed to constitute forward-looking statements to
the extent that they involve estimates of the mineralization
that is expected to be encountered if the property is developed,
and, in the case of mineral reserves, such statements reflect
the conclusion based on certain assumptions that the mineral
deposit can be economically exploited.
The words believe, anticipate,
expect, intend, estimate,
plan, assume, positioned,
may, could and other similar expressions
or the negative of such expressions
20
constitute forward-looking statements and are predictions of or
indicate future events and future trends that do not relate to
historical matters. Any such forward-looking statements are not
intended to give any assurances as to future results.
Investors are cautioned not to put undue reliance on
forward-looking statements, and should not infer that there has
been no change in our affairs since the date of this prospectus
or the documents incorporated by reference in this prospectus
that would warrant any modification of any forward-looking
statement made in this document, other documents filed
periodically with securities regulators or documents presented
on our website. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this cautionary
statement. We disclaim any intent or obligation to update
publicly these forward-looking statements, whether as a result
of new information, future events or otherwise, except as
required by applicable law. Investors are urged to read our
filings with U.S. and Canadian securities regulatory agencies,
which can be viewed online at www.sedar.com or
www.sec.gov. Additionally, investors can request a
copy of any of these filings directly from us as described
elsewhere in this prospectus. See Documents incorporated
by reference.
Exchange rate
information
The following table sets forth the rate of exchange for one
Canadian dollar, expressed in U.S. dollars, including the
average of such exchange rates for each period indicated and the
exchange rate at the end of such period, based upon the noon
buying rates provided by the Bank of Canada:
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Year ended
December 31,
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U.S. dollar
per one Canadian dollar
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2006
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2005
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2004
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2003
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2002
|
|
|
Average rate per period
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$
|
0.8815
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|
$
|
0.8254
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|
$
|
0.7684
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|
$
|
0.7138
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|
$
|
0.6369
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Rate at end of period
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|
$
|
0.8674
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|
$
|
0.8598
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|
$
|
0.8319
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|
$
|
0.7713
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|
$
|
0.6339
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The noon buying rate on May 4, 2007 as reported by the Bank
of Canada for the conversion of Canadian dollars into United
States dollars was Cdn.$1.00 equals $0.9034.
Use of
proceeds
We estimate that the net proceeds from this offering will be
approximately $71.0 million, based on an assumed public
offering price of $7.19, which was the closing price of our
common shares on AMEX on May 4, 2007 (or approximately
$81.8 million if the underwriters exercise their
over-allotment option in full), after deducting underwriting
fees and estimated expenses relating to this offering and the
concurrent offering. We estimate that the net proceeds from the
concurrent offering will be approximately $108.1 million
(or approximately $124.4 million if the underwriters
exercise their over-allotment in full), after deducting
underwriting fees. We intend to use the net proceeds from this
offering and the concurrent offering primarily to fund:
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construction activities;
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equipment purchases; and
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ongoing development of Brisas.
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21
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The actual amount that we expect to spend in connection with
each of our intended uses of proceeds may vary significantly
from the amounts that we currently anticipate, and will depend
on a number of factors, including those listed under Risk
factors. Pending the uses described above, we intend to
invest the net proceeds from this offering and the concurrent
offering in short-term, investment grade interest bearing
securities.
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Share prices and
volume on the TSX and AMEX
Our common shares are traded on the TSX and on AMEX under the
symbol GRZ. Our equity units and the related
underlying securities are not listed for trading on any
exchange. The notes will not be listed on any exchange.
The information in the following table relates to the trading of
the common shares on the TSX and AMEX during 2006 and the first
four months of 2007:
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High
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Low
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Volume
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High
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Low
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Volume
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|
|
|
|
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TSX
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AMEX
|
2006
|
|
Canadian
dollar
|
|
U.S. dollar
|
|
|
January
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$
|
7.35
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$
|
3.40
|
|
|
2,700,338
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$
|
6.58
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|
$
|
2.99
|
|
|
5,291,600
|
February
|
|
|
7.05
|
|
|
4.95
|
|
|
1,390,950
|
|
|
6.20
|
|
|
4.40
|
|
|
2,665,600
|
March
|
|
|
7.00
|
|
|
5.25
|
|
|
1,055,803
|
|
|
5.97
|
|
|
4.55
|
|
|
2,021,700
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April
|
|
|
11.05
|
|
|
6.90
|
|
|
2,977,832
|
|
|
9.75
|
|
|
5.91
|
|
|
9,374,400
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May
|
|
|
10.36
|
|
|
6.80
|
|
|
3,590,201
|
|
|
9.37
|
|
|
6.11
|
|
|
10,777,800
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June
|
|
|
8.72
|
|
|
4.28
|
|
|
1,767,413
|
|
|
7.94
|
|
|
3.82
|
|
|
8,405,100
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July
|
|
|
6.52
|
|
|
4.52
|
|
|
497,791
|
|
|
6.00
|
|
|
4.23
|
|
|
3,084,400
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August
|
|
|
5.89
|
|
|
4.76
|
|
|
934,309
|
|
|
5.10
|
|
|
4.29
|
|
|
2,702,400
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September
|
|
|
5.72
|
|
|
4.32
|
|
|
947,399
|
|
|
5.01
|
|
|
3.78
|
|
|
3,271,900
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October
|
|
|
4.80
|
|
|
4.08
|
|
|
448,883
|
|
|
4.15
|
|
|
3.62
|
|
|
1,862,700
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November
|
|
|
6.48
|
|
|
4.51
|
|
|
1,136,648
|
|
|
5.73
|
|
|
3.97
|
|
|
3,775,300
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December
|
|
|
6.30
|
|
|
5.17
|
|
|
1,232,798
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|
|
5.59
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|
|
4.50
|
|
|
2,609,800
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2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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January
|
|
|
5.88
|
|
|
3.95
|
|
|
1,348,048
|
|
|
5.00
|
|
|
3.33
|
|
|
3,800,900
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February
|
|
|
6.70
|
|
|
4.71
|
|
|
1,416,193
|
|
|
5.74
|
|
|
4.09
|
|
|
4,320,849
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March
|
|
|
8.65
|
|
|
4.70
|
|
|
3,199,476
|
|
|
7.18
|
|
|
4.00
|
|
|
7,604,081
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April
|
|
|
8.72
|
|
|
7.17
|
|
|
3,782,243
|
|
|
7.61
|
|
|
6.20
|
|
|
7,380,700
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On May 4, 2007, the closing price for our common shares was
Cdn$7.96 per share on the TSX and $7.19 per share on
AMEX.
Dividend
policy
We have not declared cash or share dividends since 1984 and have
no present plans to pay any cash or share dividends. We may
declare cash or share dividends in the future only if our
earnings and capital are sufficient to justify the payment of
such dividends.
22
Consolidated
capitalization
Since December 31, 2006, the date of the financial
statements for our most recently completed financial year, there
have been no material changes in our capitalization. The
following table sets forth our consolidated capitalization
(i) as at December 31, 2006; (ii) as at
December 31, 2006 after giving effect to this offering, but
not the exercise of the over-allotment option; and (iii) as
at December 31, 2006 after giving effect to this offering
and the concurrent offering, but not the exercise of the
respective over-allotment options. This table should be read in
conjunction with our audited consolidated financial statements
for the financial year ended December 31, 2006, including
the notes thereto and managements discussion and analysis
of results of operations and financial conditions for such
period, each of which is incorporated by reference in this
prospectus. This table assumes no conversion of the notes into
common shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted(1)
|
|
|
|
|
|
|
As adjusted(1)
|
|
|
(this offering
and
|
|
|
|
Actual
|
|
|
(this
offering)
|
|
|
concurrent
offering)
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
25,374,688
|
|
|
$
|
96,374,688
|
|
|
$
|
204,512,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior subordinated convertible
notes offered hereby(3)
|
|
$
|
|
|
|
$
|
49,191,479
|
|
|
$
|
49,191,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
(authorizedunlimited; outstanding40,581,192; as
adjusted to give effect to this offering40,581,192; as
adjusted to give effect to this offering and the concurrent
offering56,581,192) and Equity units (1,085,099)
|
|
$
|
167,463,742
|
|
|
$
|
167,463,742
|
|
|
$
|
282,503,742
|
|
Less common shares and equity
units held by affiliates
|
|
$
|
(636,267
|
)
|
|
$
|
(636,267
|
)
|
|
$
|
(636,267
|
)
|
Stock options(2)
|
|
$
|
3,105,169
|
|
|
$
|
3,105,169
|
|
|
$
|
3,105,169
|
|
Accumulated deficit
|
|
$
|
(68,959,761
|
)
|
|
$
|
(68,959,761
|
)
|
|
$
|
(68,959,761
|
)
|
KSOP debt
|
|
$
|
(871
|
)
|
|
$
|
(871
|
)
|
|
$
|
(871
|
)
|
Senior subordinated convertible
notes offered hereby(3)
|
|
$
|
|
|
|
$
|
25,808,521
|
|
|
$
|
25,808,521
|
|
Total Shareholders
Equity
|
|
$
|
100,972,012
|
|
|
$
|
126,780,533
|
|
|
$
|
241,820,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
100,972,012
|
|
|
$
|
175,972,012
|
|
|
$
|
291,012,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
After deducting the
underwriters fee and expenses of this offering and the
concurrent offering but not giving effect to the exercise of the
respective over-allotment options.
|
|
(2)
|
|
As of December 31, 2006, there
were 3,105,169 stock options outstanding, which were exercisable
for 2,662,716 common shares. In addition, subject to shareholder
approval at the annual general meeting in June 2007, we have
extended until July 31, 2007 the expiry date of 2,680,500
common share purchase warrants, which were originally scheduled
to expire on November 6, 2006 and that would be exercisable
for 2,680,500 common shares. Our Equity Incentive Plan allows us
to issue options to purchase an amount of common shares equal to
10% of the common shares outstanding at the time those options
are issued.
|
|
(3)
|
|
There are differences between
Canadian GAAP and U.S. GAAP in the accounting treatment for
convertible debt. Under Canadian GAAP, the senior notes would be
allocated on our consolidated financial statements into a debt
component of $49,191,479 and an equity component of $25,808,521.
The debt issuance costs totaling $3,000,000 would also be
allocated between debt and equity components. Issuance costs of
$1,032,341 relating to the equity component would be charged to
the equity portion of the senior notes while $1,967,659 relating
to the liability component would be netted against the carrying
value of the debt.
|
As of April 30, 2007, we had approximately $21 million
in cash and cash equivalents.
23
Earnings
coverage
The earnings coverage set out below has been prepared and
included in this prospectus in accordance with Canadian
disclosure requirements and is prepared in accordance with
Canadian generally accepted accounting principles. Our earnings
coverage for the 12 month period ended December 31,
2006 is less than one to one.
The annual interest requirements on our long-term debt, using
applicable interest rates, after giving effect to the issue of
the notes on a pro forma basis as if the issuance thereof had
occurred on the first day of the twelve month period ended
December 31, 2006 was $3,750,000. Our loss before interest
and income tax for the 12 months then ended was $6,454,942,
resulting in an earnings coverage deficiency of $10,204,942.
Concurrent
offering
Concurrently with this offering, we are filing a prospectus in
connection with a public offering of 16,000,000 common shares
(18,400,000 common shares if the underwriters exercise their
over-allotment in full). Neither this offering, nor the
concurrent offering, is contingent on completion of the other.
Description of
notes
The notes are to be issued under an indenture, dated as of
May , 2007, between us, as
issuer, and The Bank of New York, as trustee.
The following description is a summary of the material
provisions of the notes and the indenture and does not purport
to be complete, and this summary is qualified in its entirety by
the indenture, including the definition of certain terms used in
the indenture. We urge you to read the indenture because the
indenture, and not this description, defines your rights as a
holder of the notes. You should refer to all of the provisions
of the indenture, including the definitions of certain terms
used in those agreements. 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, as amended. The
indenture, including the form of note contained therein, is
specifically incorporated herein by reference. You may request a
copy of the indenture from us.
As used in this Description of notes section,
references to we, our or us
refer solely to Gold Reserve Inc. and not to our subsidiaries.
General
The notes will be unsecured obligations and will rank
(1) subordinate in right of payment to future
unsubordinated indebtedness for the construction and development
of Brisas, and will be effectively subordinate to the extent of
the collateral securing such indebtedness, (2) subordinate
to senior secured bank indebtedness in right of payment, and
will be effectively subordinate to the extent of the collateral
securing such indebtedness, (3) subordinate in right of
payment to any guarantee of the indebtedness described in
(1) or (2) by us or any of our subsidiaries for the
period that the guarantee is in effect, (4) equal in right
of payment to any of our other existing
24
and future unsecured and unsubordinated indebtedness, and
(5) senior in right of payment to all of our future
subordinated debt. However, the notes will be effectively
subordinated to all future secured debt to the extent of the
security on such other indebtedness and to all existing and
future obligations of our subsidiaries. As of December 31,
2006, we had no outstanding long-term indebtedness and our
subsidiaries had no outstanding indebtedness, other than
intercompany indebtedness and trade payables. See Risk
factorsRisks related to the notesYour right to
receive payments on the notes are subordinated to certain future
indebtedness which may be incurred to finance Brisas or bank
indebtedness.
The notes are convertible into our common shares, as described
more fully under Conversion rights below.
The notes are limited to US$75,000,000 aggregate principal
amount (or US$86,250,000 if the underwriters
over-allotment option is fully exercised). The notes are issued
only in denominations of US$1,000 and multiples of US$1,000. The
notes mature on June 15, 2022, unless earlier converted,
redeemed or repurchased. We may, without the consent of the
holders, issue additional notes under the indenture with the
same terms and with the same CUSIP numbers as the notes offered
hereby in an unlimited aggregate principal amount, provided that
such additional notes must be part of the same issue as the
notes offered hereby for U.S. federal income tax purposes.
The notes and the additional notes, if any, will be treated as a
single class for all purposes of the indenture, including
waivers, amendments and redemptions. We may also from time to
time repurchase notes in open market purchases, if in the future
we list the notes for trading on a national securities exchange,
or negotiated transactions without prior notice to holders.
Neither we nor any of our subsidiaries are subject to any
financial covenants under the indenture. In addition, neither we
nor any of our subsidiaries are restricted under the indenture
from paying dividends, incurring debt, granting security or
issuing or repurchasing our securities, entering into
transactions with our affiliates or paying senior, other equally
ranking or subordinated indebtedness prior to paying our
obligations under the notes.
The holders of the notes are not afforded protection under the
indenture in the event of a leveraged transaction or a change in
control of us except to the extent described under
Offer to purchase upon a fundamental change,
and Conversion rightsAdjustment to shares
delivered upon conversion upon certain fundamental changes.
Except under limited circumstances described below, the notes
are issued only in fully registered book-entry form and are
represented by one or more global notes. There is no service
charge for registration of transfer or exchange of the notes. We
may, however, require holders to pay a sum to cover any tax or
other governmental charge payable in connection with certain
transfers or exchanges.
Payments on the
notes; paying agent and registrar
We will pay principal of certificated notes at the office or
agency designated by us in the Borough of Manhattan, The City of
New York. We have initially designated a corporate trust office
at 101 Barclay Street, New York, New York 10286 as our paying
agent and registrar and its agency in New York, New York as a
place where notes may be presented for payment or for
registration of transfer. We may, however, change the paying
agent or registrar without prior notice to the holders of the
notes, and we may act as paying agent or registrar. Interest on
certificated notes will be payable (i) to holders having an
aggregate principal amount of
25
US$5 million or less, by check mailed to the holders of
these notes and (ii) to holders having an aggregate
principal amount of more than US$5 million, either by check
mailed to each holder or, upon application by a holder to the
registrar not later than two days prior to the relevant record
date, by wire transfer in immediately available funds to that
holders account within the United States, which
application shall remain in effect until the holder notifies, in
writing, the registrar to the contrary.
We will pay principal of and interest on notes in global form
registered in the name of or held by The Depository Trust
Company or its nominee in immediately available funds to The
Depository Trust Company or its nominee, as the case may be, as
the registered holder of such global note.
Interest
The notes will bear interest at a rate
of % per year. Interest on the
notes will accrue from May , 2007. Interest
will be payable semiannually in arrears on June 15 and
December 15, beginning December 15, 2007.
Interest will be paid to the person in whose name a note is
registered at the close of business on June 1 or
December 1, as the case may be, immediately preceding the
relevant interest payment date. Interest on the notes will be
computed on the basis of a
360-day year
composed of twelve
30-day
months.
Conversion
rights
Holders of the notes may convert any notes or portions of the
notes, in whole or in part, initially at a conversion rate
of
common shares per US$1,000 principal amount of notes (equivalent
to a conversion price of approximately
US$ per common share) at any
time prior to the close of business on the business day
immediately preceding the final maturity date of the notes,
subject to prior repurchase of the notes.
Upon conversion of a note, we will have the option to deliver
common shares, cash or a combination of cash and common shares
for the notes surrendered as set forth below. The trustee will
initially act as conversion agent. The conversion rate and the
applicable conversion price in effect at any given time are
referred to as the applicable conversion rate and
the applicable conversion price, respectively, and
will be subject to adjustment as described below. A holder may
convert fewer than all of such holders notes so long as
the notes converted are an integral multiple of US$1,000
principal amount.
We will have the option to deliver cash in lieu of some or all
of the common shares to be delivered upon conversion of the
notes. We will give notice of our election to deliver part or
all of the conversion consideration in cash to the holder
converting the notes within two business days of our receipt of
the holders notice of conversion. The amount of cash to be
delivered per note will be equal to the number of common shares
in respect of which the cash payment is being made multiplied by
the average of the daily VWAP prices of the common shares for
the 10 trading days commencing one day after (a) the date
of our notice of election to deliver all or part of the
conversion consideration in cash if we have not given notice of
redemption or (b) the conversion date, in the case of
conversion following notice of redemption specifying our
intention to deliver cash upon conversion. Daily
VWAP means the per share volume-weighted average price as
displayed under the heading Bloomberg VWAP on
Bloomberg page
26
GRZ<equity>VAP in respect of
the period from 9:30 am to 4:00 pm (New York City time) on such
trading day (or if such volume-weighted average price is
unavailable, the market value of one common share on such
trading day on the TSX or otherwise as our board of directors
determines in good faith using a volume-weighted method);
provided that after the consummation of a fundamental change in
which the consideration is comprised entirely of cash,
daily VWAP means the cash price per common share
received by holders of our common shares on such fundamental
change.
If we elect to deliver cash in lieu of some or all of the common
shares issuable upon conversion, we will make the payment,
including delivery of the common shares, through the conversion
agent, to holders surrendering notes no later than the
fourteenth business day following the conversion date.
Otherwise, we will deliver the common shares, together with any
cash payment for fractional shares, as described below, through
the conversion agent no later than the fifth business day
following the conversion date.
We may not deliver cash in lieu of any common shares issuable
upon a conversion date (other than in lieu of fractional shares)
if there has occurred and is continuing an event of default
under the indenture, other than an event of default that is
cured by the payment of the conversion consideration.
If we call notes for redemption, a holder of notes may convert
the notes only until the close of business on the business day
immediately preceding the redemption date unless we fail to pay
the redemption price. If a holder of notes has submitted the
notes for purchase upon a fundamental change, a holder of notes
may convert the notes only if that holder withdraws the purchase
election made by that holder.
