UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE TO
(Rule 13e-4) 
(Amendment No. 1)

 

TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

GOLD RESERVE INC.
(Name of Subject Company (Issuer))

 

GOLD RESERVE INC.
(Name of Filing Persons (Offeror))

 

5.50% Senior Subordinated Convertible Notes due 2022
(Title of Class of Securities)

 

38068N AB4
(CUSIP Number of Class of Securities)

 

Rockne J. Timm
Chief Executive Officer
Gold Reserve Inc.
926 West Sprague Ave., Suite 200
Spokane, Washington  99201
(509) 623-1500

 

(Name, Address and Telephone Number of Person Authorized

to Receive Notices and Communications on Behalf of Filing Persons)

 

Copy to:

 

Albert G. McGrath, Jr.
Baker & McKenzie LLP
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, TX  75201

Tel. (214) 978-3000
Fax. (214) 978-3099

 

CALCULATION OF FILING FEE

 

 

*      Calculated solely for purposes of determining the filing fee.  The repurchase price of the 5.50% Senior Subordinated Convertible Notes due 2022, is $1,000 per $1,000 principal amount outstanding.

 

**   The amount of the filing fee was calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, and equals $114.60 for each $1,000,000 of the value of the transaction.

 

o Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

 

o Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

 

Check the appropriate boxes below to designate any transactions to which this statement relates:

 

Check the following box if the filing is a final amendment reporting the results of the tender offer.  o 

 

 

INTRODUCTORY STATEMENT

 

This Amendment No. 1 to the Schedule TO amends and supplements the Schedule TO originally filed by Gold Reserve Inc., a company incorporated under the laws of Yukon, Canada (“GR” or the “Company” or “We”) with the U.S. Securities and Exchange Commission (“SEC”) on May 17, 2012, relating to the Notice of Right of Repurchase given to each holder (“Holder”) of the Company’s 5.50% Senior Subordinated Convertible Notes due 2022 issued by the Company on May 18, 2007 (the “Notes”).

 

As required by the Indenture (the “Indenture”), dated May 18, 2007, by and among the Company and The Bank of New York Mellon, as successor in interest to The Bank of New York, as Trustee (“Trustee”) and the Co-Trustee named therein, the Tender Offer Statement on Schedule TO-I (“Schedule TO”) was filed by GR and relates to the right of each Holder, to sell, and the obligation of GR to purchase, upon the terms and subject to the conditions set forth in the Indenture, the Notes, the Company Repurchase Notice to Holders of its Notes, dated May 16, 2012 (the “Company Repurchase Notice”), as amended by the Amended Company Repurchase Notice and Notice of Offer for Alternative Election (“Amended Notice”) and filed as Exhibit (a)(1)(A), and the related offer materials filed as Exhibits (a)(1)(B) to (d)(16) to this Schedule TO, as amended (the Company Repurchase Notice, as amended by the Amended Notice and the related offer materials, as amended or supplemented from time to time, described in such materials as the “Put Option” and the “Offer for Alternative Election”).

 

The Put Option will expire at 5:00 p.m., New York City time, on June 15, 2012.  This Schedule TO is intended to satisfy the disclosure requirements of Rule 13e-4(c)(2) under the Securities Exchange Act of 1934, as amended.

 

This Amendment No. 1 is intended to offer Holders the opportunity to participate in a restructuring of the Company’s Notes.  Holders of approximately 87.8% of the outstanding Notes (the “Large Noteholders”) have agreed to the terms of a proposed restructuring (the “Proposed Restructuring”) of the Notes pursuant to the Subordinated Note Restructuring Agreement dated May 25, 2012, among the Company and the Large Noteholders.  The Holders of the remaining 12.2% of the Notes are being offered the opportunity to participate in the Proposed Restructuring upon the same terms as agreed by the Company and the Large Noteholders.  This offer does not modify or supersede the Put Option.  The Offer for Alternative Election will expire at 5:00 p.m., New York City time, on June 29, 2012. 

 

Following the expiration of the Put Option and the Offer for Alternative Election, the Company intends to redeem all Notes that have not been repurchased pursuant to the Put Option or restructured pursuant to the Proposed Restructuring as soon as practicable, subject to applicable legal requirements and compliance with the terms of Indenture.

 

All information in the Amended Notice, including all schedules and annexes thereto, which were previously filed with the Schedule TO, is hereby expressly incorporated by reference in this Amendment No. 1 in response to all items required in the Schedule TO, except that such information is hereby amended and restated to the extent specifically provided for herein. All capitalized terms used in this Amendment No. 1 and not otherwise defined have the respective meanings ascribed to them in the Amended Notice, as amended or supplemented.

 

Item 1.   Summary Term Sheet.

 

The information set forth under caption entitled “Summary” in the Amended Notice is incorporated herein by reference.

 

Item 2.   Subject Company Information.

 

(a)   The name of the issuer is Gold Reserve Inc., and the address of its principal executive office is 926 West Sprague Avenue, Suite 200, Spokane, Washington 99201, USA. The telephone number of its principal executive office is 509-623-1500.

 

(b)   The subject securities are the Notes, the Modified Notes (described in the Amended Notice), the shares of the Company’s common stock (“Common Stock” or “Common Shares”) and contingent value rights (described in the Amended Notice). As of the date hereof, there are $102,347,000.00 aggregate principal amount of the Notes outstanding.

 

(c)   The Notes are not listed on any national or regional securities exchange or quoted on any automated quotation system. Market quotations for the Notes are available.  To the Company’s knowledge, the Notes are traded infrequently in transactions arranged through brokers.  The Common Stock into which the Notes are convertible trades on the New York Stock Exchange Market under the symbol “GRZ”. The information set forth under “Market for the Notes and Common Stock” in the Amended Notice is incorporated herein by reference.

 

Item 3.   Identity and Background of Filing Person.