Upon conversion, you will not receive any separate cash payment
for accrued and unpaid interest unless such conversion occurs
between a regular record date and the interest payment date to
which it relates. We will not issue fractional common shares
upon conversion of notes. Instead, we will pay cash in lieu of
fractional shares based on the last reported sale price of the
common shares on the trading day prior to the conversion date.
Our delivery to you of common shares, cash, or a combination of
cash and common shares, as applicable, together with any cash
payment for any fractional share, into which a note is
convertible, will be deemed to satisfy our obligation to pay:
|
|
|
the principal amount of the note; and
|
|
|
accrued and unpaid interest to, but not including, the
conversion date.
|
As a result, accrued and unpaid interest to, but not including,
the conversion date will be deemed to be paid in full rather
than cancelled, extinguished or forfeited.
Notwithstanding the preceding paragraph, if notes are converted
after 5:00 p.m., New York City time, on a regular record
date for the payment of interest, holders of such notes at
5:00 p.m., New York City time, on such record date will
receive the interest and additional interest, if any, payable on
such notes on the corresponding interest payment date
notwithstanding the conversion. Notes, upon surrender for
conversion during the period from 5:00 p.m., New York City
time, on any regular record date to 9:00 a.m. New York
City time, on the immediately following interest payment date,
must be accompanied by funds equal to the amount of
27
interest and additional interest, if any, payable on the notes
so converted on the corresponding interest payment date;
provided that no such payment need be made:
|
|
|
if we have specified a redemption date that is after a record
date and on or prior to the corresponding interest payment date;
|
|
|
if we have specified a fundamental change purchase date that is
after a record date and on or prior to the corresponding
interest payment date; or
|
|
|
to the extent of any overdue interest, if any overdue interest
exists at the time of conversion with respect to such note.
|
If a holder converts notes, we will pay any documentary, stamp
or similar issue or transfer tax due on the issue of any of our
common shares upon the conversion, unless the tax is due because
the holder requests any shares to be issued in a name other than
the holders name, in which case the holder will pay that
tax.
Conversion upon
specified corporate transactions
If we are a party to a consolidation, amalgamation, merger,
binding share exchange, statutory arrangement, sale of all or
substantially all of our assets or other combination, in each
case pursuant to which our common shares are converted into
cash, securities, or other property, then at the effective time
of the transaction, a holder of notes right to convert a
note into our common shares and cash will be changed into a
right to convert it into the kind and amount of cash, securities
and other property which holders of the notes would have
received if those holders had converted their notes immediately
prior to the transaction (the reference property).
If the transaction causes our common shares to be converted into
the right to receive more than a single type of consideration
(determined based in part upon any form of shareholder
election), the reference property into which the notes will be
convertible will be deemed to be the weighted average of the
types and amounts of consideration received by the holders of
our common shares that affirmatively make such an election. We
will agree in the indenture not to become a party to any such
transaction unless its terms are consistent with the foregoing.
Notwithstanding the preceding paragraph, if holders of notes
would otherwise be entitled to receive, upon conversion of the
notes, any property (including cash) or securities that would
not constitute prescribed securities for the
purposes of clause 212(1)(b)(vii)(E) of the Income Tax Act
(Canada) (referred to herein as ineligible
consideration), such holders shall not be entitled to
receive such ineligible consideration but we or the successor or
acquirer, as the case may be, shall have the right (at the sole
option of us or the successor or acquirer, as the case may be)
to deliver either such ineligible consideration or
prescribed securities for the purposes of
clause 212(1)(b)(vii)(E) of the Income Tax Act (Canada)
with a market value equal to the market value of such ineligible
consideration. In general, prescribed securities would include
our common shares and other shares which are not redeemable by
the holder within five years of the date of issuance of the
notes. Because of this, certain transactions may result in the
notes being convertible into prescribed securities that are
highly illiquid. This could have a material adverse effect on
the value of the notes. We agree to give notice to the holders
of notes at least 30 days prior to the effective date of
such transaction in writing and by release to a business
newswire stating the consideration into which the notes will be
convertible after the effective date of such transaction. After
such notice, we or the successor or acquirer, as the case
28
may be, may not change the consideration to be delivered upon
conversion of the note except in accordance with any other
provision of the indenture.
If the transaction also constitutes a fundamental change, we
will be required, subject to certain conditions, to offer to
purchase for cash all or a portion of your notes as described
under Offer to purchase upon a fundamental
change.
Conversion
procedures
The initial conversion rate for the notes
is common
shares per US$1,000 principal amount of notes, subject to
adjustment as described below.
To convert the notes into common shares a holder of notes must
do the following (or comply with DTC procedures for doing so in
respect of its beneficial interest in notes evidenced by a
global note):
|
|
|
complete and manually sign the conversion notice on the back of
the note or facsimile of the conversion notice and deliver this
notice to the conversion agent;
|
|
|
surrender the note to the conversion agent;
|
|
|
if required, furnish appropriate endorsements and transfer
documents; and
|
|
|
if required, pay all transfer or similar taxes.
|
The date a holder of notes complies with these requirements is
the conversion date under the indenture.
Conversion rate
adjustments
We will adjust the conversion rate if any of the following
events occurs, except that we will not make any adjustment if
holders of notes may participate, as a result of holding the
notes, in the transactions described without having to convert
their notes.
(1) If we issue common shares as a dividend or distribution
on our common shares, or if we subdivide or combine our common
shares, the conversion rate will be adjusted based on the
following formula:
|
|
|
where,
|
|
|
CR0
|
|
= the conversion rate in effect
immediately prior to such event
|
CR1
|
|
= the conversion rate in effect
immediately after such event
|
OS0
|
|
= the number of our common shares
outstanding immediately prior to such event
|
OS1
|
|
= the number of our common shares
outstanding immediately after such event
|
(2) If we issue to all or substantially all holders of
common shares certain rights or warrants to purchase our common
shares for a total acquisition cost less than the closing sale
price of our common shares on the record date for shareholders
entitled to receive such rights and warrants, which rights or
warrants are exercisable for not more than 60 days, the
conversion rate will be
29
adjusted based on the following formula (provided that the
conversion rate will be readjusted to the extent that such
rights or warrants are not exercised prior to their expiration):
|
|
|
where,
|
|
|
CR0
|
|
= the conversion rate in effect
immediately prior to such event
|
CR1
|
|
= the conversion rate in effect
immediately after such event
|
OS0
|
|
= the number of our common shares
outstanding on the close of business on the next business day
following such record date
|
X
|
|
= the total number of our common
shares issuable pursuant to such rights
|
Y
|
|
= the number of our common shares
equal to the aggregate offering price that the total number of
shares so offered would purchase at such closing sale price of
our common shares on the record date of such issuance determined
by multiplying such total number of shares so offered by the
exercise price of such rights or warrants and dividing the
product so obtained by such closing sale price.
|
(3) If we distribute to all or substantially all holders of
our common shares, common shares, evidences of indebtedness or
assets, including securities but excluding:
|
|
|
rights or warrants specified above;
|
|
|
dividends or distributions specified above; and
|
|
|
dividends or distributions specified in (4) below;
|
then the conversion rate will be adjusted based on the following
formula:
|
|
|
where,
|
|
|
CR0
|
|
= the conversion rate in effect
immediately prior to such distribution
|
CR1
|
|
= the conversion rate in effect
immediately after such distribution
|
SP0
|
|
= the current market price (as
defined below) of our common shares on such record date for such
distribution
|
FMV
|
|
= the fair market value (as
determined by our board of directors) of the common shares,
evidences of indebtedness, assets or property distributed with
respect to each outstanding common share on the record date for
such distribution
|
With respect to an adjustment pursuant to this clause (3)
where there has been a payment of a dividend or other
distribution on our common shares or shares of any class or
series, or similar equity interest, of or relating to a
subsidiary or other business unit, which we refer to as a
spin-off, the conversion rate in effect immediately
before 5:00 p.m., New York City time, on
30
the effective date fixed for determination of shareholders
entitled to receive the distribution will be increased based on
the following formula:
|
|
|
where,
|
|
|
CR0
|
|
= the conversion rate in effect
immediately prior to such distribution
|
CR1
|
|
= the conversion rate in effect
immediately after such distribution
|
FMV0
|
|
= the average of the closing sale
prices of the common shares or similar equity interest
distributed to holders of our commons shares applicable to one
common share over the ten consecutive
trading-day
period commencing on and including the fifth trading day after
the date on which ex-dividend trading commences for
such distribution on the American Stock Exchange or such other
national or regional exchange or market on which the securities
are then listed or quoted
|
MP0
|
|
= the average of the closing sale
prices of our common shares over the ten consecutive
trading-day
period commencing on and including the fifth trading day after
the date on which ex-dividend trading commences for
such distribution on The American Stock Exchange or such other
national or regional exchange or market on which the securities
are then listed or quoted
|
The adjustment to the conversion rate under the preceding
paragraph will occur on the fourteenth trading day after the
date on which ex-dividend trading commences for such
distribution on the American Stock Exchange or such other
national or regional exchange or market on which the securities
are then listed or quoted.
(4) If any cash dividend or other distribution is made to
all or substantially all holders of our common shares, the
conversion rate will be adjusted based on the following formula:
|
|
|
where,
|
|
|
CR0
|
|
= the conversion rate in effect on
the record date for such distribution
|
CR1
|
|
= the conversion rate in effect
immediately after the record date for such distribution
|
SP0
|
|
= the current market price of one
of our common shares on the record date for such distribution
|
C
|
|
= the amount in cash per share we
distribute to holders of our common shares
|
Current market price means the average of the daily
closing sale prices per common share for the ten consecutive
trading days ending on the earlier of the date of determination
and the day before the ex date with respect to the
distribution requiring such computation. As used in the
definition of current market price, the term ex
date, when used with respect to any distribution, means the
first date on which the common share trades, regular way, on the
relevant exchange or in the relevant market from which the
closing sale price was obtained without the right to receive
such distribution.
31
(5) If we or one of our subsidiaries makes a payment in
respect of a tender offer or exchange offer for our common
shares to the extent that the cash and value of any other
consideration included in the payment per common share exceeds
the current market price per common share on the trading day
immediately preceding the date such tender offer or exchange
offer is announced, the conversion rate will be increased based
on the following formula:
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CR1
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=
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CR0
×
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AC+(SP1×OS1)
OS0×SP1
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where,
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CR0
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= the conversion rate in effect on
the date such tender or exchange offer expires
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CR1
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= the conversion rate in effect on
the day next succeeding the date such tender or exchange offer
expires
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AC
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= the fair market value (as
determined by our board of directors) of the aggregate
consideration paid or payable for shares purchased in such
tender or exchange offer
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OS0
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= the number of our common shares
outstanding on the trading day immediately preceding the date
such tender or exchange offer is announced
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OS1
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= the number of our common shares
outstanding less any shares purchased in the tender or exchange
offer at the time such tender or exchange offer expires
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SP1
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= the current market price of our
common shares on the trading date immediately preceding the date
such tender or exchange offer is announced
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To the extent that we have a rights plan in effect upon
conversion of the notes into common shares, a holder of notes
will receive, in addition to the common shares, the rights under
the rights plan unless the rights have separated from the common
shares at the time of conversion, in which case the conversion
rate will be adjusted as if we distributed to all holders of our
common shares, common shares, evidences of indebtedness or
assets as described above, subject to readjustment in the event
of the expiration, termination or redemption of such rights.
In the event of:
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any reclassification of our common shares;
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a consolidation, merger or combination involving us; or
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a sale or conveyance to another person or entity of all or
substantially all of our property and assets;
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in which holders of our common shares would be entitled to
receive shares, other securities, other property, assets or cash
for their common shares, upon conversion of the notes, a holder
thereof will be entitled to receive the same type of
consideration which it would have been entitled to receive if it
had converted the notes into our common shares immediately prior
to any of these events (provided such consideration is not
ineligible consideration as described in
Conversion upon specified corporate
transactions).
A holder of notes may in certain situations be deemed to have
received a distribution subject to United States federal income
tax as a dividend in the event of any taxable distribution to
holders of common shares or in certain other situations
requiring a conversion rate adjustment. See Income tax
considerations Certain United States federal income
tax considerations.
32
We may, from time to time, increase the conversion rate for a
period of at least 20 days if our board of directors has
made a determination that this increase would be in our best
interests, subject to the receipt of any required regulatory
approvals. Any such determination by our board will be
conclusive. Thereafter, the conversion rate will return to the
level prior to such adjustment. In addition, we may increase the
conversion rate if our board of directors deems it advisable to
avoid or diminish any income tax to holders of common shares
resulting from any share or rights distribution. See
Income tax considerations Certain United
States federal income tax considerations.
We will not be required to make an adjustment in the conversion
rate unless the adjustment would require a change of at least 1%
in the conversion rate. However, we will carry forward any
adjustments that are less than 1% of the conversion rate. Except
as described above in this section, we will not adjust the
conversion rate for any issuance of our common shares or
convertible or exchangeable securities or rights to purchase our
common shares or convertible or exchangeable securities.
Any such increases in the conversion rate by our board of
directors shall not, without the approval of our shareholders,
as required by Rule 713 of the American Stock Exchange
Company Guide, result in the sale or issuance of 20% or more of
our common shares, or 20% or more of the voting power,
outstanding on the date of this prospectus.
Adjustments of
average prices
Whenever any provision of the indenture requires us to calculate
an average of last reported prices or daily VWAP over a span of
multiple days, we will make appropriate adjustments to account
for any adjustment to the conversion rate that becomes
effective, or any event requiring an adjustment to the
conversion rate where the ex date of the event occurs, at any
time during the period from which the average is to be
calculated.
Adjustments to
shares delivered upon conversion upon certain fundamental
changes
If you elect to convert your notes as described above in the
first paragraph under Conversion upon specified
corporate transactions, and the corporate transaction also
constitutes a fundamental change (as defined under
Offer to purchase upon a fundamental change),
in certain circumstances described below, the conversion rate
will be increased by an additional number of common shares (the
additional shares) as described below. Any
conversion occurring at a time when the notes would be
convertible in light of the expected or actual occurrence of a
fundamental change will be deemed to have occurred in connection
with such fundamental change notwithstanding the fact that a
note may then be convertible because another condition to
conversion has been satisfied.
The number of additional shares by which the conversion rate
will be increased will be determined by reference to the table
below, based on the date on which the fundamental change occurs
or becomes effective (the effective date) and the
price (the share price) paid per common share in the
fundamental change. If the fundamental change is a transaction
described in clause (2) of the definition of fundamental
change, and holders of our common shares receive only cash in
that fundamental change, the share price shall be the cash
amount paid per share. Otherwise, the share price shall be the
average of the last reported sale prices of
33
our common shares over the five
trading-day
period ending on the trading day preceding the effective date of
the fundamental change.
The share prices set forth in the first row of the table below
(i.e. column headings) will be adjusted as of any date on which
the conversion rate of the notes is otherwise adjusted. The
adjusted share prices will equal the share prices applicable
immediately prior to such adjustment, multiplied by a fraction,
the numerator of which is the conversion rate immediately prior
to the adjustment giving rise to the share price adjustment and
the denominator of which is the conversion rate as so adjusted.
The number of additional shares will be adjusted in the same
manner as the conversion rate as set forth under
Conversion Rate Adjustments.
The following table sets forth the hypothetical share price and
the number of additional shares to be received per US$1,000
principal amount of notes:
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Share
Price
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Effective
date
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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May 15, 2007
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June 1, 2008
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June 1, 2009
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June 1, 2010
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June 1, 2011
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June 1, 2012
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The exact share prices and effective dates may not be set forth
in the table above, in which case:
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If the share price is between two share price amounts in the
table or the effective date is between two effective dates in
the table, the number of additional shares will be determined by
a straight-line interpolation between the number of additional
shares set forth for the higher and lower share price amounts
and the two dates, as applicable, based on a
365-day year.
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If the share price is greater than
US$ per share (subject to
adjustment), no additional shares will be issued upon conversion.
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If the share price is less than
US$ per share (subject to
adjustment), no additional shares will be issued upon conversion.
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Notwithstanding the foregoing, in no event will the total number
of common shares issuable upon conversion
exceed
per US$1,000 principal amount, subject to adjustments in the
same manner as the conversion rate as set forth under
Conversion Rate Adjustments.
Optional
redemption
No sinking fund will be provided for the notes, which means that
the indenture will not require us to redeem a portion of the
notes periodically.
At any time on or after June 16, 2010, until June 15,
2012, we may redeem the notes, in whole or in part, for cash at
a price equal to 100% of the principal amount being redeemed
plus accrued and unpaid interest to, but excluding, the
redemption date, if the closing sale price of our common shares
on the American Stock Exchange is equal to or greater than 150%
of the applicable conversion price then in effect for at least
20 trading days in the period of 30
34
consecutive trading days ending on the trading day prior to the
date of mailing of the notice of redemption.
Beginning on June 16, 2012, at our option we may redeem all
or part of the notes for cash at a price equal to 100% of the
principal amount being redeemed plus accrued and unpaid interest
to, but excluding, the redemption date.
We will give holders not less than 30 nor more than
60 days notice of any optional redemption.
If less than all of the outstanding notes are to be redeemed,
the trustee shall select the notes to be redeemed in principal
amounts at maturity of $1,000 or integral multiples thereof. In
this case the trustee may select the notes by lot, pro rata or
by any other method the trustee considers fair and appropriate
or in any manner required by the depositary.
If a portion of a holders notes is selected for partial
redemption and the holder converts a portion of the notes, the
converted portion shall be deemed to be the portion selected for
redemption.
In the event of any redemption of the notes in part, we will not
be required to:
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issue, register the transfer of or exchange any note during a
period beginning at the opening of business 15 days before
any selection of notes for redemption and ending at the close of
business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of notes
to be so redeemed, or
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register the transfer of or exchange any note so selected for
redemption, in whole or in part, except the unredeemed portion
of any note being redeemed in part.
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Redemption for
changes in Canadian tax law
We may redeem all but not part of the notes if we have or would
become obligated to pay to the holder of any note
additional amounts (which are more than a de minimis
amount) as a result of any change from the date of this
prospectus in the laws or any regulations of Canada or any
Canadian political subdivision or taxing authority, or any
change from the date of this prospectus in an interpretation or
application of such laws or regulations by any legislative body,
court, governmental agency, taxing authority or regulatory
authority (including the enactment of any legislation and the
publication of any judicial decision or regulatory or
administrative determination); provided we cannot avoid these
obligations by taking reasonable measures available to us and
that we deliver to the trustee an opinion of legal counsel
specializing in taxation and an officers certificate
attesting to such change and obligation to pay additional
amounts. The term additional amounts is defined
under Additional amounts. This redemption
would be at 100% of the principal amount plus accrued and unpaid
interest to, but excluding, the redemption date but without
reduction for applicable Canadian taxes (as defined below)
(except in respect of certain excluded holders (as defined
below)). We will give holders of notes not less than
30 days nor more than 60 days notice of
this redemption, except that (i) we will not give notice of
redemption earlier than 60 days prior to the earliest date
on or from which we would be obligated to pay any such
additional amounts, and (ii) at the time we give the
notice, the circumstances creating our obligation to pay such
additional amounts remain in effect.
35
Upon receiving such notice of redemption, each holder who does
not wish to have us redeem its notes will have the right to
elect to:
(i) convert its notes; or
(ii) not have its notes redeemed, provided that no
additional amounts will be payable on any payment of interest or
principal with respect to the notes after such redemption date.
All future payments will be subject to the deduction or
withholding of any Canadian taxes required by law to be deducted
or withheld.
Where no election is made, the holder will have its notes
redeemed without any further action. The holder must deliver to
the paying agent a written notice of election so as to be
received by the paying agent no later than the close of business
on a business day at least five business days prior to the
redemption date.
A holder may withdraw any notice of election by delivering to
the paying agent a written notice of withdrawal prior to the
close of business on the business day prior to the redemption
date.
Repurchase at
option of the holder
A holder of notes has the right to require us to repurchase the
notes on June 15, 2012. We must give notice of the upcoming
repurchase date to all note holders not less than 20 business
days prior to the repurchase date at their addresses shown in
the register of the registrar. We will also give notice to
beneficial owners as required by applicable law. This notice
will state, among other things, the procedures that holders must
follow to require us to repurchase their notes.
We will be required to repurchase for cash any outstanding note
for which a holder of notes delivers a written repurchase notice
to the paying agent. This notice must be delivered during the
period beginning at any time from the opening of business on the
date that is 20 business days prior to the repurchase date until
the close of business on the repurchase date. If a repurchase
notice is given and withdrawn during that period, we will not be
obligated to repurchase the notes. Our repurchase obligation
will be subject to certain additional conditions.
The repurchase price payable for a note will be equal to 100% of
the principal amount of the notes plus accrued and unpaid
interest, including additional interest, if any, to, but
excluding, the repurchase date. Subject to satisfaction of
certain conditions, we may elect to satisfy our obligation to
pay the purchase price, in whole or in part, by delivering
common shares as further described under Delivery of
shares. The paying agent initially will be the trustee.
The repurchase notice must state:
(1) if certificated notes have been issued, the note
certificate numbers (or, if the notes are not certificated, a
repurchase notice made by a holder of notes must comply with
appropriate DTC procedures);
(2) the portion of the principal amount of notes to be
repurchased, which must be in US$1,000 multiples; and
(3) that the notes are to be repurchased by us pursuant to
the applicable provisions of the notes and the indenture.
36
A holder of notes may withdraw any written repurchase notice by
delivering a written notice of withdrawal to the paying agent
prior to the close of business on the repurchase date. The
withdrawal notice must state:
(1) the principal amount of the withdrawn notes;
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(2)
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if certificated notes have been issued, the certificate numbers
of the withdrawn notes (or, if the notes are not certificated,
the withdrawal notice must comply with appropriate DTC
procedures); and
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(3) the principal amount, if any, which remains subject to
the repurchase notice.
Payment of the repurchase price for a note for which a
repurchase notice has been delivered and not withdrawn is
conditioned upon book-entry transfer or delivery of the note,
together with necessary endorsements, to the paying agent at its
office in the Borough of Manhattan, The City of New York, or any
other office of the paying agent, at any time after delivery of
the repurchase notice. Payment of the repurchase price for the
note will be made promptly following the later of the repurchase
date and the time of book-entry transfer or delivery of the
note. If the paying agent holds money sufficient to pay the
repurchase price of the note on the business day following the
repurchase date, then, on and after the date:
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the note will cease to be outstanding; and
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all other rights of the holder will terminate, other than the
right to receive the repurchase price upon delivery of the note.
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This will be the case whether or not book-entry transfer of the
note has been made or the note has been delivered to the paying
agent.
We will comply with the provisions of
Rule 13e-4
and any other rules under the Exchange Act and any Canadian
securities laws that may be applicable.
No notes may be repurchased at the option of the holders if
there has occurred and is continuing an event of default under
the indenture, other than an event of default that is cured by
the payment of the repurchase price of the notes.
We may be unable to repurchase the notes for cash or may not
have enough funds to pay the purchase price for all tendered
notes. Any future credit agreements or other agreements relating
to our indebtedness may contain provisions prohibiting purchase
of the notes for cash under certain circumstances. If we are
prohibited from purchasing notes, we could seek the consent of
our lenders to purchase the notes or attempt to refinance this
debt. If we do not obtain the consent or refinance the debt, we
would not be permitted to purchase the notes for cash and would
be required to pay the purchase price in common shares. Our
failure to purchase tendered notes would constitute an event of
default under the indenture, which might constitute a default
under the terms of our other indebtedness.
Offer to purchase
upon a fundamental change
In the event of a fundamental change, subject to the terms and
conditions of the indenture, we shall be required to offer to
purchase all of the outstanding notes (a purchase
offer) on the date (the purchase date) that is
30 business days after the date of such offer, at a purchase
price equal to 100% of the principal amount of the notes, plus
accrued and unpaid interest, including additional interest, if
any, up to but not including, the purchase date.
37
If such purchase date is after a record date but on or prior to
an interest payment date, however, then the interest payable on
such date will be paid to the holder of record of the notes on
the relevant record date. Subject to satisfaction of certain
conditions, we may elect to satisfy our obligation to pay the
purchase price, in whole or in part, by delivering common shares
as further described under Delivery of shares.
Within 30 days after we know of the occurrence of a
fundamental change, we shall be required to give notice to all
holders of record of notes, as provided in the indenture,
stating among other things, the occurrence of a fundamental
change and setting out the terms of the purchase offer,
including whether the purchase price will be paid in cash or
common shares or any combination of cash or common shares,
specifying the percentages of each. We must also deliver a copy
of the notice to the trustee.
In order to accept such purchase offer, a holder must deliver
prior to the purchase date a purchase notice stating among other
things:
(1) if certificated notes have been issued, the note
certificate numbers (or, if the notes are not certificated, the
repurchase notice must comply with appropriate DTC procedures);
(2) the portion of the principal amount of notes to be
purchased, which must be in US$1,000 multiples; and
(3) that the notes are to be purchased by us pursuant to
the applicable provisions of the notes and the indenture.
A holder of notes may withdraw any written purchase notice by
delivering a written notice of withdrawal to the paying agent
prior to the close of business on the business day prior to the
purchase date. The withdrawal notice must state:
(1) the principal amount of the withdrawn notes;
(2) if certificated notes have been issued, the certificate
numbers of the withdrawn notes (or, if the notes are not
certificated, the withdrawal notice must comply with appropriate
DTC procedures); and
(3) the principal amount, if any, which remains subject to
the purchase notice.
We will promptly pay the purchase price for notes surrendered
for repurchase following the purchase date.
A fundamental change will be deemed to have occurred
at the time after the notes are originally issued that any of
the following occurs:
(1) a person or group within the
meaning of Section 13(d) of the Exchange Act other than us,
our subsidiaries or our or their employee benefit plans, files a
Schedule TO or any schedule, form or report under the
Exchange Act or applicable Canadian Securities laws disclosing
that such person or group has become the direct or indirect
ultimate beneficial owner, as defined in
Rule 13d-3
under the Exchange Act or applicable Canadian securities laws,
of our common equity representing more than 50% of the voting
power of our common equity;
(2) consummation of any share exchange, consolidation,
amalgamation, merger, statutory arrangement or other combination
pursuant to which our common shares will be converted into cash,
securities or other property or any sale, lease or other
transfer in one transaction
38
or a series of transactions of all or substantially all of the
consolidated assets of us and our subsidiaries, taken as a
whole, to any person other than one of our wholly-owned
subsidiaries; provided, however, that a transaction where the
holders of more than 50% of all classes of our common equity
immediately prior to such transaction own, directly or
indirectly, more than 50% of all classes of common equity of the
continuing or surviving corporation or transferee immediately
after such event shall not be a fundamental change;
(3) continuing directors cease to constitute at least a
majority of our board of directors; or
(4) our shareholders approve any plan or proposal for the
liquidation or dissolution of us.
A fundamental change will not be deemed to have occurred,
however, if at least 90% of the consideration, excluding cash
payments for fractional shares, in the transaction or
transactions otherwise constituting the fundamental change
consists of common shares or American Depositary Shares that are
traded or listed on, or immediately after the transaction or
event will be traded or listed on a U.S. national or
regional securities exchange or the Toronto Stock Exchange.
We will comply with any applicable provisions of
Rule 13e-4
and any other tender offer rules under the Exchange Act and any
Canadian securities laws which may then be applicable in the
event of a fundamental change.
No notes may be purchased upon a fundamental change if there has
occurred and is continuing an event of default under the
indenture, other than an event of default that is cured by the
payment of the fundamental change purchase price of the notes.
These fundamental change purchase rights could discourage a
potential acquirer. However, this fundamental change repurchase
feature is not the result of managements knowledge of any
specific effort to obtain control of us by means of a merger,
tender offer or solicitation, or part of a plan by management to
adopt a series of anti-takeover provisions. The term
fundamental change is limited to specified
transactions and may not include other events that might
adversely affect our financial condition or business operations.
Our obligation to offer to repurchase the notes upon a
fundamental change would not necessarily afford a holder of
notes protection in the event of a leveraged transaction,
reorganization, merger or similar transaction involving us.
We may be unable to repurchase the notes for cash if a
fundamental change occurs. If a fundamental change were to
occur, we may not have enough funds to pay the purchase price
for all tendered notes. Any future credit agreements or other
agreements relating to our indebtedness may contain provisions
prohibiting purchase of the notes for cash under certain
circumstances, or expressly prohibit our purchase of the notes
for cash upon a fundamental change or may provide that a
fundamental change constitutes an event of default under that
agreement. If a fundamental change occurs at a time when we are
prohibited from purchasing notes, we could seek the consent of
our lenders to purchase the notes or attempt to refinance this
debt. If we do not obtain the consent or refinance the debt, we
would not be permitted to purchase the notes for cash and would
be required to pay the purchase price in common shares. Our
failure to purchase tendered notes would constitute an event of
default under the indenture, which might constitute a default
under the terms of our other indebtedness.
39
Delivery of
shares
We may, at our option, elect to pay the amount payable in
connection with a repurchase of the notes at the option of the
holder in cash or common shares or any combination of cash and
common shares. We may also, at our option, elect to pay the
fundamental change purchase price in cash or common shares or
any combination of cash and common shares. Our right to issue
common shares to pay the repurchase price or the fundamental
change purchase price is subject to our satisfying various
conditions, including:
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no event of default shall have occurred and be continuing under
the indenture;
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listing of the common shares on the principal United States and
Canadian securities exchanges on which our common shares are
then listed, or if not so listed, the listing of the common
shares on a U.S. national securities exchange;
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the registration of the common shares under the
U.S. Securities Act and the U.S. Exchange Act and
applicable Canadian securities laws, if required; and
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any necessary qualification or registration under applicable
state securities laws or the availability of an exemption from
qualification and registration.
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If these conditions are not satisfied with respect to a holder
before the close of business on the repurchase date or the
fundamental change purchase date, as the case may be, we will
make the required payment on the notes of the holder entirely in
cash. We may not change the form of components or percentages of
components of consideration to be paid for the notes once we
have given the notice that we are required to give to holders of
notes, except as described in the preceding sentence.
If we elect to pay the repurchase price or the fundamental
change purchase price in common shares, the number of common
shares to be delivered by us will be determined by dividing the
amount of the payment to be made, and that is not paid in cash,
by 95% of the average of the daily VWAP prices of the common
shares for the 10 consecutive trading days ending on the third
trading day preceding the repurchase date or the fundamental
change purchase date, as the case may be, approximately adjusted
to take into account the occurrence, during the period
commencing on the first of such trading days during such ten day
period and ending on such repurchase date or fundamental change
purchase date, of certain events that would result in an
adjustment of the conversion rate with respect to the common
shares. See Conversion rate adjustments.
We will not issue any fractional common shares in connection
with our delivery of common shares upon our repurchase of the
notes at the option of the holder or purchase of the notes in
connection with a fundamental change. Instead, we will pay cash
based on the closing price of our common shares on the
applicable payment date for any fractional common shares we
would otherwise deliver on account of the notes.
If we elect to satisfy any payment of the repurchase price or
the fundamental change purchase price in common shares, we will
give you notice at least 20 business days before the payment
date. Our notice will state:
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whether we will make the payment in cash or common shares or any
combination of cash and common shares;
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if both cash and common shares are payable, the percentage of
each applicable form of payment on a per note basis; and
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the method of calculating the average closing price of the
common shares.
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When we determine the actual number of common shares in
accordance with the foregoing provisions, we will publish the
information on our web site or through such other public medium
as we may use at that time, including filing a report on
Form 6-K with the SEC.
Because the average closing price of the common shares is
determined prior to the applicable payment date, holders of
notes bear the market risk with respect to the value of the
common shares to be received from the date the average market
price is determined to the payment date. We may deliver common
shares as payment for the repurchase price or the fundamental
change purchase price only if the information necessary to
calculate the average closing price is published daily in a
newspaper of U.S. or Canadian national circulation or such
other public medium as we may use at that time.
Consolidation,
merger and sale of assets by us
The indenture provides that we may, without the consent of any
holder of notes, amalgamate with, consolidate with or merge with
or into any other person or sell, transfer or lease all or
substantially all of our properties and assets substantially as
an entirety to another person, provided that:
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the resulting, surviving or transferee person (the
successor company) will be a corporation,
partnership, limited liability company or trust organized and
existing under the laws of the United States of America, any
state thereof, the District of Columbia, Puerto Rico or the laws
of Canada or any province or territory thereunder and the
successor company (if not us) will expressly assume, by a
supplemental indenture, executed and delivered to the trustee,
in form reasonably satisfactory to the trustee, all of our
obligations under the notes and the indenture;
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the trustee is satisfied that the transaction will not result in
the successor company being required to make any deduction or
withholding on account of certain Canadian taxes from any
payments in respect of the notes;
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immediately after giving effect to such transaction, no default
under the indenture, and no event which, after notice or lapse
of time or both, would become a default under the indenture,
shall have occurred and be continuing; and
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we shall have delivered to the trustee an officers
certificate stating that the amalgamation, consolidation, merger
or transfer and such supplemental indenture (if any) comply with
the provisions of the indenture.
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The successor company will succeed to, and be substituted for,
and may exercise every right and power of, us under the
indenture, but in the case of a sale, transfer or lease of
substantially all our assets that results in the sale,
assignment, conveyance, transfer or other disposition or assets
constituting or accounting for less than 95% of our consolidated
assets, revenue or net income (loss), we will not be released
from the obligation to pay the principal of and interest on the
notes.
41
Additional
amounts
We will make payments on account of the notes without
withholding or deducting on account of any present or future
duty, levy, impost, assessment or other governmental charge
(including, without limitation, penalties, interest and other
liabilities related thereto) imposed or levied by or on behalf
of the Government of Canada or of any province or territory
thereof or by any authority or agency therein or thereof having
the power to tax (Canadian taxes), unless we are
required by law or the interpretation or administration thereof,
to withhold or deduct Canadian taxes. If we are required to
withhold or deduct any amount on account of Canadian taxes, we
will make such withholding or deduction and pay as additional
interest the additional amounts (additional amounts)
necessary so that the net amount received by each holder of
notes after the withholding or deduction (including with respect
to additional amounts) will not be less than the amount the
holder would have received if the Canadian taxes had not been
withheld or deducted. We will make a similar payment of
additional amounts to holders of notes (other than excluded
holders) that are exempt from withholding but are required to
pay tax directly on amounts otherwise subject to withholding.
However, no additional amounts will be payable with respect to a
payment made to a holder or former holder of notes (an
excluded holder) in respect of the beneficial owner
thereof:
(i) with which we do not deal at arms length (within
the meaning of the Income Tax Act (Canada)) at the time of
making such payment;
(ii) that is subject to such Canadian taxes by reason of
its failure to comply with any certification, identification,
information, documentation or other reporting requirement if
compliance is required by law, regulation, administrative
practice or an applicable treaty as a precondition to exemption
from, or a reduction in the rate of deduction or withholding of,
such Canadian taxes (provided that in the case of any imposition
or change in any such certification, identification,
information, documentation or other reporting requirements which
applies generally to holders of notes who are not residents of
Canada, at least 60 days prior to the effective date of any
such imposition or change, we shall give written notice, in the
manner provided in the indenture, to the trustee and the holders
of the notes then outstanding of such imposition or change, as
the case may be, and provide the trustee and such holders with
such forms or documentation, if any, as may be required to
comply with such certification, identification, information,
documentation, or other reporting requirements); or
(iii) that is subject to such Canadian taxes by reason of
its carrying on business in or otherwise being connected with
Canada or any province or territory thereof otherwise than by
the mere holding of such notes or the receipt of payment, or
exercise of any enforcement rights thereunder;
and no additional amounts will be payable with respect to any
estate, inheritance, gift, sales, excise, transfer, personal
property or similar tax, assessment or governmental charge (the
excluded taxes).
We will remit the amount we withhold or deduct to the relevant
authority. Additional amounts will be paid in cash
semi-annually, at maturity, on any redemption date, on a
conversion date or on any purchase date. With respect to
references in this prospectus to the payment of principal or
interest on any note, such reference shall be deemed to include
the payment of additional amounts to the extent that, in such
context, additional amounts are, were or would be payable.
42
We will furnish to the trustee, within 30 days after the
date the payment of any Canadian taxes is due pursuant to
applicable law, certified copies of tax receipts evidencing that
such payment has been made. We will indemnify and hold harmless
each holder of notes (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 expenses) arising therefrom or with respect
thereto, and (iii) any Canadian taxes levied or imposed and
paid by such holder with respect to any reimbursement under
(i) and (ii) above, but excluding any excluded taxes.
Limitation on
Layering
The indenture will provide that we may not incur indebtedness
that is contractually senior in right of payment to the notes
and contractually subordinate in right of payment to any of our
other indebtedness, other than any senior secured bank
indebtedness that may be subordinate in right of payment to
indebtedness incurred for the construction and development of
Brisas.
Events of
default; notice and waiver
The following are events of default under the indenture:
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we fail to pay the principal amount of the notes when due upon
redemption, repurchase or otherwise on the notes;
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we fail to pay interest or additional interest, if any, on the
notes, when due and such failure continues for a period of
30 days;
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we fail to perform or observe any other covenant or warranty in
the indenture for 60 days after written notice;
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we fail to convert notes into common shares and for cash at our
election upon exercise of a holders conversion right and
such failure continues for 5 business days or more;
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any indebtedness (other than indebtedness which is non-recourse
to us or any of our subsidiaries) for money borrowed by us or
one of our subsidiaries (all or substantially all of the
outstanding voting securities of which are owned, directly or
indirectly, by us) in an outstanding principal amount in excess
of US$15 million (or the equivalent thereof in any other
currency or currency unit) is not paid at final maturity or upon
acceleration and such failure is not cured or the acceleration
is not rescinded or annulled, within 10 days after written
notice as provided in the Indenture;
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the rendering of a final judgment or judgments (not subject to
appeal and not covered by insurance) against us or any of our
subsidiaries in excess of US$15 million (or the equivalent
thereof in any other currency or currency unit) which remains
unstayed, undischarged or unbonded for a period of 60 days;
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our failure to give notice of a fundamental change as described
under Offer to purchase upon a fundamental change or
notice of a specified corporate transaction as described under
Conversion upon specified corporate transactions
when due;
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our failure to comply with our obligations under
Consolidation, merger and sale of assets by us; or
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certain events involving our bankruptcy, insolvency or
reorganization involving us or our subsidiaries.
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The trustee may withhold notice to the holders of the notes of
any default, except defaults in payment of principal or
interest, including additional interest, if any, on the notes.
However, the trustee must consider it to be in the interest of
the holders of the notes to withhold this notice.