 

(a)   The principal executive office of the filing person, Gold Reserve Inc., is located at 926 West Sprague Avenue, Suite 200, Spokane, Washington 99201, USA. The telephone number of its principal executive office is 509-623-1500.  

 

 

The persons listed on Annex A are directors and executive officers of the Company. No single person or group of persons controls the Company

 

The business address of each director and executive officer of the Company listed above is: c/o Gold Reserve Inc., 926 West Sprague Avenue, Suite 200, Spokane, Washington 99201, USA, and such person’s telephone number c/o the Company is 509-623-1500.  

 

Item 4.   Terms of the Transaction.

 

(a)   Material Terms

 

        (1)           Offers

 

        (i)-(ii)      The information set forth in the Amended Notice under the captions entitled “Summary”, “Information Concerning Gold Reserve” and “Alternative Transaction” is incorporated herein by reference.

 

        (iii)          The information set forth in the Amended Notice under the captions entitled “Summary”, “Procedures to be Followed by Holders Electing to Surrender Notes for Repurchase Pursuant to Put Option” and “Procedures to be Followed by Holders Electing to Participate in Alternative Transaction” is incorporated herein by reference.

 

        (iv)          Not applicable.

 

        (v)           The information set forth in the Amended Notice under the captions entitled “Summary” is incorporated herein by reference.

 

        (vi)          The information set forth in the Amended Notice under the captions entitled “Summary”, “Procedures to be Followed by Holders Electing to Surrender Notes for Repurchase Pursuant to Put Option” and “Procedures to be Followed by Holders Electing to Participate in Alternative Transaction” is incorporated herein by reference.

 

        (vii)         The information set forth in the Amended Notice under the captions entitled “Summary”, “Procedures to be Followed by Holders Electing to Surrender Notes for Repurchase Pursuant to Put Option” and “Procedures to be Followed by Holders Electing to Participate in Alternative Transaction” is incorporated herein by reference.

 

        (viii)        The information set forth in the Amended Notice under the captions entitled “Summary” , “Procedures to be Followed by Holders Electing to Surrender Notes for Repurchase Pursuant to Put Option” and “Procedures to be Followed by Holders Electing to Participate in Alternative Transaction” is incorporated herein by reference.

 

        (ix)          Not applicable.

 

        (x)           The information set forth in the Amended Notice under the caption entitled “Information Concerning Gold Reserve” is incorporated herein by reference.

 

        (xi)          The information set forth in the Amended Notice under the caption entitled “Comparison of Rights Among the Common Stock, the Notes and the Modified Notes” is incorporated herein by reference.

 

        (xii)         The information set forth in the Amended Notice under the captions entitled “Certain Material U.S. Federal Income Tax Considerations” and “Certain Material Canadian Federal Income Tax Considerations” is incorporated herein by reference.

 

Instruction to Item 1004(a)

 

The information set forth in the Amended Notice under the caption entitled “Comparison of Rights between the Common Stock and the Notes and the Modified Notes” is incorporated herein by reference.

 

        (i)-(vii)    Not applicable.

 

(b)   The information set forth in the Amended Notice under the caption entitled “Summary” is incorporated herein by reference.

 

Item 5.   Past Contacts, Transactions, Negotiations and Agreements.

 

(e)   Agreements Involving the Company’s Securities.

 

 

        The Company has entered into the Restructuring Agreement in connection with the Notes described under the caption entitled “Alternative Transaction.”

 

Item 6.   Purposes of the Transaction and Plans or Proposals.

 

(a)   The information set forth in the Amended Notice under the captions entitled “Summary” and “Alternative Transaction” is incorporated herein by reference.

 

(b)   The information set forth in the Amended Notice under the caption entitled “Use of Proceeds” is incorporated herein by reference.

 

(c)(9)              The information set forth in the Amended Notice under the captions entitled “Summary” and “Alternative Transaction” is incorporated herein by reference.

 

Item 7.   Source and Amount of Funds or Other Consideration.

 

(a)   The information set forth in the Amended Notice under the captions entitled “Summary”, “Information Concerning the Outstanding Notes” and “Alternative Transaction” is incorporated herein by reference.

 

(b)   The information set forth in the Amended Notice under the captions “Summary” and “Alternative Transaction” is incorporated herein by reference.

 

(d)   Not applicable.

 

Item 8.   Interest in Securities of the Subject Company.

 

(a)   The information set forth in the Amended Notice under the caption “Alternative Transaction” is incorporated herein by reference.

 

(b)   The information set forth in the Amended Notice under the caption “Purchase of Notes by GR” is incorporated herein by reference.

 

Item 9.   Persons/Assets, Retained, Employed, Compensated or Used.

 

(a)   For information regarding the paying agent, see the information set forth in Amended Notice, which is incorporated herein by reference. No persons have been directly or indirectly employed, retained or otherwise compensated to make solicitations or recommendations in connection with the Amended Notice, other than certain employees of the Company, none of whom will receive any special or additional compensation in connection with the Amended Notice beyond their normal compensation.

 

Item 10. Financial Statements.

 

(a)   The information set forth in the Amended Notice under the captions “Capitalization”, “Market Prices for the Notes and the Common Stock” and “Ratios of Earnings” are incorporated herein by reference. The information set forth under Item 8, Financial Statements and Supplementary Data, in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 is incorporated herein by reference and can also be accessed electronically on the Securities and Exchange Commission’s website at http://www.sec.gov and on SEDAR at www.sedar.com.

 

(b)   Not applicable.

 

Item 11. Additional Information.

 

(a)   Not applicable.

 

(b)   The information set forth in the Amended Notice and the accompanying Letter of Transmittal is incorporated herein by reference.

 

Item 12.  Exhibits.

 

 

 

* Filed herewith

† Management contract or compensatory plan or arrangement

 

Item 13.  Information Required by Schedule 13E-3.

 

Not applicable.

 

 

SIGNATURE

 

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

 

 

 

Dated:  June 1, 2012

 

 

 

 

EXHIBIT INDEX

 

 

 

* Filed herewith

† Management contract or compensatory plan or arrangement

 

 

 

 

Exhibit 99(a)(1)(A)

 

AMENDED

COMPANY REPURCHASE NOTICE

AND NOTICE OF OFFER FOR ALTERNATIVE ELECTION

 

To the Holders of

 

GOLD RESERVE INC.

5.50% Senior Subordinated Convertible Notes

Due June 15, 2022

 

CUSIP  38068N AB4

 

NOTICE WAS INITIALLY GIVEN on May 16, 2012 pursuant to the Section 14.01 of the Indenture, dated as of May 18, 2007 (the “Indenture”), by and between Gold Reserve Inc., as Issuer (“GR”), and The Bank of New York Mellon, as successor in interest to The Bank of New York, as Trustee and the Co-Trustee named therein, organized and existing under the laws of the United States of America (the “Trustee” and “Paying Agent”), relating to the 5.50% Senior Subordinated Convertible Notes due 2022 of GR (the “Notes”), that at the option of each holder thereof (the “Holder”), each Note surrendered by the Holder in accordance with this Notice will be repurchased by GR for $1,000 per $1,000 principal amount of the Notes so surrendered, plus accrued and unpaid interest to, but excluding, the Repurchase Date (as defined below) (such price, the “Repurchase Price”), subject to the terms and conditions of the Indenture, the Notes, and this Amended Company Repurchase Notice and Notice of Offer for Alternative Election (“Amended Notice”), including the accompanying Repurchase Notice (the “Put Option”).  The Repurchase Price will be payable through the facilities of The Depository Trust Company, New York, New York (“DTC”). 

 

GR is offering a maximum cash amount of $25.2 million plus accrued and unpaid Interest to, but excluding, the Repurchase Date to the Holders because it anticipates that the maximum principal amount of Notes that will be repurchased pursuant to the Put Option will be $25.2 million.  As described below, GR has entered into the Subordinated Note Restructuring Agreement dated May 25, 2012 (the “Restructuring Agreement”) with  Holders of approximately 87.8% of the Notes (the “Large Noteholders”)  to restructure the Notes held by such Holders.  Each Holder other than the Large Noteholders (the “Other Holders”) may, in lieu of putting their Notes to the Company for cash pursuant to the Amended Notice, elect to restructure their Notes on the same terms as the Large Noteholders (the “Alternative Election”) and participate in the Alternative Transaction.

 

Giving effect to the agreement with the Large Noteholders, if all outstanding Notes held by the Other Holders are surrendered for repurchase for cash pursuant to the Put Option, and the Alternative Election is consummated, GR will pay Holders an aggregate approximate amount of $40.6 million in cash, consisting of approximately $25.2 million pursuant to the Put Option and $15.4 million with respect to the Alternative Election.

 

Holders may surrender their Notes pursuant to the Put Option through 5:00 p.m., New York City time, on June 15, 2012, the date and time specified in the Indenture.  All capitalized terms used but not specifically defined herein have the meanings given to such terms in the Indenture.

 

To exercise your option to have GR repurchase the Notes pursuant to the Put Option and receive payment of the Repurchase Price in respect of such Notes, you must validly deliver the enclosed Repurchase Notice to the Paying Agent (and not have withdrawn such Repurchase Notice), no later than 5:00 p.m., New York City time, on Friday, June 15, 2012, (the “Repurchase Date”).

 

To exercise your option to participate in the Alternative Election, you must validly deliver the enclosed Letter of Transmittal to the Agent (and not have withdrawn such Letter of Transmittal) no later than 5:00 p.m., New York City time on Friday, June 29, 2012 (the “Alternative Election Date”).

 

The Notes are currently eligible for conversion.  Prior to the maturity date and when the Notes are convertible, Holders may surrender Notes to The Bank of New York Mellon, as successor in interest to The Bank of New York, as Trustee and the Co-Trustee named therein (the “Conversion Agent”) for shares of GR’s common stock at a rate of 132.626 shares per $1,000 face amount of the Notes (subject to adjustment in accordance with the terms of the Indenture).

 

Holders may elect to participate in the Alternative Election.  The terms and conditions to such participation are described in the Amended Notice.

 

Notes as to which a Repurchase Notice has been given by the Holder may be converted only if the election to repurchase has been withdrawn by the Holder in accordance with the terms of the Indenture; provided that the Notes are otherwise convertible in accordance with Section 16.01 of the Indenture.  The Holder shall have the right to withdraw any Notes surrendered with respect to the Put Option prior to 5:00 p.m., New York City time, on June 15, 2012.  The right of Holders to submit a Repurchase Notice in order to surrender the Notes in the Put Option expires at 5:00 p.m., New York City time, on June 15, 2012.  Holders must also surrender their Notes to the Paying Agent before receiving any Repurchase Price for any Note with respect to which a Repurchase Notice has been validly submitted and not withdrawn.

 

 

Notes as to which a Letter of Transmittal has been delivered by the Holder may be converted only if the Letter of Transmittal has been withdrawn by the Holder in accordance with the terms of the Indenture; provided that the Notes are otherwise convertible in accordance with Section 16.01 of the Indenture.  The Holders shall have the right to withdraw any Notes surrendered with respect to a Letter of Transmittal prior to 5:00 p.m., New York City time, on June 29, 2012.  Holders must surrender their Notes pursuant to the Letter of Transmittal prior to 5:00 p.m., New York City time, on June 29, 2012.

 

HOLDERS THAT SURRENDER THROUGH DTC NEED NOT SUBMIT A PHYSICAL REPURCHASE NOTICE TO THE PAYING AGENT IF SUCH HOLDERS COMPLY WITH THE TRANSMITTAL PROCEDURES OF DTC.