If an event of default occurs and is continuing, the trustee or
the holders of at least 25% in principal amount of the
outstanding notes may declare the principal amount of the notes
and interest, including additional interest, if any, on the
outstanding notes to be immediately due and payable. In case of
certain events of bankruptcy, insolvency or reorganization
involving us or our subsidiaries, principal amount plus
interest, including additional interest, if any, on the notes
will automatically become due and payable. However, if we cure
all defaults, except the nonpayment of the principal amount of
the notes plus interest, including additional interest, if any,
that became due as a result of the acceleration, and meet
certain other conditions, with certain exceptions, this
declaration may be cancelled and the holders of a majority of
the principal amount of outstanding notes may waive these past
defaults.
Payments of redemption price, repurchase price, fundamental
change repurchase price, principal or interest, including
additional interest on the notes, if any, that are not made when
due will accrue interest at the annual rate of 1% above the
then-applicable interest rate from the required payment date to
the extent lawful.
Subject to the trustees duties in the case of an event of
default, the trustee will not be obligated to exercise any of
its rights or powers at the request of the holders, unless the
holders have offered to the trustee indemnity reasonably
satisfactory to it. Subject to the indenture, applicable law and
the trustees indemnification, the holders of a majority in
aggregate principal amount of the outstanding notes will have
the right to direct the time, method and place of any
proceedings for any remedy available to the trustee.
No holder of the notes may pursue any remedy under the
indenture, except in the case of a default in the payment of
redemption price, repurchase price, fundamental change
repurchase price, principal or interest, including additional
interest (in respect of any default in payment under a Note on
or after the due date) on the notes, unless:
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the holder has given the trustee written notice of an event of
default;
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the holders of at least 25% in principal amount of outstanding
notes make a written request, and offer indemnity to the trustee
reasonably satisfactory to it to pursue the remedy;
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the trustee does not receive an inconsistent direction from the
holders of a majority in principal amount of the notes; and
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the trustee fails to comply with the request within 60 days
after receipt.
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Modification and
waiver
The consent of the holders of a majority in principal amount of
the outstanding notes is required to modify or amend the
indenture. However, a modification or amendment requires the
consent of the holder of each outstanding note affected thereby
if it would:
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extend the fixed maturity of any note;
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reduce the principal amount of, or interest rate on or extend
the stated time for payment of interest, including additional
interest, if any, payable on, any note;
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reduce any amount payable upon redemption or repurchase of any
note;
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after the occurrence of a fundamental change, modify the
provisions with respect to the purchase right of the holders
upon a fundamental change in a manner adverse to holders;
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impair the right of a holder to institute suit for payment on
any note;
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change the currency in which any note is payable;
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impair the right of a holder to convert any note;
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reduce the quorum or voting requirements under the indenture;
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change any obligation of ours to maintain an office or agency in
the places and for the purposes specified in the indenture;
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change the ranking of the notes in a manner adverse to the
holder of the notes;
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subject to specified exceptions, modify certain of the
provisions of the indenture relating to modification or waiver
of provisions of the indenture; or
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reduce the percentage of notes required for consent to any
modification of the indenture.
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We are permitted to modify certain provisions of the indenture
without the consent of the holders of the notes.
Form,
denomination and registration
The notes are issued:
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in fully registered form; and
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in denominations of US$1,000 principal amount and integral
multiples of US$1,000.
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Global note,
book-entry form
The notes are evidenced by one or more global notes, deposited
and registered in the name of Cede & Co., as
DTCs nominee. Except as set forth below, a global note may
be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
Beneficial interests in a global note may be held through
organizations that are participants in DTC, or participants.
Transfers between participants will be effected in the ordinary
way in accordance with DTC rules and will be settled in clearing
house funds. The laws of some states require that certain
persons take physical delivery of securities in definitive form.
As a result, the ability to transfer beneficial interests in the
global note to such persons may be limited.
Beneficial interests in a global note held by DTC may be held
only through participants, or certain banks, brokers, dealers,
trust companies and other parties that clear through or maintain
a custodial relationship with a participant, either directly or
indirectly, and when indirectly they are called indirect
participants. So long as Cede & Co., DTCs
nominee, is the registered owner
45
of a global note, Cede & Co. for all purposes will be
considered the sole holder of such global note. Except as
provided below, owners of beneficial interests in a global note
will:
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not be entitled to have certificates registered in their names;
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not receive physical delivery of certificates in definitive
registered form; and
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not be considered holders of the global note.
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We will pay interest, if any, and the repurchase price of a
global note to Cede & Co., as the registered owner of
the global note, by wire transfer of immediately available funds
on the repurchase date, as the case may be. Neither we, the
trustee nor any paying agent will be responsible or liable:
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for the records relating to, or payments made on account of,
beneficial ownership interests in a global note; or
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for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests.
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Neither we, the trustee, registrar, paying agent nor conversion
agent 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. DTC has advised us that it will take any action
permitted to be taken by a holder of notes, including the
presentation of notes for conversion, only at the direction of
one or more participants to whose account with DTC interests in
the global note are credited, and only in respect of the
principal amount of the notes represented by the global note as
to which the participant or participants has or have given such
direction.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York, and a member of the Federal Reserve System;
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a clearing corporation within the meaning of the
Uniform Commercial Code; and
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a clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act.
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DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the
participants or their representatives, together with other
entities, own DTC. 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.
DTC has agreed to the foregoing procedures to facilitate
transfers of interests in a global note among participants.
However, DTC is under no obligation to perform or continue to
perform these procedures, and may discontinue these procedures
at any time.
We will issue notes in definitive certificate form only if:
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DTC notifies us that it is unwilling or unable to continue as
depositary or DTC ceases to be a clearing agency registered
under the Exchange Act, and a successor depositary is not
appointed by us within 90 days;
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an event of default shall have occurred and the maturity of the
notes shall have been accelerated in accordance with the terms
of the notes and any holder shall have requested in writing the
issuance of definitive certificated notes; or
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we have determined in our sole discretion that notes shall no
longer be represented by global notes.
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Information
concerning the trustee
We have appointed The Bank of New York, the trustee under the
indenture, as paying agent, conversion agent, note registrar and
custodian for the notes. The trustee or its affiliates may
provide banking and other services to us in the ordinary course
of their business.
The indenture contains certain limitations on the rights of the
trustee, if it or any of its affiliates is then our creditor, to
obtain payment of claims in certain cases or to realize on
certain property received on any claim as security or otherwise.
The trustee and its affiliates will be permitted to engage in
other transactions with us. However, if the trustee or any
affiliate continues to have any conflicting interest and a
default occurs with respect to the notes, the trustee must
eliminate such conflict or resign.
Description of
share capital
We are authorized to issue an unlimited number of Class A
common shares of which 40,762,019 Class A common
shares were issued and outstanding at May 4, 2007.
Shareholders are entitled to receive notice of and attend all
meetings of shareholders with each Class A common share
held entitling the holder to one vote on any resolution to be
passed at such shareholder meetings. Shareholders are entitled
to dividends if, as and when declared by our board of directors.
Upon our liquidation, dissolution or winding up, shareholders
are entitled to receive our remaining assets available for
distribution to shareholders. The Class A common shares
include associated Class A common share purchase rights
under our Shareholder Rights Plan Agreement, as amended and
restated. Those rights are described under Shareholder
Rights Plan on page 25 of the annual information form
incorporated by reference into this prospectus.
In February 1999, the shareholders of Gold Reserve Corporation
approved a plan of arrangement as a result of which Gold Reserve
Corporation became a subsidiary of Gold Reserve Inc. Generally,
each shareholder of Gold Reserve Corporation received one
Class A common share of Gold Reserve Inc. for each common
share owned in Gold Reserve Corporation. Certain
U.S. holders elected, for tax reasons, to receive equity
units instead of Class A common shares. Each equity unit
consists of one Class B common share of Gold Reserve Inc.
and one Gold Reserve Corporation Class B common share,
which consideration was substantially equivalent to a
Class A common share and is generally immediately
convertible into a Class A common share. Equity units, of
which 1,085,099 were issued and outstanding at May 4, 2007,
are not listed for trading on any stock exchange, but subject to
compliance with applicable federal, provincial and state
securities laws, may be transferred.
47
Income tax
considerations
Certain U.S.
federal income tax considerations
The following is a summary of certain material U.S. federal
income tax consequences relating to the acquisition, ownership,
and disposition of a note acquired pursuant to this prospectus,
and the ownership and disposition of common shares acquired upon
a conversion of such a note.
This summary is for general information purposes only and does
not purport to be a complete analysis or listing of all
potential U.S. federal income tax consequences that may apply to
a holder as a result of the acquisition, ownership, and
disposition of notes or common shares. In addition, this summary
does not take into account the individual facts and
circumstances of any particular holder that may affect the U.S.
federal income tax consequences of the acquisition, ownership
and disposition of notes or common shares. Accordingly, this
summary is not intended to be, and should not be construed as,
legal or U.S. federal income tax advice with respect to any
holder. Each holder should consult its own financial advisor,
legal counsel, or accountant regarding the U.S. federal
income tax consequences of the acquisition, ownership and
disposition of notes or common shares.
Authorities
This summary is based on the Internal Revenue Code of 1986, as
amended (the Code), Treasury Regulations promulgated
thereunder, published rulings of the Internal Revenue Service
(the IRS), published administrative positions of the
IRS, the Convention Between Canada and the United States of
America with Respect to Taxes on Income and on Capital, signed
September 26, 1980, as amended, and U.S. court decisions
that are applicable and, in each case, as in effect and
available, as of the date of this prospectus. All of the
authorities on which this summary is based are subject to
differing interpretations and could be changed in a material and
adverse manner at any time, and any such change could be applied
on a retroactive basis. In such event, the U.S. federal income
tax consequences applicable to a holder of the notes or common
shares could differ from those described in this summary. This
summary does not discuss the potential effects, whether adverse
or beneficial, of any proposed legislation that, if enacted,
could be applied on a retroactive basis.
U.S.
Holders
For purposes of this summary, a U.S. Holder is a
beneficial owner of notes or common shares that, for U.S.
federal income tax purposes, is (a) an individual who is a
citizen or resident of the U.S., (b) a corporation, or any
other entity classified as a corporation for U.S. federal income
tax purposes, that is created or organized in or under the laws
of the U.S. or any political subdivision thereof, including the
District of Columbia, (c) an estate if the income of such
estate is subject to U.S. federal income tax regardless of the
source of such income, or (d) a trust if (i) such
trust has validly elected, under applicable Treasury
Regulations, to be treated as a U.S. person for U.S. federal
income tax purposes or (ii) a U.S. court is able to
exercise primary supervision over the administration of such
trust and one or more U.S. persons, as defined in
Section 7701(a)(30) of the Code, have the authority to
control all substantial decisions of such trust.
48
Non-U.S.
Holders
For purposes of this summary, a
non-U.S.
Holder is a beneficial owner of notes or common shares
other than a U.S. Holder. A
non-U.S.
Holder should consult its own financial advisor, legal counsel,
or accountant regarding the U.S. federal income tax consequences
(including the potential application of and operation of any
income tax treaties) of the acquisition, ownership, and
disposition of notes or common shares.
Holders subject
to special U.S. federal income tax rules not addressed
This summary does not address the U.S. federal income tax
consequences of the acquisition, ownership and disposition of
notes or common shares to holders that are subject to special
provisions under the Code, including the following holders:
(a) holders that are tax-exempt organizations, qualified
retirement plans, individual retirement accounts, or other
tax-deferred accounts; (b) holders that are financial
institutions, insurance companies, real estate investment
trusts, or regulated investment companies; (c) holders that
are dealers in securities, commodities or currencies, or holders
that are traders in securities or commodities that elect to
apply a
mark-to-market
accounting method; (d) holders that have a functional
currency other than the U.S. dollar; (e) holders that
are subject to the alternative minimum tax under the Code;
(f) holders that own notes or common shares as part of a
straddle, hedging transaction, conversion transaction,
constructive sale, or other arrangement involving more than one
position; (g) holders that acquired notes or common shares
in connection with the exercise of employee stock options or
otherwise as compensation for services; (h) holders that
hold notes or common shares other than as a capital asset within
the meaning of Section 1221 of the Code; or
(i) holders that own (directly, indirectly, or
constructively) 10% or more, by voting power or value, of the
outstanding shares of the Company. Holders that are subject to
special provisions under the Code, including holders described
immediately above, should consult their own financial advisor,
legal counsel or accountant regarding the U.S. federal income
tax consequences of the acquisition, ownership and disposition
of notes or common shares.
If an entity that is classified as a partnership (or
pass-through entity) for U.S. federal income tax
purposes holds notes or common shares, the U.S. federal income
tax consequences to such partnership (or
pass-through entity) and the partners of such
partnership (or owners of such pass-through entity)
generally will depend on the activities of the partnership (or
pass-through entity) and the status of such partners
(or owners). Partners of entities that are classified as
partnerships (or owners of pass-through entities)
for U.S. federal income tax purposes should consult their own
financial advisor, legal counsel or accountant regarding the
U.S. federal income tax consequences of the acquisition,
ownership, and disposition of notes or common shares.
Tax consequences
other than U.S. federal income tax consequences not
addressed
This summary does not address the consequences arising under
U.S. federal estate, gift, or excise tax laws or the tax laws of
any applicable foreign, state, local or other jurisdiction to
holders of the acquisition, ownership and disposition of notes
or common shares. Each holder should consult its own financial
advisor, legal counsel, or accountant regarding the consequences
of any of these laws on the acquisition, ownership and
disposition of notes or common shares.
49
The
Notes
U.S. Federal
Income Tax Consequences to U.S. Holders
Taxation of
stated interest
For United States federal income tax purposes, interest
(including Additional Amounts, if any, and without reduction for
any withholding tax) on the notes generally will be taxable to a
U.S. Holder as ordinary income at the time such interest is
received or accrued, in accordance with such U.S. Holders
method of accounting for United States federal income tax
purposes. Subject to applicable limitations under the Code and
the United States Treasury Regulations and subject to the
discussion below, any Canadian withholding tax imposed on
interest payments in respect of the notes will be treated as a
foreign income tax eligible for credit against a U.S.
Holders United States federal income tax liability (or, at
a U.S. Holders election, may, in certain circumstances, be
deducted in computing taxable income). Interest paid on the
notes will be treated as income from sources outside the U.S.,
and generally will be treated as passive category
income or general category income for U.S.
foreign tax credit purposes. The Code applies various
limitations on the amount of foreign taxes that may be claimed
as a credit by U.S. taxpayers. Because of the complexity of
those limitations, U.S. Holders should consult their own tax
advisors with respect to the amount of foreign taxes that can be
claimed as a credit.
Market discount
and amortizable bond premium
A U.S. Holder that purchased the notes (other than on issuance)
at a price less than their principal amount would be treated for
U.S. federal income tax purposes as having purchased the notes
with market discount, subject to a de minimis exception. In the
case of notes having non-de minimis market discount, a U.S.
Holder will be required to treat any partial principal payment
received on, and any gain recognized upon the sale or other
disposition of, the notes as ordinary income to the extent of
the market discount that accrued during such U.S. Holders
holding period for the notes (on a ratable basis or, at the
election of the U.S. Holder, constant yield basis), unless such
U.S. Holder elects to annually include market discount in gross
income over time as the market discount accrues. Any election to
include market discount over time as it accrues would apply to
all debt obligations held by the U.S. Holder at the beginning of
the first taxable year to which the election applies or
thereafter acquired by the U.S. Holder and is irrevocable
without the consent of the IRS. In addition, a U.S. Holder that
holds the notes with market discount, and that does not elect to
accrue market discount into gross income over time, may be
required to defer the deduction of interest expense incurred or
continued to purchase or carry the notes until the maturity of
the notes or its earlier disposition in a taxable transaction.
Furthermore, if the notes were purchased by a U.S. Holder with a
more than de minimis market discount and the U.S. Holder
subsequently disposes of the notes in a transaction that is
nontaxable in whole or in part (other than certain transactions
described in section 1276(d) of the Code), accrued market
discount generally will be includible in gross income as
ordinary income as if such U.S. Holder had sold the notes at
their then fair market value. However, if a U.S. Holder converts
a note with accrued market discount that has not previously been
included in gross income into common shares, then a ratable
portion of such market discount will instead be allocated to
such common shares. The amount of market discount allocable to
such common shares may be taxable as ordinary income upon a sale
or other disposition of such common shares.
50
A U.S. Holder that purchased a note for an amount in excess of
its stated principal amount (subject to special rules for early
redemption dates as described below) would be treated as having
acquired such note with amortizable bond premium in
the amount of such excess. In such case, the U.S. Holder
may elect to amortize the bond premium over the term of the note
as a reduction in the amount required to be included in the U.S.
Holders gross income each year with respect to interest on
the note (provided that the amount of amortizable bond premium
will be calculated based on the amount payable at the applicable
redemption date if the use of such redemption date in lieu of
the stated maturity date results in a smaller amortizable
premium for the period ending on the redemption date). Any
election to amortize bond premium will apply to all notes held
by the U.S. Holder at the beginning of the first taxable
year to which the election applies or thereafter acquired by the
U.S. Holder and is irrevocable without the consent of the IRS.
The rules governing market discount and amortizable bond premium
are complex, and potential investors should consult their own
tax advisors concerning the application of these rules.
Sale, redemption
or other taxable disposition of the notes
The Company has determined that it was a PFIC for the taxable
year ended December 31, 2006 and the Company expects that
it will be a PFIC for the taxable year ending December 31,
2007. Accordingly, adverse U.S. federal income tax rules apply
to a disposition of the notes by a U.S. Holder. If the
Company was a PFIC at any time during the US Holders
holding period of the notes, each U.S. Holder of the notes
generally will, upon disposition of the notes at a gain, be
liable to pay U.S. federal income tax at the highest tax rate on
ordinary income in effect for each year to which the income is
allocated plus interest on the tax, as if the gain had been
recognized ratably over each day in the U.S. Holders
holding period for the notes while the Company was a PFIC.
If the Company is not treated as a PFIC with respect to a U.S.
Holder for any taxable year during which the U.S. Holder held
notes, upon the sale, redemption or other taxable disposition of
the notes, the U.S. Holder will recognize gain or loss, if any,
equal to the difference between the amount realized on such
sale, redemption or other taxable disposition (other than
amounts received that are attributable to accrued but unpaid
interest, which amounts shall be taxable as ordinary income to
the extent not previously included in the gross income of the
U.S. Holder) and such U.S. Holders adjusted tax basis in
the notes. A U.S. Holders adjusted tax basis in the notes
generally will equal the cost of the notes to the U.S. Holder,
increased by any market discount previously included in gross
income by such holder, and reduced by (i) any principal
payments received by such holder and (ii) any amortizable
bond premium applied to reduce interest inclusions with respect
to such notes. Any such gain or loss generally will constitute
capital gain or loss (except that any gain will be treated as
ordinary income to the extent of any market discount that has
accrued on the notes but not previously been included in the
gross income of the U.S. Holder), and will be long-term capital
gain or loss if the notes were held by such U.S. Holder for more
than one year. Certain non-corporate U.S. Holders
(including individuals) may qualify for preferential rates of
United States federal income taxation in respect of long-term
capital gains. The deduction of capital losses is subject to
limitations under the Code. Any gain realized by a U.S. Holder
on a sale or other disposition of the notes generally will be
treated as United States-source income for United States foreign
tax credit purposes.