 

The address for the Agent, Paying Agent and the Conversion Agent is as follows:

 

 

Additional copies of this Amended Repurchase Notice and Notice of Offer for Alternative Election may be obtained from the Paying Agent at its address set forth above. 

 

 

 

Withholding of 28% of gross redemption proceeds of any payment made within the United States may be required by the Economic Growth and Tax Relief Reconciliation Act of 2001 (the “Act”), unless the Paying Agent has the correct taxpayer identification number (social security or employer identification number) or exemption certificate of the payee.  Please furnish a properly completed Form W-9 or exemption certificate or equivalent when presenting your securities.

 

 

 

 

SUMMARY TERM SHEET................................................................................................................................................................................... 1

RISK FACTORS...................................................................................................................................................................................................... 6

IMPORTANT INFORMATION CONCERNING THE PUT OPTION AND ALTERNATIVE TRANSACTION....................................... 9

1.......... Information Concerning Gold Reserve............................................................................................................................... 9

1.1......... Use of Proceeds................................................................................................................................................ 9

1.2......... Ratios of Earnings......................................................................................................................................... 9

1.3......... Market for the Notes and Common Stock.................................................................................... 9

1.4......... Capitalization............................................................................................................................................... 10

2.......... Information Concerning the Outstanding Notes..................................................................................................... 11

2.1......... GR’s Obligation to Repurchase the Notes..................................................................................... 11

2.2......... Repurchase Price........................................................................................................................................... 11

2.3......... Conversion Rights of the Notes........................................................................................................... 11

2.4......... Redemption....................................................................................................................................................... 12

2.5......... Fundamental Change................................................................................................................................ 12

2.6......... Ranking............................................................................................................................................................... 12

3.......... Procedures to be Followed by Holders Electing to Surrender Notes for Repurchase

             Pursuant to Put Option............................................................................................................................................................. 12

3.1......... Method of Delivery..................................................................................................................................... 12

3.2......... Repurchase Notice....................................................................................................................................... 12

3.3......... Delivery of Notes.......................................................................................................................................... 13

4.......... Right of Withdrawal of Surrender for Purchase................................................................................................... 13

5.......... Payment for Notes Surrendered for Repurchase..................................................................................................... 13

6.......... Notes Acquired................................................................................................................................................................................. 14

7.......... Alternative Transaction......................................................................................................................................................... 14

8.......... Procedures to be Followed by Holders Electing to Participate in Alternative

             Transaction...................................................................................................................................................................................... 17

8.1......... Method of Delivery..................................................................................................................................... 17

8.2......... Delivery of Notes.......................................................................................................................................... 17

8.3......... Withdrawal Rights.................................................................................................................................... 18

9.......... Interests of Directors, Executive Officers and Affiliates of GR in the Notes........................................ 19

10........ Comparison of Rights Among the Common Stock, the Notes and the Modified Notes...................... 19

11........ Purchases of Notes by GR........................................................................................................................................................... 21

12........ Certain Material U.S. Federal Income Tax Considerations for U.S. Holders.......................................... 22

13........ Certain Material Canadian Federal Income Tax Considerations............................................................... 30

14........ Additional Information........................................................................................................................................................... 34

15........ No Solicitations.............................................................................................................................................................................. 34

16........ Definitions.......................................................................................................................................................................................... 34

17........ Conflicts.............................................................................................................................................................................................. 34

18........ Certain Securities Law Considerations......................................................................................................................... 34

 

 

 

We are relying on Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), to exempt the offer to participate in the Alternative Transaction (described below) from the registration requirements of the Securities Act. We are also relying on Sections 18(b)(1)(A) and 18(b)(4)(C) of the Securities Act to exempt the offer from the registration and qualification requirements of state securities laws. We have no contract, arrangement or understanding relating to the payment of, and will not, directly or indirectly, pay, any commission or other remuneration to any broker, dealer, salesperson, agent or other person for soliciting tenders in the offer. In addition, neither our financial advisor nor any broker, dealer, salesperson, agent or other person is engaged or authorized to solicit tenders in the offer or to express any statement, opinion, recommendation or judgment with respect to the relative merits and risks of the offer. Our officers, directors and employees may solicit tenders from holders of our Notes and will answer inquiries concerning the Notes, but they will not receive additional compensation for soliciting tenders or answering any such inquiries.

 

 

 

No person has been authorized to give any information or to make any representations other than those contained in this Amended Notice and accompanying Repurchase Notice and, if given or made, such information or representations must not be relied upon as having been authorized.  This Amended Notice accompanying Repurchase Notice and Letter of Transmittal do not constitute an offer to buy or the solicitation of an offer to sell securities in any circumstances or jurisdiction in which such offer or solicitation is unlawful.  The delivery of this Amended Notice shall not under any circumstances, create any implication that the information contained herein is current as of any time subsequent to the date of such information.  None of GR or its board of directors or employees are making any representation or recommendation to any Holder as to whether or not to surrender such Holder’s Notes.  You should consult your own legal, financial and tax advisors and must make your own decision as to whether to surrender your Notes for repurchase and, if so, the amount of Notes to surrender.

 

 

SUMMARY TERM SHEET

 

The following are answers to some of the questions that you may have about the Put Option and Alternative Election.  To understand the Put Option and Alternative Election fully and for a more complete description of the terms of the Put Option and Alternative Election, we urge you to read carefully the remainder of this Amended Company Repurchase Notice and Notice of Offer for Alternative Election (“Amended Notice”) and the accompanying Repurchase Notice and Letter of Transmittal, as they may be amended, because those documents contain additional important information.  We have included page references to direct you to a more complete description of the topics in this summary.

 

SUMMARY OF THE PUT OPTION

 

•              Who is offering to repurchase my Notes pursuant to the Put Option?

 

Gold Reserve Inc., a company incorporated under the laws of Yukon, Canada (“GR” or the “Company”), is offering to repurchase your validly surrendered 5.50% Senior Subordinated Convertible Notes due 2022 (the “Notes”).  (Page 9)

 

•              What securities are you seeking to repurchase pursuant to the Put Option?

 

GR is offering to repurchase all of the Notes surrendered, at the option of the Holder thereof (the “Holder”).  Holders of approximately 87.8% of the outstanding Notes (the “Large Noteholders”) have agreed to exercise the Put Option for a maximum of $12.7 million in principal amount of their Notes for cash, with the balance of the Notes held by them being subject to the restructuring of Notes described herein (the “Alternative Election”), the terms of which will also be made available  to holders other than the Large Noteholders (the “Other Holders”).  (Page s 11 and 14)

 

As of May 16, 2012, there was $102,347,000.00 aggregate principal amount of Notes outstanding.  The Notes were issued pursuant to an Indenture (the “Indenture”), dated May 18, 2007, by and between GR and The Bank of New York Mellon, as successor in interest to The Bank of New York, as Trustee and the Co-Trustee named therein.  The Bank of New York Mellon, as successor in interest to The Bank of New York, as Trustee and the Co-Trustee named therein, also acts as Paying Agent (“Paying Agent”).  (Page 9)

 

•              How much are you offering to pay to repurchase the Notes and what is the form of payment?

 

Pursuant to the Indenture, GR will pay, in cash, a repurchase price (the “Repurchase Price”) of $1,000 per $1,000 principal amount of the Notes, plus accrued and unpaid interest to, but excluding, the Repurchase Date, with respect to any and all Notes validly surrendered for repurchase and not withdrawn.  (Page 11) GR anticipates that the aggregate maximum Repurchase Price for all Notes that will be tendered for cash pursuant to the Put Option would be $25.2 million plus accrued and unpaid Interest to, but excluding, the Repurchase Date.  (Page 11)

 

•              How can I determine the market value of the Notes pursuant to the Put Option?

 

There is no established reporting system or market for trading in the Notes.  Market quotations for the Notes are available.  To the extent that the Notes are traded, prices of the Notes may fluctuate widely depending on trading volume, the balance between buy and sell orders, prevailing interest rates, GR’s operating results and the market for similar securities.  To the extent available, Holders are urged to obtain current market quotations for the Notes before making any decision with respect to the Put Option.  (Page 9)

 

•              Why are you making the offer to repurchase the Notes?

 

GR is required to make the offer pursuant to the terms of the Notes and the Indenture.  (Page 11)

 

•              What does the board of directors of GR think of the Put Option?

 

Although the board of directors of GR has approved the terms of the Put Option included in the Indenture, the board of directors of GR has not made any recommendation as to whether you should surrender your Notes for repurchase, as provided herein or pursuant to the Alternative Election.  GR is required to make the offer pursuant to the terms of the Notes and the Indenture.  You must make your own decision whether to surrender your Notes for repurchase pursuant to the Put Option and, if so, the amount of Notes to surrender.

 

•              When does the Put Option expire?

 

The Put Option expires at 5:00 p.m., New York City time, on June 15, 2012.  (Page 12)

 

 

•              What are the conditions to the repurchase by GR of the Notes pursuant to the Put Option?

 

Provided that the repurchase by GR of the validly surrendered Notes is not unlawful, such repurchase will not be subject to any other conditions.  (Page 11)

 

•              How do I deliver a Repurchase Notice and surrender my Notes pursuant to the Put Option?

 

To surrender your Notes for repurchase pursuant to the Put Option, you must deliver the Repurchase Notice and related documents to the Paying Agent no later than 5:00 p.m., New York City time, on June 15, 2012, unless such time is extended.  HOLDERS THAT SURRENDER THROUGH THE DEPOSITORY TRUST COMPANY (“DTC”) NEED NOT SUBMIT A PHYSICAL REPURCHASE NOTICE TO THE PAYING AGENT IF SUCH HOLDERS COMPLY WITH THE TRANSMITTAL PROCEDURES OF DTC.

 

•      A Holder whose Notes are held in certificated form must properly complete and execute the Repurchase Notice, and deliver such notice to the Paying Agent, with any other required documents, no later than 5:00 p.m., New York City time, on June 15, 2012.  The Holder is required to deliver to the Paying Agent the certificate representing the Notes surrendered prior to receiving payment of the Repurchase Price.

 

•      A Holder whose Notes are held by a broker, dealer, commercial bank, trust company or other nominee must contact such nominee if such Holder desires to surrender his, her or its Notes and instruct such nominee to surrender the Notes on the Holder’s behalf.

 

•      A Holder electronically transmitting his, her or its acceptance through DTC’s Automatic Tenders over the Participant Terminal System (“PTS”) should do so no later than 5:00 p.m., New York City time, on June 15, 2012, subject to the terms and procedures of that system.  In surrendering through PTS, the electronic instructions sent to DTC by the Holder, and transmitted by DTC to the Paying Agent will acknowledge, on behalf of DTC and the Holder, receipt by the Holder of and agreement to be bound by the Repurchase Notice.  (Pages 12-13)

 

•              If I surrender my Notes pursuant to the Put Option, when will I receive payment for my Notes?

 

GR will accept for payment all Notes subject to a validly delivered Repurchase Notice promptly upon expiration of the Put Option.  GR will promptly forward to the Paying Agent, before 10:00 a.m., New York City time, on June 15, 2012, the funds required to pay the Repurchase Price for the surrendered Notes, and the Paying Agent will distribute such funds to the Holders promptly following the later of the Repurchase Date and the time of delivery of the Note to the Paying Agent by the Holder thereof in the manner required by the Indenture.  The Paying Agent has advised the Company that distributions of the Purchase Price will not commence until Monday, June 18, 2012.  (Page 13)

 

•              Until what time can I withdraw a previously delivered Repurchase Notice?