51
Conversion of the
notes
A U.S. Holder generally will not recognize any income, gain or
loss upon conversion of the notes into common shares, except
with respect to (i) cash received in lieu of a fractional
common share, or (ii) common shares that are attributable
to accrued but unpaid interest not previously included in gross
income. To the extent the Company pays cash to a U.S. Holder
upon a conversion of the notes instead of delivering common
shares, such U.S. Holder should recognize gain or loss, if any,
in the same manner as described above under Sale,
redemption or other taxable disposition of the notes. Cash
received in lieu of a fractional common share upon conversion
will be treated as a payment in exchange for such fractional
share. Accordingly, the receipt of cash in lieu of a fractional
common share generally will be treated as described below under
The Common Shares. Amounts that are
attributable to accrued but unpaid interest generally will be
taxable to the U.S. Holder as interest to the extent not
previously included in gross income.
A U.S. Holders initial tax basis in the common shares
received on conversion of the notes will be the same as the U.S.
Holders adjusted tax basis in the notes at the time of
conversion, reduced by any tax basis allocable to a fractional
share treated as exchanged for cash. However, the tax basis of
common shares received upon a conversion with respect to accrued
but unpaid interest should equal the fair market value of such
common shares. The holding period for the common shares received
on conversion generally will include the holding period of the
notes converted. To the extent any common shares issued upon a
conversion are allocable to accrued interest, however, the
U.S. Holders holding period for such common shares
may commence on the day following the date of delivery of the
common shares.
Constructive
dividends
The conversion rate of the notes is subject to adjustment under
certain circumstances. Under Section 305 of the Code,
adjustments to the conversion rate that increase a U.S.
Holders proportionate share of the Companys assets
or the Companys earnings may in certain circumstances
result in a constructive dividend that is taxable to such U.S.
Holder to the extent of the Companys current and
accumulated earnings and profits, as determined under United
States federal income tax principles. Generally, an increase in
the conversion rate pursuant to a bona-fide reasonable formula
which has the effect of preventing the dilution of the interest
of U.S. Holders in the notes will not be considered to result in
a constructive dividend. However, certain adjustments provided
in the notes (including, without limitation, adjustments to the
conversion rate of the notes in connection with cash dividends
to the Companys shareholders) will not qualify as being
pursuant to a bona-fide reasonable formula. If such adjustments
are made, a U.S. Holder will, to the extent of the
Companys current and accumulated earnings and profits, be
deemed to have received a constructive dividend even though such
U.S. Holder has not received any cash or property as a result of
the adjustment. In addition, a failure to adjust the conversion
price of the notes to reflect a stock dividend or similar event
could in some circumstances give rise to a constructive dividend
to U.S. Holders of common shares.
U.S. Federal
Income Tax Consequences to
Non-U.S.
Holders
A non-U.S.
Holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other
disposition of the notes unless (i) the gain is effectively
connected with the conduct of a trade or business by the
non-U.S.
Holder in the U.S. (and is attributable to a permanent
establishment maintained in the U.S. by such
non-U.S.
Holder if an applicable
52
income tax treaty so requires as a condition for such
non-U.S.
Holder to be subject to U.S. federal income taxation on a net
income basis in respect of income from the common shares), or
(ii) such
non-U.S.
Holder is an individual who is present in the U.S. for
183 days or more in the taxable year of the sale, and
certain other conditions are met. Effectively connected gains
realized by a corporate
non-U.S.
Holder may also, under certain circumstances, be subject to an
additional branch profits tax at a 30% rate or such
lower rate as may be specified by an applicable income tax
treaty.
The Common
Shares
U.S. Federal
Income Tax Consequences to U.S. Holders
Passive Foreign
Investment Company
The Company has determined that it was a PFIC for the taxable
year ended December 31, 2006 and the Company expects that
it will be a PFIC for the taxable year ending December 31,
2007. Accordingly, special U.S. federal income tax rules apply
to the acquisition, ownership and disposition of common shares.
Sections 1291 through 1298 of the Code contain special
rules applicable with respect to foreign corporations that are
PFICs. A company will be considered a PFIC if 75% or more of its
gross income (including a pro rata share of the gross income of
any company (United States or foreign) in which the company is
considered to own 25% or more of the shares by value) in a
taxable year is passive income (the Income Test).
Alternatively, a foreign company will be considered a PFIC if at
least 50% of the assets (averaged over the four quarter ends for
the year) of the company (including a pro rata share of the
assets of any company of which the company is considered to own
25% or more of the shares by value) in a taxable year are held
for the production of, or produce, passive income (the
Asset Test).
For the taxable year ended December 31, 2006, the Company
determined that it was a PFIC under the Income Test. In
addition, the Company expects that it will be a PFIC under the
Income Test for the taxable year ending December 31, 2007,
and, as a result, will be treated as a PFIC for such taxable
year. Further, the Company expects it will continue to be a PFIC
for each subsequent taxable year prior to the year the Brisas
Project begins production. The Company does not, however,
believe that any of its subsidiaries were PFICs as to any
shareholder of the Company for the taxable year ended
December 31, 2006, and does not expect that any such
subsidiaries will be PFICs as to any shareholder of the Company
for any subsequent taxable year (including the taxable year
ending December 31, 2007). The determination of whether the
Company and any of its subsidiaries will be a PFIC for a taxable
year depends on (i) the application of complex U.S. federal
income tax rules, which are subject to differing
interpretations, and (ii) the assets and income of the
Company and its subsidiaries over the course of each such
taxable year. As a result, whether the Company and any of its
subsidiaries will be a PFIC for any taxable year (including the
taxable year in which the Brisas Project begins production or
any subsequent year) cannot be predicted with certainty as of
the date of this prospectus. Accordingly, there can be no
assurance that the Company and any of its subsidiaries will not
be a PFIC for any taxable year.
For taxable years in which the Company is a PFIC, each U.S.
Holder, in the absence of an election by such U.S. Holder to
treat the Company as a qualified electing fund (a
QEF election), or an election by such holder to
mark-to-market
his common shares (an MTM election), as discussed
below, will, upon certain distributions by the Company or upon
disposition of the
53
common shares at a gain, be liable to pay U.S. federal income
tax at the highest tax rate on ordinary income in effect for
each year to which the income is allocated plus interest on the
tax, as if the distribution or gain had been recognized ratably
over each day in the U.S. Holders holding period for the
common shares while the Company was a PFIC. Additionally, the
common shares of a decedent U.S. Holder who failed to make a QEF
election will generally be denied the normally available
step-up of
the tax basis for such common shares to fair market value at the
date of death and, instead, would have a tax basis equal to the
decedents tax basis, if lower, in the common shares.
A U.S. Holder who owns the common shares during a period when
the Company is a PFIC will be subject to the foregoing PFIC
rules, even if the Company ceases to be a PFIC, unless such U.S.
Holder makes a QEF election in the first year of the U.S.
Holders holding period for the shares of the Company and
in which the Company is considered a PFIC (a timely QEF
election). A U.S. Holder who makes such a timely QEF
election will be entitled to treat any future gain on the sale
of the common shares as capital gain and will not be denied the
tax basis step up at death described above. Additionally, a U.S.
Holder who makes a QEF election will, for each taxable year the
Company is a PFIC, include in income a pro rata share of the
ordinary earnings of the Company as ordinary income and a pro
rata share of any net capital gain of the Company as long-term
capital gain, subject to a separate election to defer payment of
taxes (such deferral is subject to an interest charge). For the
U.S. Holder to make the QEF election, the Company must agree to
supply annually to the U.S. Holder the PFIC Annual
Information Statement described in Treasury Regulations
and permit the U.S. Holder access to certain information in the
event of an audit by the U.S. tax authorities. The Company will
prepare and make the statement available to U.S. Holders, and
will permit access to the information.
Treasury Regulations provide that a holder of an option, warrant
or other right to acquire stock of a PFIC, such as a convertible
note, may not make a QEF election that will apply to the option,
warrant or other right or to the stock subject to the option,
warrant or other right. Under Treasury Regulations, if a U.S.
Holder holds an option, warrant or other right to acquire stock
of a PFIC, the holding period with respect to shares of stock of
the PFIC acquired upon exercise of such option, warrant or other
right shall include the period that the option, warrant or other
right was held. The general effect of these rules is that
(a) under the adverse taxation rules for PFICs discussed
above, excess distributions and gains realized on the
disposition of common shares in a PFIC received upon conversion
of notes will be spread over the entire holding period for the
notes and the common shares acquired thereby and (b) if a
U.S. Holder makes a QEF election upon conversion of the notes
and receipt of the common shares, that election generally will
not be a timely QEF election with respect to such common shares
and thus the adverse taxation rules with respect to PFICs
discussed above will continue to apply. However, it appears that
a U.S. Holder receiving common shares upon the conversion of a
note should be able to avoid the adverse taxation rules for
PFICs discussed above with respect to future excess
distributions and gains if such U.S. Holder makes a QEF election
effective as of the first day of the taxable year of such U.S.
Holder beginning after the receipt of such common shares and
such U.S. Holder also makes an election to recognize gain (which
will be taxed under the adverse taxation rules for PFICs rules
discussed above) as if such common shares were sold on such date
at fair market value (a Gain Recognition Election).
A U.S. Holder who receives common shares upon the conversion of
a note, and makes a Gain Recognition Election as described above
and a QEF election effective as of the first day of the taxable
year of such U.S. Holder beginning after the receipt of such
common shares (and complies with certain U.S. federal income tax
reporting requirements), should not have any
54
material adverse U.S. federal income tax consequences as a
result of the QEF election if the Company has no ordinary
earnings or net capital gains during such taxable year. The
Company currently expects that it will not have any ordinary
earnings or net capital gains in future years in which it may be
a PFIC. However, no assurance can be given as to this
expectation. Each U.S. Holder is urged to consult its own
financial advisor, legal counsel, or accountant concerning the
application of the U.S. federal income tax rules governing
PFICs in its particular circumstances.
Each U.S. Holder choosing to make a QEF election would be
required annually to file an IRS Form 8621 (Return by a
Shareholder of a Passive Foreign Investment Company or Qualified
Electing Fund) with such U.S. Holders timely filed
U.S. federal income tax return (or directly with the IRS if
the U.S. Holder is not required to file an income tax
return). Such U.S. Holder must include on IRS
Form 8621 its income as reflected in the PFIC Annual
Information Statement it receives from the Company. If the
Company determines that it was a PFIC during the taxable year,
within two months after the end of each such taxable year the
Company will make available the PFIC Annual Information
Statement.
As an alternative to the QEF election, a U.S. Holder may
make an MTM election with respect to the common shares. The MTM
election requires that the PFIC stock in question be
publicly traded stock as defined under the rules
governing the MTM election. The common shares are publicly
traded stock as required. If a U.S. Holder makes the MTM
election, it must recognize as ordinary income or loss each year
an amount equal to the difference as of the close of the taxable
year (or actual disposition of the common shares) between the
fair market value of the PFIC stock and the adjusted tax basis
in the PFIC stock. Losses would be allowed only to the extent of
net
mark-to-market
gain previously included in income by the U.S. Holder under
the election for prior taxable years. If a MTM election is in
effect on the date of a U.S. Holders death, the
otherwise available
step-up in
tax basis to fair market value will not be available. Instead,
the tax basis of the common shares in the hands of a person who
acquires such common shares from the decedent will be the lesser
of the decedents tax basis or the fair market value of the
common shares. If the U.S. Holder makes the MTM election,
distributions from the Company with respect to the common shares
will be treated as if the Company is not a PFIC, except that the
lower tax rate on dividends for U.S. Holder that are
individuals, discussed below, would not be applicable.
In addition, special rules would apply to U.S. Holders of
the common shares for any taxable year in which the Company is a
PFIC and has one or more subsidiaries that is also a PFIC as to
such U.S. Holder (a Subsidiary PFIC). In such
case, U.S. Holders of the common shares generally would be
deemed to own their proportionate interest in any Subsidiary
PFIC and be subject to the PFIC rules with respect to such
Subsidiary PFIC regardless of the percentage ownership of such
U.S. Holders in the Company. If a subsidiary of the Company
is a PFIC and a U.S. Holder does not make a QEF election as
to such subsidiary, as described above, the U.S. Holder
could incur liability for the deferred tax and interest charge
described above if the PFIC Subsidiary makes a distribution, or
an interest in the PFIC Subsidiary is disposed of in whole or in
part, or the U.S. Holder disposes of all or part of its
common shares. A QEF election must be made separately for each
PFIC and thus a QEF election made with respect to the Company
will not apply to any Subsidiary PFIC. If a subsidiary of the
Company is a PFIC, a QEF election for such subsidiary could
accelerate the recognition of taxable income and may result in
the recognition of ordinary income. Additionally, a
U.S. Holder of common shares that has made a MTM election
for his common shares could be subject to the PFIC rules with
respect to the income of a
55
Subsidiary PFIC even though the value of the Subsidiary PFIC has
already been subject to tax as a result of the MTM election. A
MTM election would not be permitted for a PFIC Subsidiary.
Due to the complexity of the PFIC rules, a U.S. Holder
should consult its own financial advisor, legal counsel, or
accountant regarding the status of the Company and its
subsidiaries as PFICs and the eligibility, manner and
advisability of making a QEF election or a MTM election and how
the PFIC rules may affect the U.S. federal income tax
consequences of a U.S. Holders acquisition, ownership
and disposition of common shares.
Acquisition,
Ownership and Disposition of Common Shares if the Company is Not
a PFIC or if the U.S. Holder makes QEF Election and a Gain
Recognition Election
If the Company is not a PFIC at any time during the period a
U.S. Holder held, or is considered to have held, the notes
or the common shares, or if a U.S. Holder receiving common
shares upon the conversion of a note makes a Gain Recognition
Election as described above and an effective QEF election as of
the first day of the taxable year of such U.S. Holder
beginning after the receipt of such common shares, such
U.S. Holder will not be subject to such PFIC rules during
any taxable year in which the Company is not classified as a
PFIC. Instead, such U.S. Holder will be subject to the
following rules.
Distributions
For U.S. federal income tax purposes, the amount of a
distribution made on the common shares generally will equal the
amount of cash and the fair market value of any property
distributed and also will include the amount of any Canadian
taxes withheld as described below under Certain Canadian
income tax considerationsPurchasers resident in the United
States. An amount of the distribution will be treated as a
dividend, taxable to a U.S. Holder as ordinary dividend
income, to the extent of the Companys current or
accumulated earnings and profits allocable to such
U.S. Holder. To the extent that an amount received by a
U.S. Holder exceeds the allocable share of the
Companys current and accumulated earnings and profits,
such excess will be treated as a return of capital to the extent
of the U.S. Holders adjusted tax basis in its common
shares and then, to the extent in excess of such
U.S. Holders adjusted tax basis, as gain from the
sale or exchange of such common shares generally taxable as
capital gain. (See discussion below under
Dispositions.) The amount treated as a dividend will
not be eligible for the dividends received deduction generally
allowed to U.S. corporate shareholders on dividends
received from U.S. corporations.
Distributions of additional common shares to U.S. Holders
with respect to their common shares that are made as part of a
pro rata distribution to all shareholders of the Company
generally will not be subject to United States federal income
tax. In general, the tax basis of the common shares held prior
to the distribution (the old common shares) will be
allocated between the additional common shares and the old
common shares in proportion to their fair market values on the
date of distribution.
In the case of non-corporate U.S. Holders, the
U.S. federal income tax rate applicable to dividends
received in taxable years beginning prior to January 1,
2011 may be lower than the rate applicable to other categories
of ordinary income if certain conditions are met. The amount of
any distribution paid in foreign currency will be included in a
U.S. Holders gross income in an amount equal to the
U.S. dollar value of the foreign currency calculated by
reference to the spot rate in effect on the date of actual or
constructive receipt by the U.S. Holder (in accordance
56
with the U.S. Holders regular method of tax
accounting), regardless of whether the foreign currency is
converted into U.S. dollars on that date. If the foreign
currency is converted into U.S. dollars on the date of
actual or constructive receipt, a U.S. Holder generally
should not be required to recognize foreign currency gain or
loss in respect of the distribution. If the foreign currency
received in the distribution is not converted into
U.S. dollars on the date of receipt, a U.S. Holder
will have a tax basis in the foreign currency equal to its
U.S. dollar value on the date of receipt. Any gain or loss
recognized upon a subsequent conversion or other disposition of
the foreign currency will be treated as U.S. source
ordinary income or loss.
Subject to certain limitations, a U.S. Holder may elect to
claim a credit against its U.S. federal income tax
liability for any Canadian tax paid with respect to, or withheld
from, any dividends paid on the common shares. A
U.S. Holder who does not make such an election instead may
deduct the Canadian tax paid or withheld, but only for a year in
which such U.S. Holder elects to do so with respect to all
creditable foreign taxes paid by such U.S. Holder. The
availability of the foreign tax credit is subject to complex
limitations.
For U.S. foreign tax credit purposes, dividends paid on the
common shares generally will be treated as income from sources
outside the U.S. and as passive income (or
general income for certain U.S. Holders).
The rules relating to the U.S. foreign tax credit are
complex, and each U.S. Holder should consult its own
financial advisor, legal counsel or accountant to determine
whether and to what extent it would be entitled to a foreign tax
credit.
Dispositions
A U.S. Holders sale, exchange or other taxable
disposition of the common shares generally will result in the
recognition by the U.S. Holder of U.S. source taxable
capital gain or loss in an amount equal to the difference
between (a) the U.S. dollar value of the amount of
cash and fair market value of any property received upon the
sale, exchange or other taxable disposition and (b) such
U.S. Holders adjusted tax basis in the common shares.
Such capital gain or loss will be long-term if the
U.S. Holders holding period in the common shares is
more than one year at the time of the sale, exchange or other
taxable disposition. Long-term capital gain recognized by
certain non-corporate U.S. Holders generally will be
subject to U.S. federal income tax rates lower than the
rates applicable to ordinary income.
As discussed above under The NotesU.S. Federal
Income Tax Consequences to U.S. HoldersMarket
discount and amortizable bond premium, if a
U.S. Holder converts a note with accrued market discount
that has not previously been included in gross income into
common shares, then a ratable portion of such market discount
will be allocated to such common shares. The amount of market
discount allocable to such common shares may be taxable as
ordinary income upon a sale or other disposition of such common
shares.
The deductibility of capital losses is subject to limitations.
Each U.S. Holder should consult its own financial advisor,
legal counsel or accountant regarding the treatment of capital
gains and losses.
57
U.S. Federal
Income Tax Consequences to
Non-U.S. Holders
Distributions
A
non-U.S. Holder
generally will not be subject to U.S. federal income tax or
withholding tax on distributions with respect to the common
shares that are treated as a dividend for U.S. federal
income tax purposes unless such dividends are effectively
connected with the conduct of a trade or business within the
U.S. by the
non-U.S. Holder
(and are attributable to a permanent establishment maintained in
the U.S. by such
non-U.S. Holder
if an applicable income tax treaty so requires as a condition
for such
non-U.S. Holder
to be subject to U.S. federal taxation on a net income
basis in respect of income from the common shares), in which
case the
non-U.S. Holder
generally will be subject to U.S. federal income tax in
respect of such dividends in the same manner as a
U.S. Holder. Any such effectively connected dividends
received by a corporate
non-U.S. Holder
also may, under certain circumstances, be subject to an
additional branch profits tax at a 30% rate or such
lower rate as may be specified by an applicable income tax
treaty. A
non-U.S. Holder
generally will not be subject to U.S. federal income tax or
withholding tax on distributions that are treated as capital
gain for U.S. federal income tax purposes unless such
non-U.S. Holder
would be subject to U.S. federal income tax on gain
realized on the sale or other disposition of the common shares.