 

You can withdraw a previously delivered Repurchase Notice at any time until 5:00 p.m., New York City time, on June 15, 2012, unless such time is extended. (Page 13)

 

•              How do I withdraw a previously delivered Repurchase Notice?

 

To withdraw a previously delivered Repurchase Notice, you must deliver an executed written notice of withdrawal substantially in the form attached, or a facsimile of one, to the Paying Agent no later than 5:00 p.m., New York City time, on June 15, 2012.

 

HOLDERS THAT WITHDRAW THROUGH DTC NEED NOT SUBMIT A NOTICE OF WITHDRAWAL TO THE PAYING AGENT IF SUCH HOLDERS COMPLY WITH THE WITHDRAWAL PROCEDURES OF DTC.  (Page 13)

 

•              Do I need to do anything if I do not wish to surrender my Notes for repurchase pursuant to the Put Option?

 

No.  If you do not deliver a properly completed and duly executed Repurchase Notice before the expiration of the Put Option, GR will not repurchase your Notes and such Notes will remain outstanding, subject to their existing terms.  However, the Company intends to redeem outstanding Notes of Holders who do not put their Notes to the Company or participate in the Alternative Election, subject to applicable legal requirements and compliance with the Indenture.

 

 

•              If I choose to surrender my Notes for repurchase, do I have to surrender all of my Notes?

 

No.  You may surrender all of your Notes, a portion of your Notes or none of your Notes for repurchase.  If you wish to surrender a portion of your Notes for repurchase, however, you must surrender your Notes in a principal amount of $1,000 or an integral multiple thereof.  (Page 11)

 

•              If I do not surrender my Notes for repurchase, will I continue to be able to exercise my conversion rights?

 

Yes.  If you do not surrender your Notes for repurchase, your conversion rights will not be affected.  You will continue to have the right to convert each $1,000 principal amount of a Note into 132.626 shares of Common Stock, subject to the terms, conditions and adjustments specified in the Indenture.  (Page 11)

 

•              If I am a U.S. resident for U.S. federal income tax purposes, will I have to pay taxes if I surrender my Notes for repurchase in the Put Option?

 

The receipt of cash in exchange for Notes pursuant to the Put Option will be a taxable transaction for U.S. federal income tax purposes.  You should consult with your own tax advisor regarding the actual tax consequences to you.  (Pages 22-30)

 

•              Who is the Paying Agent?

 

The Bank of New York Mellon, the trustee for the Notes, is serving as Paying Agent in connection with the Put Option.  Its address and telephone number are set forth on the front cover page of this Amended Notice. 

 

•              Who can I talk to if I have questions about the Put Option?

 

Questions and requests for assistance in connection with the surrender of the Notes for repurchase in this Put Option may be directed to Ms. Carolle Montreuil at The Bank of New York Mellon, as successor in interest to The Bank of New York, as Trustee and the Co-Trustee named therein, at (212) 815-5920; however, questions involving the Alternative Election should be directed to Doug Belanger at the Company at (509) 623-1500.

 

SUMMARY OF THE ALTERNATIVE ELECTION

 

•              How much will I receive if I elect to participate in the Alternative Election and what is the form of payment?

 

If you elect the Alternative Election and the Company’s shareholders approve the Proposed Restructuring, you will receive for each $1,000 of Notes that are not put to the Company (collectively the “Offer Consideration”)

 

·         $200.00 in cash,

·         147.06 Common Shares,

·         a pro rata portion of the aggregate Contingent Value Right payable; and

·         $300 principal of Notes that will remain outstanding and represent the same continuing indebtedness, subject to the amended terms set forth in a Supplemental Indenture (or other Amended Note Documentation, as defined in the Restructuring Agreement).

 .

The Large Noteholders will be eligible to participate pro rata in the 5%  CVR. The CVR will be increased proportionately for any Other Holders that elect to participate in the Alternative Election and the CVR amounts will be shared pro rata with holders of the Notes who participate in the Proposed Restructuring based on the principal amount of Notes delivered to the Company by all participating holders of Notes. (Page 14)

 

•              Why are you making the offer to participate in the Proposed Restructuring?

 

To restructure the Notes in order to preserve the Company’s cash and minimize the dilution that could occur if the Company issues common shares to satisfy its obligations with respect to the Right of Repurchase.

 

•              What does the board of directors of GR think of the Proposed Restructuring?

 

 The Board concluded that the approval of the Proposed Restructuring, as set forth in the Restructuring Agreement, and consummation of the transactions described therein, is in the best interests of the Company and submitted the Proposed Restructuring to the Company’s shareholders for a vote. (Page 16)

 

 

•              When does the Offer for the Alternative Election expire?

 

The offer to participate in the Alternative Election expires at 5:00 p.m., New York City time, on June 29, 2012.  (Page 17)

 

•              What are the conditions to the delivery by GR of the Offer Consideration if I elect the Alternative Election?

 

                The Company’s shareholders must approve the Proposed Restructuring in order for you to receive the Offer Consideration pursuant to the terms of the Proposed Restructuring. (Page 16)

 

•              How do I deliver a Letter of Transmittal and surrender my Notes?

 

To surrender your Notes for participation in the Proposed Restructuring, you must deliver the Letter of Transmittal and related documents to the Agent no later than 5:00 p.m., New York City time, on June 29, 2012, unless such time is extended.  HOLDERS THAT SURRENDER THROUGH THE DEPOSITORY TRUST COMPANY (“DTC”) NEED NOT SUBMIT A PHYSICAL REPURCHASE NOTICE TO THE PAYING AGENT IF SUCH HOLDERS COMPLY WITH THE TRANSMITTAL PROCEDURES OF DTC.

 

•              A Holder whose Notes are held in certificated form must properly complete and execute the Letter of Transmittal, and deliver such Letter of Transmittal to the Agent, with any other required documents, no later than 5:00 p.m., New York City time, on June 29, 2012.  The Holder is required to deliver to the Agent the certificate representing the Notes surrendered prior to receiving the Offer Consideration.

 

•              A Holder whose Notes are held by a broker, dealer, commercial bank, trust company or other nominee must contact such nominee if such Holder desires to surrender his, her or its Notes and instruct such nominee to surrender the Notes on the Holder’s behalf.

 

•              A Holder electronically transmitting his, her or its acceptance through DTC’s Automatic Tenders over the Participant Terminal System (“PTS”) should do so no later than 5:00 p.m., New York City time, on June 29, 2012, subject to the terms and procedures of that system.  In surrendering through PTS, the electronic instructions sent to DTC by the Holder, and transmitted by DTC to the Paying Agent will acknowledge, on behalf of DTC and the Holder, receipt by the Holder of and agreement to be bound by the Letter of Transmittal.  (Page 16)

 

•              If I surrender my Notes pursuant to the Alternative Election, when will I receive the Offer Consideration for my Notes?

 

Provided the Company’s shareholders approve the Restructuring Proposal, GR will promptly forward to the Agent, before 10:00 a.m., New York City time, on June 29, 2012, the funds required to pay the cash portion of the Offer Consideration for the surrendered Notes received by that time and the Agent will distribute such funds to the Holders promptly following the later of the expiration of the Offer of the Alternative Election and the time of delivery of the Note to the Paying Agent by the Holder thereof.  The Company will also deliver the remaining Offer Consideration as soon as practicable.  (Page 14)

 

•              What happens if the shareholders do not approve the Restructuring Proposal?

 

If the Company’s shareholders do not approve the Restructuring Proposal,  Holders of Notes that accepted the Alternative Election will participate in the Replacement Restructuring. (Page 15)

 

•              Until what time can I withdraw a previously delivered Letter of Transmittal?

 

You can withdraw a previously delivered Letter of Transmittal at any time until 5:00 p.m., New York City time, on June 29, 2012, unless such time is extended. (Page 18)

 

•              How do I withdraw a previously delivered Letter of Transmittal?

 

To withdraw a previously delivered Letter of Transmittal, you must deliver an executed written notice of withdrawal substantially in the form attached, or a facsimile of one, to the Agent no later than 5:00 p.m., New York City time, on June 29, 2012.

 

HOLDERS THAT WITHDRAW THROUGH DTC NEED NOT SUBMIT A NOTICE OF WITHDRAWAL TO THE AGENT IF SUCH HOLDERS COMPLY WITH THE WITHDRAWAL PROCEDURES OF DTC.  (Page 18)

 

•              Do I need to do anything if I do not wish to surrender my Notes for repurchase pursuant to the Put Option or participate in the Proposed Restructuring?

 

 

No.  If you do not deliver a properly completed and duly executed Repurchase Notice before the expiration of the Put Option or deliver a Latter of Transmittal to participate in the Alternative Transaction, GR will not repurchase or restructure your Notes and such Notes will remain outstanding, subject to their existing terms.  However, the Company intends to redeem outstanding Notes of Holders who do not put their Notes to the Company or participate in the Alternative Election, subject to applicable legal requirements and compliance with the Indenture.

 

•              If I do not surrender my Notes for repurchase pursuant to the Put Option or participate in the Proposed Restructuring, will I continue to be able to exercise my conversion rights?

 

Yes.  If you do not surrender your Notes for repurchase or participate in the Alternative Election, your conversion rights will not be affected.  You will continue to have the right to convert each $1,000 principal amount of a Note into 132.626 shares of Common Stock, subject to the terms, conditions and adjustments specified in the Indenture.  (Page 11)

 

•              If I am a U.S. resident for U.S. federal income tax purposes, will I have to pay taxes if I participate in the Alternative Election?

 

The receipt of cash, Common Shares, CVRs (as defined below), and Modified Notes pursuant to the Proposed Restructuring will also be a taxable transaction. However, the amount of gain or loss a U.S. Holder recognizes as a result of the Proposed Restructuring, and the timing of such gain or loss, depends in part on the U.S. federal income tax treatment of the CVR, with respect to which there is substantial uncertainty.  Please see “Certain Material U.S. Federal Income Tax Considerations for U.S. Holders.”  You should consult with your own tax advisor regarding the actual tax consequences to you.  (Pages 22-30)

 

•              Who can I talk to if I have questions about the Alternative Election?

 

Questions and requests for assistance in connection with the surrender of the Notes to participate in the Alternative Transaction may be directed to Doug Belanger at the Company at (509) 623-1500.

 

 

 

 

 

 

RISK FACTORS

 

Failure to prevail in the arbitration proceedings and obtain compensation from Venezuela for the Brisas Project and Choco 5 property could materially adversely affect the Company.

 

In October 2009 we filed a Request for Arbitration under the Additional Facility Rules of the International Centre for Settlement of Investment Disputes (“ICSID”), against the Bolivarian Republic of Venezuela (“Respondent”) seeking compensation for all of the loss and damage resulting from Venezuela’s wrongful conduct, including the expropriation of the Brisas Project. Our claim includes the full market value of the legal rights to develop the Brisas Project as of the date of the Tribunals decision, the value of the Choco 5 Property and interest on the claim calculated since the loss. Our claim as last updated in our July 2011 Reply totals approximately $2.1 billion which includes interest from April 14, 2008 (the date of the loss) to July 29, 2011 (the date of our last filing) of approximately $400 million. The cost of prosecuting our arbitration claim is substantial, and there is no assurance that we will be successful in establishing Venezuela’s liability or, if successful, will collect any award by the Tribunal for compensation from Venezuela.