See discussion below under Dispositions.
Dispositions
A
non-U.S. Holder
will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other
disposition of the common shares unless (i) the gain is
effectively connected with the conduct of a trade or business by
the
non-U.S. Holder
in the U.S. (and is attributable to a permanent
establishment maintained in the U.S. by such
non-U.S. Holder
if an applicable income tax treaty so requires as a condition
for such
non-U.S. Holder
to be subject to U.S. federal income taxation on a net
income basis in respect of income from the common shares), or
(ii) such
non-U.S. Holder
is an individual who is present in the U.S. for
183 days or more in the taxable year of the sale, and
certain other conditions are met. Effectively connected gains
realized by a corporate
non-U.S. Holder
may also, under certain circumstances, be subject to an
additional branch profits tax at a 30% rate or such
lower rate as may be specified by an applicable income tax
treaty.
Information
Reporting; Backup Withholding Tax
In general, dividend payments or other taxable distributions on
the Companys common shares or proceeds from the
disposition of common shares paid by a U.S. paying agent or
other U.S. intermediary to a non-corporate holder may be
subject to information reporting to the IRS and possible
U.S. backup withholding (currently imposed at a rate of
28%). Backup withholding generally would not apply to a
U.S. Holder that timely furnishes a correct taxpayer
identification number and makes any other required
certifications or if the U.S. Holder is otherwise exempt
from backup withholding. U.S. Holders that are required to
establish their exempt status generally must provide such
certification on IRS
Form W-9
(Request for Taxpayer Identification Number and Certification).
Certain
non-U.S. Holders
receiving payments in the U.S. or through certain
U.S. financial intermediaries should establish their
exemption from information reporting or backup withholding by
providing certification of
non-U.S. status
on IRS
Form W-8
BEN, as applicable.
58
Amounts withheld as backup withholding may be credited against
the holders U.S. federal income tax liability.
Additionally, a holder may obtain a refund of any excess amounts
withheld under the backup withholding regime by timely filing
the appropriate claim for refund with the IRS and furnishing any
required information. Copies of any information returns filed
with the IRS may be made available by the IRS, under the
provisions of a specific treaty or agreement, to the taxing
authorities of the country in which the
non-U.S. Holder
resides or is organized.
Each holder should consult its own financial advisor, legal
counsel, or accountant regarding the information reporting and
backup withholding tax rules.
Certain Canadian
income tax considerations
In the opinion of Fasken Martineau DuMoulin LLP, Canadian
counsel to the Company, and Heenan Blaikie LLP, Canadian counsel
to the underwriters, the following is, as of the date hereof, a
general summary of the principal Canadian federal income tax
considerations applicable to a prospective purchaser of notes to
be issued pursuant to this offering.
This summary is based upon the current provisions of the Income
Tax Act (Canada) and the regulations thereunder (Tax
Act), specific proposals to amend the Tax Act (the
Tax Proposals) which have been announced by or on
behalf the Minister of Finance (Canada) prior to the date
hereof, and counsels understanding of the current
published administrative policies and assessing practices of the
Canada Revenue Agency (the CRA). This summary
assumes that the Tax Proposals will be enacted in the form
proposed and does not take into account or anticipate any other
changes in law, whether by way of judicial, legislative or
governmental decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or
considerations, which may differ from the Canadian federal
income tax considerations discussed in this prospectus. No
assurances can be given that the Tax Proposals will be enacted
as proposed or at all, or that legislative, judicial or
administrative changes will not modify or change the statements
expressed in this prospectus.
This summary is of a general nature only and is not intended
to be, nor should it be construed to be, legal or tax advice to
any particular prospective purchaser of notes, and no
representations with respect to the income tax consequences to
any particular prospective purchaser are made. Accordingly,
prospective purchasers should consult their own tax advisors for
advice with respect to the tax consequences to them of
acquiring, holding and disposing of notes or converting notes
into common shares and the subsequent holding and disposing of
such common shares, including the application and effect of the
income and other tax laws of any country, province, state or
local tax authority.
Purchasers
resident in Canada
This portion of the summary is applicable only to a purchaser
who, at all relevant times, is resident in Canada, deals at
arms length and is not affiliated with the Company, and
who will acquire and hold notes to be issued pursuant to this
offering and any common shares acquired on a conversion of such
notes as capital property (a Holder), all within the
meaning of the Tax Act. Any notes or common shares will
generally be considered to be capital property to a Holder
unless the Holder holds such securities in the course of
carrying on a business or has acquired them in a transaction or
transactions considered to be an adventure in the nature of
trade. Certain Holders whose notes might not otherwise qualify
as capital property may be entitled to make the irrevocable
election provided by subsection 39(4) of the Tax Act to have the
notes and
59
every other Canadian security (as defined by the Tax
Act) owned by such Holder in the taxation year of the election
and in all subsequent taxation years deemed to be capital
property.
This summary is not applicable to a Holder that is a
financial institution (as defined in the Tax Act for
purposes of the
mark-to-market
rules), a Holder that is a specified financial
institution or a Holder an interest in which is a
tax shelter investment (all as defined in the Tax
Act). Such Holders should consult their own tax advisors having
regard to their particular circumstances.
Taxation of
interest
A Holder that is a corporation, partnership, unit trust or trust
of which a corporation or partnership is a beneficiary will be
required to include in computing its income for a taxation year
any interest on a note that accrues or is deemed to accrue to
the Holder to the end of that taxation year or becomes
receivable or is received by the Holder before the end of that
taxation year, except to the extent that such interest was
otherwise included in the Holders income for a preceding
taxation year.
Any other Holder, including an individual and trusts of which
neither a corporation nor a partnership is a beneficiary, will
be required to include in income for a taxation year any
interest on a note received or receivable by such Holder in that
year (depending upon the method regularly followed by the Holder
in computing income), except to the extent that the interest was
included in the Holders income for a preceding taxation
year. In addition, if at any time a note should become an
investment contract (as defined in the Tax Act) in
relation to the Holder, such Holder will be required to include
in computing income for a taxation year any interest that
accrued or is deemed to accrue to the Holder on a note to the
end of any anniversary day (as defined in the Tax
Act) in that year, except to the extent that such interest was
otherwise included in the Holders income for that or a
preceding taxation year.
Exercise of
conversion privilege
A Holder who converts a note to common shares pursuant to the
conversion privilege will not be considered to realize a capital
gain (capital loss) on the conversion. The cost to the Holder of
the common shares acquired on the conversion will be equal to
the Holders adjusted cost base of the note immediately
before the conversion. The adjusted cost base to the Holder of
the common shares acquired on the conversion will be determined
by averaging the cost of the common shares so acquired with the
adjusted cost base of all other common shares held by such
holder as capital property. Under the current administrative
practice of the CRA, a Holder who receives cash not in excess of
$200 in lieu of a fraction of a common share upon conversion of
a note may either treat this amount as proceeds of disposition
of a portion of a note (thereby realizing a capital gain or
capital loss) or alternatively may reduce the adjusted cost base
of the common shares received on the conversion by the amount of
the cash received.
Disposition of
notes
On a disposition or deemed disposition of a note, whether on
redemption, purchase for cancellation or otherwise, a Holder
will generally be required to include in income the amount of
interest accrued or deemed to accrue on the note from the date
of the last interest payment to the date of disposition to the
extent that such amount has not otherwise been included in the
Holders income for the taxation year or a previous
taxation year. In general, a disposition or
60
deemed disposition of a note will give rise to a capital gain
(or capital loss) to the extent that the proceeds of
disposition, net of any accrued interest and any other amount
included in computing income and any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base of
the note to the Holder immediately before the disposition.
One-half of the amount of any capital gain (a taxable
capital gain) realized by a Holder in a taxation year
generally must be included in the Holders income for that
year, and one-half of the amount of any capital loss (an
allowable capital loss) realized by a Holder in a
taxation year may generally be deducted from taxable capital
gains realized by the Holder in that year. Allowable capital
losses in excess of taxable capital gains may be carried back
and deducted in any of the three preceding taxation years or
carried forward and deducted in any subsequent taxation year
against net taxable capital gains realized in such years to the
extent and under the circumstances described in the Tax Act.
A Holder that is a Canadian controlled private
corporation (as defined in the Tax Act) may be liable to
pay an additional refundable tax of
62/3%
on certain investment income, including amounts of interest and
taxable capital gains. A Holder that is an individual, including
most trusts, may be liable for alternative minimum tax as a
result of realizing a capital gain.
Disposition of
common shares
A Holder who disposes of or is deemed to have disposed of a
common share will realize a capital gain (or incur a capital
loss) equal to the amount by which the proceeds of disposition
in respect of the common share exceed (or are exceeded by) the
aggregate of the adjusted cost base of such common share and any
reasonable expenses associated with the disposition. Such
capital gains and capital losses will be subject to tax in the
manner described above under the heading Disposition of
notes.
Taxation of
dividends received by holders of common shares
Dividends (including deemed dividends) received on common shares
by a Holder who is an individual (and certain trusts) will be
included in income and be subject to the
gross-up and
dividend tax credit rules normally applicable to taxable
dividends received by an individual from taxable Canadian
corporations. An enhanced dividend tax credit will be available
in respect of eligible dividends (as defined in the
Tax Act) paid by the Company. Taxable dividends received by
Holders that are individuals and certain trusts may give rise to
alternative minimum tax under the Tax Act.
Dividends (including deemed dividends) received on common shares
by a Holder that is a corporation will be included in income and
normally be deductible in computing such corporations
taxable income. However, the Tax Act will generally impose a
331/3%
refundable tax on such dividends received by a corporation that
is a private corporation or a subject corporation for purposes
of Part IV of the Tax Act to the extent that such dividends
are deductible in computing the corporations taxable
income.
Purchasers
resident in the United States
This portion of the summary is applicable to a purchaser who is
a U.S. Holder (as defined below) who, at all relevant times for
purposes of the Tax Act, (i) is not resident or deemed to
be resident in Canada, (ii) deals at arms length with
the Company, (iii) holds notes to be issued
61
pursuant to this offering and any common shares acquired on a
conversion of such notes as capital property, (iv) does not
use or hold, and is not deemed to use or hold such securities in
the course of carrying on, or otherwise in connection with, a
business in Canada and (v) is a resident of the United
States for purposes of the
Canada-United
States Income Tax Convention (1980) (the Treaty).
United States limited liability companies (LLCs)
generally are not considered residents of the United States for
the purposes of the Treaty. However, the Tax Proposals include a
proposal to amend the Treaty whereby LLCs would be considered to
be residents of the United States upon such amendment coming
into force. There is no assurance that the Treaty will be
amended in such manner. Any notes or common shares will
generally be considered to be capital property to a U.S. Holder
unless the U.S. Holder holds such securities in the course of
carrying on a business or has acquired them in a transaction or
transactions considered to be an adventure in the nature of
trade. Except as expressly provided, this summary does not deal
with special situations, such as particular circumstances of
traders or dealers in securities, tax exempt entities, insurers,
and financial institutions. For purposes of the Tax Act, all
amounts relevant in computing a U.S. Holders liability
under the Tax Act must be computed in Canadian dollars. Amounts
denominated in U.S. dollars including adjusted cost base and
proceeds of disposition must be converted into Canadian dollars
based on the prevailing exchange rate at the relevant time.
Ownership of
notes
No non-resident withholding tax will apply to the payment to a
U.S. Holder under the notes of interest (including, without
limitation, additional amounts, if any), or the proceeds
received by a U.S. Holder at maturity or on a disposition
because of a redemption, purchase of, or conversion of a note.
The conversion of notes into common shares on the exercise of
the conversion privilege by a U.S. Holder will not constitute a
disposition of the notes and, accordingly, a U.S. Holder will
not realize a gain or loss on such conversion.
In general, a U.S. Holder will not be subject to Canadian income
tax on capital gains arising on a disposition or deemed
disposition of a note unless the note constitutes taxable
Canadian property to the U.S. Holder, and the U.S. Holder
is not entitled to relief under the provisions of an applicable
income tax treaty or convention. Provided the common shares are
listed on a prescribed stock exchange (which currently includes
the TSX and AMEX) at the time a note is disposed of, the note
will not constitute taxable Canadian property to a
U.S. Holder, unless at any time during the five-year period
immediately preceding the disposition, the U.S. Holder, persons
with whom the U.S. Holder did not deal at arms length, or
the U.S. Holder together with such persons, owned 25% or more of
the issued shares of any class or series of the Companys
capital stock.
Ownership of
common shares
Dividends on
common shares
Dividends on common shares paid or credited to a U.S. Holder by
the Company are subject to Canadian withholding tax. Under the
Treaty, the rate of withholding tax on dividends paid or
credited to a U.S. Holder is generally limited to 15% of the
gross amount of the dividend (or 5% in the case of a U.S. Holder
that is a corporation beneficially owning at least 10% of the
Companys voting shares). Under the Treaty, dividends paid
by the Company to certain religious,
62
scientific, charitable, certain other tax-exempt organizations
and certain pension organizations that are resident in, and
exempt from tax in, the United States are exempt from Canadian
withholding tax. Provided that certain administrative procedures
are observed regarding registration of such organizations, the
Company will not be required to withhold such tax from dividends
paid to such organizations. If qualifying organizations fail to
follow the required administrative procedures, the Company will
be required to withhold tax and the organizations will have to
file with the CRA a claim for refund to recover amounts withheld.
Dispositions
of common shares
A U.S. Holder will generally not be subject to tax under the Tax
Act in respect of a capital gain realized on the disposition of
a common share, unless the common share constitutes
taxable Canadian property as defined in the Tax Act
at the time of disposition. A common share will generally not be
taxable Canadian property to a U.S. Holder at the time of
disposition provided the common shares are listed on a
prescribed stock exchange (which includes the TSX and AMEX) at
that time and, during the 60 month period ending at the
time of disposition of the common share, the U.S. Holder,
persons with whom the U.S. Holder did not deal at arms
length, or the U.S. Holder together with such persons, did not
own 25% or more of the Companys issued shares of any class
or series of capital stock. By reason of the Treaty, even if a
common share constitutes taxable Canadian property to a U.S.
Holder, no tax will generally be payable under the Tax Act on a
capital gain realized by the U.S. Holder on the disposition of
such shares provided the value of such shares at the time of
disposition is not derived principally from real property
situated in Canada. The Company has advised counsel that, at the
date of this short form prospectus, the value of the common
shares is not derived principally from real property situated in
Canada within the meaning of the Treaty.
63
Underwriting
J.P. Morgan Securities Inc. and RBC Dominion Securities
Inc. are the representatives of the underwriters. Subject to the
terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, have
severally agreed to purchase from us the following respective
aggregate principal amount of notes set forth opposite such
underwriters name:
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Principal
Amount
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Name
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of
Notes
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J.P. Morgan Securities
Inc.
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RBC Dominion Securities Inc.
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Cormark Securities Inc.
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Total
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$
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75,000,000
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The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent,
including the absence of any material adverse change in our
business and the receipt of certain certificates, opinions and
letters from us, our counsel and the independent auditors, and
the receipt of an opinion from the National Association of
Securities Dealers, Inc. that it has no objection to the
proposed underwriting terms between us and the underwriters. The
underwriters are committed to purchase all the notes offered by
us if they purchase any notes.
We estimate that the total expenses of this offering and the
concurrent offering, excluding underwriting fees, will be
approximately $1,000,000.
This offering is being made concurrently in all of the provinces
of Canada other than Québec and in the United States
pursuant to the multi-jurisdictional disclosure system
implemented by the securities regulatory authorities in the
United States and Canada. The notes will be offered in the
United States and Canada by the underwriters either directly or
through their respective U.S. or Canadian broker-dealer
affiliates or agents, as applicable. Subject to applicable law,
the underwriters may offer the notes outside of Canada and the
United States.
We have granted to the underwriters a
13-day
option to purchase up to $11,250,000 aggregate principal amount
of notes. The underwriters may exercise the over-allotment
option solely for the purpose of covering over-allotments, if
any, in connection with this offering. To the extent the
over-allotment option is exercised, each underwriter must
purchase a principal amount of notes approximately proportionate
to that underwriters initial purchase commitment. Under
applicable Canadian securities laws, this prospectus also
qualifies the grant of the over-allotment option and the
distribution of the additional notes issuable on exercise of the
over-allotment option.
We and our executive officers and directors have agreed that,
for a period of 90 days from the closing date of this offering,
that neither we nor they will, without the prior written consent
of the underwriters, directly or indirectly, offer, sell or
otherwise dispose of, or enter into any agreement to offer, sell
or otherwise dispose of, any of our securities other than grants
of options or rights or issuances of common shares (i) as a
bona fide gift or gifts, provided that the donee or donees
agrees to be bound in writing by the restrictions set forth in
the lock-up agreement; (ii) to any trust for the direct or
indirect benefit of an officer or director or an
64
immediate family member of such officer or director, provided
that the trustee of the trust agrees to be bound in writing by
the restrictions set forth in the lock-up agreement;
(iii) arising as a result of a director or officer
serving as a trustee of our KSOP, if applicable; (iv) as
collateral for any loan, provided that the lender agrees in
writing to be bound by the restrictions set forth in the lock-up
agreement; (v) to an executor or heir in the event of the
death of an officer or director, provided that any such executor
and heir agree to be bound in writing by the restrictions set
forth in the lock-up agreement; and (vi) by way of a sale
in accordance with or pursuant to a Rule 10b5-1 plan under the
U.S. Exchange Act, which plan is in effect as of the date of the
lock-up agreement. Notwithstanding the foregoing, the
underwriters have agreed that up to a total of 20,000 common
shares may be sold by each officer and director during the term
of the lock-up agreement.
You should be aware that the laws and practices of certain
countries require investors to pay stamp taxes and other charges
in connection with purchases of securities.
In connection with the offering of the notes, the underwriters
may engage in over-allotment, stabilizing transactions and
syndicate covering transactions in the notes and our common
shares. Over-allotment involves sales in excess of the offering
size, which creates a short position for the underwriters.
Stabilizing transactions involve bids to purchase the notes or
our common shares in the open market for the purpose of pegging,
fixing or maintaining the price of the notes. Syndicate covering
transactions involve purchases of the notes or common shares in
the open market after the distribution has been completed in
order to cover short positions. Stabilizing transactions and
syndicate covering transactions may cause the price of the notes
and our common shares to be higher than it would otherwise be in
the absence of those transactions.
We and the underwriters do not make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the
notes or our common shares. In addition, we and the underwriters
do not make any representation that the underwriters will engage
in these transactions or that these transactions, once
commenced, will not be discontinued without notice.
In the underwriting agreement, we have agreed that we will
indemnify the underwriters against certain liabilities,
including liabilities under the U.S. Securities Act and
Canadian securities laws, or contribute to payments that the
underwriters may be required to make in respect of those
liabilities.
The underwriters and their affiliates have in the past and may
in the future provide various financial advisory, investment
banking and commercial banking services for us and our
affiliates in the ordinary course of business for which they
have received and will receive customary fees and commissions.
Notice to
prospective investors in the European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of securities
described in this prospectus may not be made to the public in
that relevant member state prior to the publication of a
prospectus in relation to the securities that has been approved
by the competent authority in that relevant member state or,
where appropriate, approved in another relevant member state and
notified to the competent authority in that relevant member
state, all in accordance with the Prospectus Directive,
65
except that, with effect from and including the relevant
implementation date, an offer of securities may be offered to
the public in that relevant member state at any time:
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to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (a) an average
of at least 250 employees during the last financial year;
(b) a total balance sheet of more than 43,000,000 and
(c) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts; or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive.
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Each purchaser of securities described in this prospectus
located within a relevant member state will be deemed to have
represented, acknowledged and agreed that it is a
qualified investor within the meaning of
Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an offer to
the public in any relevant member state means the
communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be
offered so as to enable an investor to decide to purchase or
subscribe the securities, as the expression may be varied in
that member state by any measure implementing the Prospectus
Directive in that member state, and the expression
Prospectus Directive means Directive
2003/71/ EC
and includes any relevant implementing measure in each relevant
member state.
The sellers of the securities offered hereby have not authorized
and do not authorize the making of any offer of the securities
through any financial intermediary on their behalf, other than
offers made by the underwriters with a view to the final
placement of the securities as contemplated in this prospectus.
Accordingly, no purchaser of the securities, other than the
underwriters, is authorized to make any further offer of the
securities on behalf of the sellers or the underwriters.
Notice to
prospective investors in the United Kingdom
This prospectus is only being distributed to, and is only
directed at, persons in the United Kingdom that are qualified
investors within the meaning of Article 2(1)(e) of the
Prospectus Directive that are also (i) investment
professionals falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005
(the Order) or (ii) high net worth entities,
and other persons to whom it may lawfully be communicated,
falling within Article 49(2)(a) to (d) of the Order
(all such persons together being referred to as relevant
persons). This prospectus and its contents are confidential and
should not be distributed, published or reproduced (in whole or
in part) or disclosed by recipients to any other persons in the
United Kingdom. Any person in the United Kingdom that is not a
relevant person should not act or rely on this document or any
of its contents.
Legal
matters
Certain legal matters relating to this offering and to the notes
to be distributed pursuant to this prospectus will be passed
upon on behalf of us by Fasken Martineau DuMoulin LLP, with
respect to Canadian legal matters, by Baker & McKenzie
LLP, with respect to U.S. legal matters, and by
Baker & McKenzie SC, with respect to Venezuelan legal
matters, and on behalf of the
66
underwriters by Heenan Blaikie LLP, with respect to Canadian
legal matters, and by Skadden, Arps, Slate, Meagher &
Flom LLP, with respect to U.S. legal matters.
Names and
interests of experts
As of the date hereof, none of the partners and associates of
Fasken Martineau DuMoulin LLP and Heenan Blaikie LLP or
SNC-Lavalin, Aker Kvaerner Metals Inc., Marston & Marston,
Inc., Pincock, Allen & Holt, Susan Poos, P.E., Richard
Lambert, P.E., and Richard Addison, P.E., each being companies
or persons who have prepared reports relating to our mineral
properties, or any director, officer, employee or partner
thereof, as applicable, received or has received a direct or
indirect interest in our property or of any or our associates or
affiliates. As at the date of this prospectus, all such persons,
directors, officers, employees and partners in the aggregate, as
applicable, of each of the aforementioned companies and
partnerships, beneficially own, directly or indirectly, less
than one percent of our securities.
Auditors,
transfer agent, registrar and trustee
Our auditors are PricewaterhouseCoopers LLP, Chartered
Accountants, of 250 Howe Street, Suite 700, Vancouver,
British Columbia V6C 3S7 who advise that they are independent of
us within the Rules of Professional Conduct of the Institute of
Chartered Accountants of British Columbia.
The transfer agent and registrar for our common shares is
Computershare Investor Services Inc. at its offices in Toronto,
Ontario and Denver, Colorado.
The Bank of New York, and its officers in New York, New York,
has been appointed as the trustee under the indenture, as paying
agent, conversion agent, notes registrar, and custodian for the
notes.
Documents
incorporated by reference
Information has been incorporated by reference in this
prospectus from documents filed with securities commissions or
similar authorities in Canada and forms an integral part of this
prospectus. Copies of the documents incorporated by reference in
this prospectus may be obtained on request without charge from
Mary Smith, our Secretary, at 926 West Sprague Avenue,
Suite 200, Spokane, Washington 99201, U.S.A. (Telephone:
(509) 623-1500).
These documents are also available electronically at
www.sedar.com or at www.sec.gov. The
following documents filed with the securities commissions or
similar authorities in Canada are specifically incorporated by
reference and form an integral part of this prospectus. You
should review them prior to making an investment decision:
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our annual information form dated March 30, 2007 for the
year ended December 31, 2006;
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our audited annual consolidated comparative financial statements
for the year ended December 31, 2006 and the auditors
report thereon, together with managements discussion and
analysis for the year ended December 31, 2006;
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67
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our material change report dated March 29, 2007 announcing
that the MINAMB has accepted the ESIA and issued to us, on
March 27, 2007 the Authorization for the Affectation of
Natural Resources for the Construction of the Infrastructure and
Services Phase of Brisas;
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our management information circular dated April 20, 2007
prepared in connection with our annual and special meeting of
shareholders to be held on June 7, 2007; and
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the summary, being pages 1.1 to 1.13 inclusive, of NI
43-101
Technical Report, Brisas, Venezuela, Feasibility Update dated
October 30, 2006 as prepared by PAH.
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Any document of the type referred to in the first four items
above (other than confidential material change reports) and any
interim financial statements and related managements
discussion and analysis, in each case filed by us with the
securities commissions or similar authorities in Canada after
the date of this prospectus and prior to the completion or
termination of this offering, shall be deemed to be incorporated
by reference into and form an integral part of this prospectus.
The documents incorporated or deemed to be incorporated by
reference in this prospectus contain meaningful and material
information relating to us, and prospective investors should
review all information contained in this prospectus and the
documents incorporated by reference in this prospectus before
making an investment decision. In addition, to the extent
indicated in any Report on
Form 6-K
furnished to the SEC or in any Report on
Form 40-F
filed with the SEC, any information therein shall be deemed to
be incorporated by reference in this prospectus.
Any statement contained in a document incorporated or deemed to
be incorporated by reference in this prospectus or in any
subsequently filed document which also is or is deemed to be
incorporated by reference in this prospectus shall be deemed to
be modified or superseded for the purposes of this prospectus to
the extent that a statement contained in this prospectus, or in
any other subsequently filed document which also is incorporated
or is deemed to be incorporated by reference in this prospectus,
modifies or supersedes such statement. The modifying or
superseding statement need not state that it has modified or
superseded a prior statement or include any other information
set forth in the document that it modifies or supersedes. The
making of a modifying or superseding statement shall not be
deemed an admission for any purposes that the modified or
superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light
of the circumstances under which it was made. Any statement so
modified or superseded shall not be deemed in its unmodified or
prior form to constitute a part of this prospectus.
Documents filed
as part of the registration statement
The following documents have been or will be filed with the SEC
as part of the registration statement of which this prospectus
forms a part:
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the documents referred to under the heading Documents
incorporated by reference;
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the form of underwriting agreement;
|
|
the form of indenture;
|
|
the statement of eligibility under the Trust Indenture Act of
1939 on
Form T-1
of The Bank of New York;
|
|
consent of PricewaterhouseCoopers LLP;
|
|
consent of Fasken Martineau DuMoulin LLP;
|
|
consent of Heenan Blaikie LLP;
|
|
consent of Pincock Allen & Holt;
|
68
|
|
|
consent of Susan Poos, P.E.;
|
|
consent of Richard J. Lambert, P.E.;
|
|
consent of Richard Addison, P.E., C Eng, Eur.Ing;
|
|
consent of SNC-Lavalin;
|
|
consent of Aker Kvaerner Metals Inc.;
|
|
consent of Marston & Marston, Inc.; and
|
|
powers of attorney from our directors and officers.
|
Additional
information
We have filed with the SEC a registration statement on
Form F-10
relating to the notes to which this offering relates. This
prospectus, which constitutes a part of the registration
statement, does not contain all of the information contained in
the registration statement, certain items of which are contained
in the exhibits to the registration statement as permitted by
the rules and regulations of the SEC. Statements included or
incorporated by reference in this prospectus about the contents
of any contract, agreement or other document referred to are not
complete, and in each instance you should refer to the exhibits
for a more complete description of the matter involved. Each
such statement is qualified in its entirety by such reference.
We are subject to the information requirements of the
U.S. Exchange Act and applicable Canadian securities
legislation, which require us to file or furnish reports and
other information with the SEC and with the securities
regulators in Canada. Under a multi-jurisdictional disclosure
system adopted by the United States, documents and other
information that we file with or furnish to the SEC may be
prepared in accordance with the disclosure requirements of
Canada, which are different from those of the United States
(materially different in some circumstances). As a foreign
private issuer, we are exempt from the rules under the
U.S. Exchange Act prescribing the furnishing and content of
proxy statements, and our officers, directors and principal
shareholders are exempt from the reporting and short swing
profit recovery provisions contained in Section 16 of the
U.S. Exchange Act. In addition, we are not required to
publish financial statements as promptly as U.S. companies.
You may read any document that we have filed with the SEC at the
SECs public reference room in Washington, D.C. You
may also obtain copies of those documents from the public
reference room of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549 by paying a fee. You should call the
SEC at
1-800-SEC-0330
or access its website at www.sec.gov for further
information about the public reference rooms. You may read and
download documents we have publicly filed with the SECs
Electronic Data Gathering and Retrieval system at
www.sec.gov. You may read and download any public
document that we have filed with the Canadian securities
regulatory authorities at www.sedar.com.
Enforcement of
civil liabilities
We are a corporation existing under the Business Corporations
Act (Yukon). Some of our directors and some of the experts named
in this prospectus are residents of Canada or otherwise reside
outside the United States, and all or a substantial portion of
their assets, and a substantial portion of our assets, are
located outside the United States. We have appointed an agent
for service of process in the United States, but it may be
difficult for holders of notes who reside in the United States
to effect service within the United States upon those directors
and experts
69
who are not residents of the United States. It may also be
difficult for holders of notes who reside in the United States
to realize in the United States upon judgments of courts of the
United States predicated upon our civil liability and the civil
liability of our directors, officers and experts under the
U.S. federal securities laws. We have been advised by our
Canadian counsel, Fasken Martineau DuMoulin LLP, that a judgment
of a U.S. court predicated solely upon civil liability
under U.S. federal securities laws would probably be
enforceable in Canada if the U.S. court in which the
judgment was obtained had a basis for jurisdiction in the matter
that would be recognized by a Canadian court for the same
purposes. We have also been advised by Fasken Martineau DuMoulin
LLP, however, that there is substantial doubt whether an action
could be brought in Canada in the first instance on the basis of
liability predicated solely upon U.S. federal securities
laws.
We filed with the SEC, concurrently with our registration
statement on
Form F-10
of which this prospectus is a part, an appointment of agent for
service of process on
Form F-X.
Under the
Form F-X,
we appointed Gold Reserve Corporation, our Montana subsidiary,
as our agent for service of process in the United States in
connection with any investigation or administrative proceeding
conducted by the SEC, and any civil suit or action brought
against or involving us in a U.S. court arising out of or
related to or concerning the offering of the notes under this
prospectus.
70
US$75,000,000
%
Senior Subordinated Convertible Notes due 2022
Prospectus
|
|
|
JPMorgan
|
|
RBC Capital Markets
|
|
Cormark Securities
|
,
2007
71
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
Indemnification of Directors and Officers.
The only statutes, charter provisions, bylaws, contracts or other arrangements under which a
director or officer of the Registrant is insured or indemnified in any manner against liability
which such officer of director may incur in such capacity is Section 126 of the Yukon Business
Corporations Act (the Act) and Sections 7.02 through
7.04 of the Registrants bylaws. Taken
together, the statutory and bylaw provisions generally allow the Registrant to indemnify its
directors or officers against liability and expenses if the officer or director seeking indemnity
(a) acted honestly and in good faith with a view to the best interest of the Registrant, and (b) in
the case of a criminal or administrative action or proceeding that is enforced by a monetary
penalty, the officer or director had reasonable grounds for believing the conduct was lawful. Such
statutory and bylaw provisions also allow officers and directors to seek indemnity if they have (i)
fulfilled the requirements for (a) and (b), (ii) are fairly and reasonably entitled to indemnity,
and (iii) were substantially successful on the merits in the defense of the action or proceeding.
YUKON LAW
Section 126 of the Act is set forth in its entirety as follows. All capitalized terms used herein
but not otherwise defined shall have the meanings as set forth in the Act.
126.(1) |
|
Except in respect of an action by or on behalf of the corporation or body corporate to
procure a judgment in its favor, a corporation may indemnify directors or officers of the
corporation, former directors or officers of the corporation or persons who act or acted at
the corporations request as directors or officers of a body corporate of which the
corporation is or was a shareholder or creditor, and their 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 them in respect of any civil, criminal or
administrative action or proceeding to which they are made party because they are or have been
directors or officers of that corporation or body corporate, if: |
|
(a) |
|
they acted honestly and in good faith with a view to the best interests of the
corporation; and |
|
|
(b) |
|
in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, they had reasonable grounds for believing that their
conduct was lawful. |
|
(2) |
|
A corporation may with the approval of the Supreme Court indemnify persons referred to
in subsection (1) in respect of an action by or on behalf of the corporation or body
corporate to procure a judgment in its favor, to which they are made party by reason of
being or having been directors or officers of the corporation or body corporate, against
all costs, charges and expenses reasonably incurred by them in connection with the action
if they fulfill the conditions set out in paragraphs (1)(a) and (b). |
|
|
(3) |
|
Despite anything in this section, persons referred to in subsection (1) are entitled
to indemnity from the corporation in respect of all costs, charges and expenses reasonably
incurred by them in connection with the defense of any civil, criminal or administrative
action or proceeding to which they are made party because they are or have been directors
or officers of the corporation or body corporate, if the person seeking indemnity: |
|
(a) |
|
was substantially successful on the merits in the defense of the action or
proceeding; |
|
|
(b) |
|
fulfills the conditions set out in paragraphs (1)(a) and (b); and |
|
|
(c) |
|
is fairly and reasonably entitled to indemnity. |
|
(4) |
|
A corporation may purchase and maintain insurance for the benefit of any person
referred to in subsection (1) against any liability incurred by them: |
|
(a) |
|
in their capacity as a director or officer of the corporation, except when the
liability relates to their failure to act honestly and in good faith with a view to the
best interests of the corporation; or |
|
|
(b) |
|
in their capacity as a director or officer of another body corporate if they
act or acted in that capacity at the corporations request, except when the liability
relates to their failure to act honestly and in good faith with a view to the best
interests of the body corporate. |
II-1
|
(5) |
|
A corporation or a person referred to in subsection (1) may apply to the Supreme Court
for an order approving an indemnity under this section and the Supreme Court may so order
and make any further order it thinks fit. |
|
|
(6) |
|
On an application under subsection (5), the Supreme Court may order notice to be given
to any interested person and that person is entitled to appear and be heard in person or by
counsel. |
Sections 7.02 through 7.04 of the Registrants bylaws are set forth in their entirety as follows.
All capitalized terms used herein but not otherwise defined shall have the meanings as set forth in
the Registrants bylaws.
|
7.02 |
|
Limitation of Liability |
|
|
|
|
Subject to the Act, no director or officer, or former director or officer, of the Corporation
shall be liable for the acts, receipts, neglects or defaults of any other director or officer
or employee, or for the joining in any receipt or act for conformity, or for any loss or
damage or expense happening to the Corporation through the insufficiency or deficiency of
title to any property acquired by the Corporation or for or on behalf of the Corporation or
for the insufficiency or deficiency of any security in or upon which any of the money of or
belonging to the Corporation shall be placed or invested, or for any loss or damage arising
from the bankruptcy, insolvency or tortious act of any person, firm or corporation including
any person, firm or corporation with whom or with which any moneys, securities or effects
shall be lodged or deposited, or for any loss, conversion, misapplication or misappropriation
of or any damage resulting from any dealing with any moneys, securities or other assets of or
belonging to the Corporation or for any other loss, damage or misfortune whatsoever which may
happen in the execution of the duties of his respective office or trust or in relation thereto
unless the same shall happen by or through his failure to exercise the powers and to discharge
the duties of his office honestly and in good faith with a view to the best interest of the
Corporation and to exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances. Any repeal or modification of the foregoing
provisions of this paragraph 7.02 shall not adversely affect any limitation on the personal
liability of a director or officer of the Corporation arising from an act or omission
occurring prior to the time of such repeal or amendment. In addition to the circumstances in
which a director or officer of the Corporation is not personally liable as set forth in the
foregoing provisions of this paragraph 7.02, a director or officer shall not be liable to the
Corporation or its shareholders to such further extent as permitted by any law hereafter
enacted, including, without limitation, any subsequent amendment to the Act. |
|
|
7.03 |
|
Indemnity |
|
|
|
|
Subject to the Act, the Corporation shall indemnify a director or officer, a former director
or officer, and a person who acts or acted at the Corporations request as a director or
officer of a body corporate of which the Corporation is or was a shareholder or creditor, and
his heirs and legal representatives, against all costs, charges and expenses, including any
amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect
of any civil, criminal or administrative action or proceeding to which he is made a party by
reason of being or having been a director or officer of the Corporation or such body
corporate, if: |
|
(a) |
|
he acted honestly and in good faith with a view to the best interests of the
Corporation; and |
|
|
(b) |
|
in the case of a criminal or administrative action or proceeding that is enforced
by a monetary penalty, he had reasonable grounds for believing his conduct was lawful. |
|
|
|
The Corporation shall indemnify the directors and officers of the Corporation to the fullest
extent permitted by law. The Corporation may indemnify any employee or agent of the
Corporation to the fullest extent permitted by law. In addition to the circumstances in which
a director or officer of the Corporation is indemnified as set forth in the foregoing
provisions of this paragraph 7.03, a director or officer shall be indemnified by the
Corporation to such further extent as permitted by any law hereafter enacted, including,
without limitation, any subsequent amendment to the Act. |
|
|
7.04 |
|
Insurance |
|
|
|
|
The Corporation may, subject to and in accordance with the Act, purchase and maintain
insurance for the benefit of any director or officer, or former director or officer, of the
Corporation as such against any liability incurred by him. The Corporation may provide such
insurance to directors and officers regardless of whether such directors and officers are
indemnified pursuant to paragraph 7.03 above. |
II-2
The Registrant also maintains insurance for the benefit of its directors and officers against
liability in their respective capacities as directors and officers. The directors and officers are
not required to pay any premium in respect of this insurance. The policy contains various industry
exclusions and no claims have been made thereunder to date.
The underwriting agreement contains provisions by which the underwriters agree to indemnify the
Registrant, each of the directors and officers of the Registrant and each person who controls the
Registrant within the meaning of the Securities Act of 1933, as amended, with respect to
information furnished by the underwriters for use in this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended,
may be permitted to directors, officers or persons controlling the Registrant pursuant to the
foregoing provisions, the Registrant has been informed that in the opinion of the U.S. Securities
and Exchange Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is therefore unenforceable.
II-3
EXHIBIT INDEX
|
|
|
Exhibit |
|
Description |
|
|
|
3.1*
|
|
Form of Underwriting Agreement |
|
|
|
4.1
|
|
Annual information form of the Registrant for the year ended December 31, 2006 (incorporated
by reference to the Registrants annual report on Form 40-F filed with the Commission on March
30, 2007) |
|
|
|
4.2
|
|
Audited annual consolidated comparative financial statements of the Registrant for the year
ended December 31, 2006 and the auditors report thereon (incorporated by reference to the
Registrants annual report on Form 40-F filed with the Commission on March 30, 2007) |
|
|
|
4.3
|
|
Managements discussion and analysis of the Registrant for the year ended December 31, 2006
(incorporated by reference to the Registrants annual report on Form 40-F filed with the
Commission on March 30, 2007) |
|
|
|
4.4
|
|
Material Change Report dated March 28, 2007 (incorporated by reference to the Registrants
Form 6-K furnished to the Commission on March 29, 2007) |
|
|
|
4.5
|
|
The summary, being pages 1.1 to 1.13 inclusive, of NI 43-101 Technical Report, Brisas
Project, Venezuela, Feasibility Update dated October 30, 2006 as prepared by Pincock Allen &
Holt, Inc. (incorporated by reference to the Registrants Form 6-K furnished to the Commission
on November 29, 2006) |
|
|
|
4.6
|
|
Management information circular dated April 20, 2007 prepared in connection with the
Registrants annual and special meeting of shareholders to be held on June 7, 2007
(incorporated by reference to the Registrants Form 6-K furnished to the Commission on May 2,
2007) |
|
|
|
5.1
|
|
Consent of PricewaterhouseCoopers LLP |
|
|
|
5.2*
|
|
Consent of Fasken Martineau DuMolin LLP |
|
|
|
5.3*
|
|
Consent of Heenan Blaikie LLP |
|
|
|
5.4
|
|
Consent of Pincock Allen & Holt, Inc. |
|
|
|
5.5
|
|
Consent of Susan Poos, P.E. |
|
|
|
5.6
|
|
Consent of Richard Addison, P.E.,
C. Eng, Eur.Ing. |
|
|
|
5.7
|
|
Consent of Richard J. Lambert, P.E. |
|
|
|
5.8*
|
|
Consent of Aker Kvaerner Metals Inc. |
|
|
|
5.9*
|
|
Consent of SNC Lavalin |
|
|
|
5.10*
|
|
Consent of Marston & Marston, Inc. |
|
|
|
6.1
|
|
Power of Attorney (see signature page) |
|
|
|
7.1*
|
|
Form of Indenture between the Registrant and The Bank of New York, as Trustee, relating to
securities to which this Registration Statement relates |
|
|
|
7.2*
|
|
Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of The Bank of New
York |
|
|
|
* |
|
To be filed by amendment. |
II-4
PART III
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
ITEM 1. UNDERTAKING.
The Registrant undertakes to make available, in person or by telephone, representatives to respond
to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the
Commission staff, information relating to the securities registered pursuant to this Form F-10 or
to transactions in said securities.
ITEM 2. CONSENT TO SERVICE OF PROCESS.
(a) At the time of the filing of this Form F-10, the Registrant is filing with the Commission a
written irrevocable consent and power of attorney on Form F-X.
(b) Any change to the name or address of the agent for service of the Registrant will be
communicated promptly to the Commission by amendment to Form F-X referencing the file number of the
relevant registration statement.
III-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements for filing on Form
F-10 and has duly caused this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Spokane, State of Washington, on May 7, 2007.
|
|
|
|
|
|
GOLD RESERVE INC.
|
|
|
By: |
/s/ Rockne J. Timm
|
|
|
ROCKNE J. TIMM |
|
|
Chief Executive Officer and Director |
|
|
POWER OF ATTORNEY
Each
person whose signature appears below constitutes and appoints Rockne J. Timm and Robert A.
McGuinness, and each of them, either or whom may act without the other, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities to sign the Registration Statement filed herewith
and any or all amendments to said Registration Statement, including post-effective amendments, and
registration statements filed pursuant to Rule 429 of the Securities Act of 1933, as amended, and
to file the same with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of
them acting alone, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and
agents of any of them, or any substitute or substitutes, lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement
has been signed by the following persons in the capacities and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Rockne J. Timm
ROCKNE J. TIMM
|
|
Chief Executive Officer
(Principal Executive Officer) and
Director
|
|
May 7, 2007 |
|
|
|
|
|
/s/ Robert A. McGuinness
ROBERT A. McGUINNESS
|
|
Vice President Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
|
|
May 7, 2007 |
|
|
|
|
|
/s/ A. Douglas Belanger
A. DOUGLAS BELANGER
|
|
President and Director
|
|
May 7, 2007 |
|
|
|
|
|
/s/ James P. Geyer
JAMES P. GEYER
|
|
Senior Vice President and Director
|
|
May 7, 2007 |
|
|
|
|
|
/s/ James H. Coleman
JAMES H. COLEMAN
|
|
Chairman of the Board
|
|
May 7, 2007 |
|
|
|
|
|
/s/ Patrick D. McChesney
PATRICK D. McCHESNEY
|
|
Director
|
|
May 7, 2007 |
|
|
|
|
|
/s/ Chris D. Mikkelsen
CHRIS D. MIKKELSEN
|
|
Director
|
|
May 7, 2007 |
|
|
|
|
|
|
|
Director
|
|
|
III-2
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, the Authorized
Representative has duly caused this Registration Statement to be signed on its behalf by the
undersigned, solely in his capacity as the duly authorized representative of the Registrant in the
United States, in the City of Spokane, in the State of Washington, on this 7th day of
May, 2007.
|
|
|
|
|
|
GOLD RESERVE CORPORATION
|
|
|
By: |
/s/ Rockne J. Timm
|
|
|
ROCKNE J. TIMM |
|
|
President |
|
|
III-3
EXHIBIT INDEX
|
|
|
Exhibit |
|
Description |
|
|
|
3.1*
|
|
Form of Underwriting Agreement |
|
|
|
4.1
|
|
Annual information form of the Registrant for the year ended December 31, 2006 (incorporated
by reference to the Registrants annual report on Form 40-F filed with the Commission on March
30, 2007) |
|
|
|
4.2
|
|
Audited annual consolidated comparative financial statements of the Registrant for the year
ended December 31, 2006 and the auditors report thereon (incorporated by reference to the
Registrants annual report on Form 40-F filed with the Commission on March 30, 2007) |
|
|
|
4.3
|
|
Managements discussion and analysis of the Registrant for the year ended December 31, 2006
(incorporated by reference to the Registrants annual report on Form 40-F filed with the
Commission on March 30, 2007) |
|
|
|
4.4
|
|
Material Change Report dated March 28, 2007 (incorporated by reference to the Registrants
Form 6-K furnished to the Commission on March 29, 2007) |
|
|
|
4.5
|
|
The summary, being pages 1.1 to 1.13 inclusive, of NI 43-101 Technical Report, Brisas
Project, Venezuela, Feasibility Update dated October 30, 2006 as prepared by Pincock Allen &
Holt, Inc. (incorporated by reference to the Registrants Form 6-K furnished to the Commission
on November 29, 2006) |
|
|
|
4.6
|
|
Management information circular dated April 20, 2007 prepared in connection with the
Registrants annual and special meeting of shareholders to be held on June 7, 2007
(incorporated by reference to the Registrants Form 6-K furnished to the Commission on May 2,
2007) |
|
|
|
5.1
|
|
Consent of PricewaterhouseCoopers LLP |
|
|
|
5.2*
|
|
Consent of Fasken Martineau DuMolin LLP |
|
|
|
5.3*
|
|
Consent of Heenan Blaikie LLP |
|
|
|
5.4
|
|
Consent of Pincock Allen & Holt, Inc. |
|
|
|
5.5
|
|
Consent of Susan Poos, P.E. |
|
|
|
5.6
|
|
Consent of Richard Addison, P.E.,
C. Eng, Eur.Ing. |
|
|
|
5.7
|
|
Consent of Richard J. Lambert, P.E. |
|
|
|
5.8*
|
|
Consent of Aker Kvaerner Metals Inc. |
|
|
|
5.9*
|
|
Consent of SNC Lavalin |
|
|
|
5.10*
|
|
Consent of Marston & Marston, Inc. |
|
|
|
6.1
|
|
Power of Attorney (see signature page) |
|
|
|
7.1*
|
|
Form of Indenture between the Registrant and The Bank of New York, as Trustee, relating to
securities to which this Registration Statement relates |
|
|
|
7.2*
|
|
Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of The Bank of New
York |
|
|
|
* |
|
To be filed by amendment. |
exv5w1
EXHIBIT 5.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration Statement on Form
F-10 of Gold Reserve Inc. of our report dated March 28, 2007
relating to the consolidated financial statements of Gold Reserve Inc. for the year ended December
31, 2006.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, B.C., Canada
May 7, 2007
exv5w4
EXHIBIT 5.4
[PINCOCK ALLEN & HOLT LETTERHEAD]
CERTIFICATE AND CONSENT
|
|
|
TO:
|
|
Ontario Securities Commission |
|
|
British Columbia Securities Commission |
|
|
Alberta Securities Commission |
|
|
Saskatchewan Financial Services Commission, Securities Division |
|
|
Manitoba Securities Commission |
|
|
New Brunswick Securities Commission |
|
|
Nova Scotia Securities Commission |
|
|
Registrar of Securities, Prince Edward Island |
|
|
Securities Commission of Newfoundland and Labrador |
|
|
(collectively referred to as the Commissions) |
|
|
|
AND TO:
|
|
U.S. Securities and Exchange Commission |
|
|
|
AND TO:
|
|
Gold Reserve Inc. (the Company) |
AND TO:
|
|
Fasken Martineau DuMoulin LLP |
|
|
|
RE:
|
|
Preliminary Short Form Prospectus of the Company, dated May 7,
2007 (the Prospectus), and the Registration Statement (as
defined below) |
We have previously consented to the filing of the technical report entitled NI 43-101 Technical
Report, Brisas Project, Venezuela, Feasibility Update dated October 30, 2006 (the Technical
Report) prepared for the Company, with the Commissions.
We further certify that we have read the disclosure derived from the Technical Report in the
Prospectus and the Registration Statement, together with the documents incorporated by reference
therein (collectively, the Documents), and we do not have any reason to believe that there are
any misrepresentations in the information derived from the Technical Report that is contained in
the Documents or that the disclosure in the Documents contains any misrepresentation of the
information contained in the Technical Report.
We further certify that we have read the disclosure regarding the property evaluation and resource
and reserve estimates as at October 2006 (the Brisas Mineral Estimates) and we do not have any
reason to believe that there are any misrepresentations in the information regarding the Brisas
Mineral Estimates that is contained in the Documents or that the disclosure in the Documents
contains any misrepresentation of the information contained in the Brisas Mineral Estimates.
We consent to the filing of this updated Certificate and Consent in respect of the Technical Report
with the Commissions and to the disclosure of the Technical Report, as well as any extracts from
and summary of the Technical Report, in the Documents.
We further consent to the use of our name and references to the Technical Report, or portions
thereof, in the Registration Statement on Form
F-10 filed by the Company with the U.S. Securities
and Exchange Commission, as such may thereafter be amended or supplemented, and in the prospectus
(including preliminary and final) contained therein (the Registration Statement), and to the
inclusion and incorporation by reference of the summary portion of the Technical Report and of
information derived from the Technical Report in the Registration Statement.
Dated this 7th day of May, 2007.
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PINCOCK, ALLEN & HOLT |
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Per:
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/s/ Richard J. Lambert |
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Name:
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Richard J. Lambert, P.E. |
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Title:
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Vice President, Mining and Geological Services |
exv5w5
EXHIBIT 5.5
[MARSTON LETTERHEAD]
CERTIFICATE AND CONSENT
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TO:
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Ontario Securities Commission |
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British Columbia Securities Commission |
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Alberta Securities Commission |
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Saskatchewan Financial Services Commission, Securities Division |
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Manitoba Securities Commission |
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New Brunswick Securities Commission |
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Nova Scotia Securities Commission |
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Registrar of Securities, Prince Edward Island |
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Securities Commission of Newfoundland and Labrador |
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(collectively referred to as the Commissions) |
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AND TO:
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U.S. Securities and Exchange Commission |
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AND TO:
AND TO:
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Gold Reserve Inc. (the Company)
Fasken Martineau DuMoulin LLP |
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RE:
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Preliminary Short Form Prospectus of the Company, dated May 7,
2007 (the Prospectus), and the Registration Statement (as
defined below) |
I, Susan Poos, P.E. hereby certify that I am a qualified person as described in National Instrument
43-101. I am one of the authors of the technical report entitled NI 43-101 Technical Report,
Brisas Project, Venezuela, Feasibility Update dated October 30, 2006 (the Technical Report)
prepared for the Company, and have previously consented to the filing of the Technical Report with
the Commissions. I am one of the qualified persons involved in the property evaluation and
resource and reserve estimates as at October 2006 (the Brisas Mineral Estimates).
I further certify that I have read the disclosure derived from the Technical Report in the
Prospectus and the Registration Statement, together with the documents incorporated by reference
therein (collectively, the Documents), and I do not have any reason to believe that there are any
misrepresentations in the information derived from the Technical Report that is contained in the
Documents or that the disclosure in the Documents contains any misrepresentation of the information
contained in the Technical Report.
I further certify that I have read the disclosure regarding the Brisas Mineral Estimates and I do
not have any reason to believe that there are any misrepresentations in the information regarding
the Brisas Mineral Estimates that is contained in the Documents or that the disclosure in the
Documents contains any misrepresentation of the information contained in the Brisas Mineral
Estimates.
I consent to the filing of this updated Certificate and Consent in respect of the Technical Report
with the Commissions and to the disclosure of the Technical Report, as well as any extracts from
and summary of the Technical Report, in the Documents.
I further consent to the use of my name in connection with the preparation of the Technical Report,
or portions thereof, referenced in the Registration Statement on Form F-10 filed by the Company
with the U.S. Securities and Exchange Commission, as such may thereafter be amended or
supplemented, and in the prospectus (including preliminary and final) contained therein (and to the
inclusion and incorporation by reference of information derived therefrom).
Dated this 7th day of May, 2007.
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/s/ Susan Poos
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Susan Poos, |
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P.E. |
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exv5w6
EXHIBIT 5.6
[PINCOCK ALLEN & HOLT LETTERHEAD]
CERTIFICATE AND CONSENT
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TO:
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Ontario Securities Commission |
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British Columbia Securities Commission |
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Alberta Securities Commission |
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Saskatchewan Financial Services Commission, Securities Division |
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Manitoba Securities Commission |
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New Brunswick Securities Commission |
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Nova Scotia Securities Commission |
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Registrar of Securities, Prince Edward Island |
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Securities Commission of Newfoundland and Labrador |
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(collectively referred to as the Commissions) |
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AND TO:
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U.S. Securities and Exchange Commission |
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AND TO:
AND TO:
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Gold Reserve Inc. (the Company)
Fasken Martineau DuMoulin LLP |
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RE:
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Preliminary Short Form Prospectus of the Company, dated May 7,
2007 (the Prospectus), and the Registration Statement (as
defined below) |
I, Richard Addison, P.E. hereby certify that I am a qualified person as described in National
Instrument 43-101. I am one of the authors of the technical report entitled NI 43-101 Technical
Report, Brisas Project, Venezuela, Feasibility Update dated October 30, 2006 (the Technical
Report) prepared for the Company, and have previously consented to the filing of the Technical
Report with the Commissions. I am one of the qualified persons involved in the property evaluation
and resource and reserve estimates as at October 2006 (the Brisas Mineral Estimates).
I further certify that I have read the disclosure derived from the Technical Report in the
Prospectus and the Registration Statement, together with the documents incorporated by reference
therein (collectively, the Documents), and I do not have any reason to believe that there are any
misrepresentations in the information derived from the Technical Report that is contained in the
Documents or that the disclosure in the Documents contains any misrepresentation of the information
contained in the Technical Report.
I further certify that I have read the disclosure regarding the Brisas Mineral Estimates and I do
not have any reason to believe that there are any misrepresentations in the information regarding
the Brisas Mineral Estimates that is contained in the Documents or that the disclosure in the
Documents contains any misrepresentation of the information contained in the Brisas Mineral
Estimates.
I consent to the filing of this updated Certificate and Consent in respect of the Technical Report
with the Commissions and to the disclosure of the Technical Report, as well as any extracts from
and summary of the Technical Report, in the Documents.
I further consent to the use of my name in connection with the preparation of the Technical Report,
or portions thereof, referenced in the Registration Statement on Form F-10 filed by the Company
with the U.S. Securities and Exchange Commission, as such may thereafter be amended or
supplemented, and in the prospectus (including preliminary and final) contained therein (and to the
inclusion and incorporation by reference of information derived therefrom).
Dated this 7th day of May, 2007.
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/s/ Richard Addison
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Richard Addison, |
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P.E. |
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exv5w7
EXHIBIT 5.7
[PINCOCK ALLEN & HOLT LETTERHEAD]
CERTIFICATE AND CONSENT
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TO:
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Ontario Securities Commission |
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British Columbia Securities Commission |
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Alberta Securities Commission |
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Saskatchewan Financial Services Commission, Securities Division |
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Manitoba Securities Commission |
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New Brunswick Securities Commission |
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Nova Scotia Securities Commission |
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Registrar of Securities, Prince Edward Island |
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Securities Commission of Newfoundland and Labrador |
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(collectively referred to as the Commissions) |
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AND TO:
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U.S. Securities and Exchange Commissions |
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AND TO:
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Gold Reserve Inc. (the Company) |
AND TO:
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Fasken Martineau DuMoulin LLP |
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RE:
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Preliminary Short Form Prospectus of the Company, dated May 7,
2007 (the Prospectus), and the Registration Statement (as
defined below) |
I, Richard Lambert, P.E. hereby certify that I am a qualified person as described in National
Instrument 43-101. I am one of the authors of the technical report entitled NI 43-101 Technical
Report, Brisas Project, Venezuela, Feasibility Update dated October 30, 2006 (the Technical
Report) prepared for the Company, and have previously consented to the filing of the Technical
Report with the Commissions. I am one of the qualified persons involved in the property evaluation
and resource and reserve estimates as at October 2006 (the Brisas Mineral Estimates).
I further certify that I have read the disclosure derived from the Technical Report in the
Prospectus and the Registration Statement, together with the documents incorporated by reference
therein (collectively, the Documents), and I do not have any reason to believe that there are any
misrepresentations in the information derived from the Technical Report that is contained in the
Documents or that the disclosure in the Documents contains any misrepresentation of the information
contained in the Technical Report.
I further certify that I have read the disclosure regarding the Brisas Mineral Estimates and I do
not have any reason to believe that there are any misrepresentations in the information regarding
the Brisas Mineral Estimates that is contained in the Documents or that the disclosure in the
Documents contains any misrepresentation of the information contained in the Brisas Mineral
Estimates.
I consent to the filing of this updated Certificate and Consent in respect of the Technical Report
with the Commissions and to the disclosure of the Technical Report, as well as any extracts from
and summary of the Technical Report, in the Documents.
I further consent to the use of my name in connection with the preparation of the Technical Report,
or portions thereof, referenced in the Registration Statement on Form F-10 filed by the Company
with the U.S. Securities and Exchange Commission, as such may thereafter be amended or
supplemented, and in the prospectus (including preliminary and final) contained therein (and to the
inclusion and incorporation by reference of information derived therefrom).
Dated this 7th day of May, 2007.
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/s/ Richard Lambert
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Richard Lambert, |
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P.E. |
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