 

The conversion, repurchase or restructure of our outstanding convertible notes could result in the issuance of a significant number of our common shares causing significant dilution to existing shareholders and, in certain circumstances, could result in a change of control.

 

In May 2007, we issued $103,500,000 aggregate principal amount of 5.50% convertible notes due on June 15, 2022.  On June 15, 2012, note holders have a one time option to require the Company to repurchase the notes at a price equal to 100% of the principal amount of the notes plus unpaid interest.  The Company has entered into the Restructuring Agreement to restructure its Notes as an alternative to satisfying our obligation to repurchase the outstanding notes, by delivering common shares which would require us to issue shares based on the Daily VWAP (as defined in Indenture) for ten days ending three days prior to the Repurchase Date, likely resulting in significant dilution to existing shareholders and a potential change of control of the Company which could result in the payment of severance compensation pursuant to change of control agreements with certain employees.

 

Our ability to obtain the resources required for continued servicing or restructuring of our notes or to meet other obligations as they come due depends on numerous factors, some of which are beyond our control.

 

Unless and until we successfully collect an arbitral award, if any, or acquire and/or develop other operating properties which provide positive cash flow, our ability to meet our obligations as they come due or redeem in whole or part or otherwise restructure the notes excluding the note holder’s option to require the Company to redeem the convertible notes on June 15, 2012, will be limited to our cash on hand and/or our ability to issue additional equity or debt securities in the future. Such transactions could potentially cause substantial dilution to the then existing shareholders and, in certain circumstances, could result in a change of control.

 

Failure to acquire or invest in another mining project could adversely affect future results including continued listing on the Amex or TSX Venture.

 

We are actively pursuing alternative mining prospects. However, the identification of a viable mining project takes time, and a substantial amount of management’s attention has been focused on the Brisas arbitration proceeding.  Even if a new mining project is identified, there is no guarantee that we could adequately finance or successfully construct and operate the project. In addition, the Company is subject to a Plan to regain compliance with the continued listing rules of the Amex and is required to maintain compliance with the TSX Venture listing rules. No assurances can be given that the Company will be able to achieve compliance with the Amex Company Guide within the required time frame and/or maintain continued compliance with the TSX Venture Company Manual and, as a result, could be subject to future delisting actions.

 

Industry competition for new properties could limit the Company’s ability to grow in the future

 

There is strong competition from other mining companies in connection with the acquisition of future properties considered to have commercial potential. Many of these companies have greater financial resources, operational experience and technical capabilities. As a result, we may be unable to acquire additional mining properties, thereby limiting future growth.

 

The outcome of the litigation regarding the enjoined hostile takeover bid may adversely affect our business.

 

In December 2008, the Company filed an action in the Ontario Superior Court of Justice against Rusoro and Rusoro’s financial advisor Endeavour Financial International Corporation (“Endeavour”) seeking an injunction restraining Rusoro and Endeavour from proceeding with an unsolicited offer by Rusoro to acquire all of the Company’s outstanding shares, significant monetary damages, and various other items. Endeavour was the Company’s financial advisor from 2004 until shortly after the commencement of Rusoro’s offer.  The Company was subsequently granted an interlocutory injunction restraining Rusoro and Endeavour from proceeding with any hostile bid until the conclusion and disposition at trial of our original legal action. A subsequent appeal by Rusoro was denied and thereafter Rusoro and Endeavour filed counterclaims against the Company for, among other things, damages of Cdn $102.5 million and $0.5 million, respectively. Our legal action is ongoing and there can be no assurances as to its ultimate outcome, whether Rusoro and or Endeavour will pursue any other legal course of action or, if successful, whether Rusoro will initiate another unsolicited offer for the Company.

 

 

Failure to retain and attract key personnel could adversely affect the Company.

 

We are dependent upon the abilities and continued participation of key personnel to manage the Brisas arbitration and identify, acquire and develop new opportunities. Substantially all key management personnel have been employed by the Company for over 15 years. The loss of key employees (in particular those long time key management personnel possessing important historical knowledge related to the Brisas Project which is relevant to our arbitration claims) or an inability to obtain personnel necessary to execute our plan to acquire and develop a new project could have a material adverse effect on our future operations.

 

Operating losses are expected to continue.

 

We have no commercial production at this time and, as a result, we have not recorded revenue or cash flows from mining operations and have experienced losses from operations for each of the last five years, a trend we expect to continue unless and until the investment dispute regarding Brisas is resolved favorably to the Company and/or we acquire or invest in an alternative project and achieve commercial production.

 

We may issue additional common shares, debt instruments convertible into common shares or other equity-based instruments to fund future operations.

 

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 and in certain circumstances could result in a Change of Control.

 

The price and liquidity of our common shares may be volatile.

 

The market price of our common shares may fluctuate based on a number of factors, some of which are beyond our control, including:

 

• the result of our arbitration and litigation proceedings;
• economic and political developments in Venezuela;
• our operating performance and financial condition;
• continued listing of our common shares on Canadian and US stock exchanges;
• the public’s reaction to announcements or filings by ourselves or other companies;
• the price of gold and copper and other metal prices, as well as metal production volatility;
• the arrival or departure of key personnel;
• acquisitions, strategic alliances or joint ventures involving us or other companies.

 

Risks inherent in the mining industry could adversely impact future operations.

 

Exploration for gold and other metals is speculative in nature, involves many risks and frequently is unsuccessful. As is customary in the industry, not all prospects will be positive or progress to later stages (e.g. the feasibility and permitting stages), therefore, management can give no assurances as to the future success of its efforts to acquire, explore, develop or operate another mining property. Exploration programs entail risks relating to location, metallurgical processes, governmental permits and regulatory approvals and the construction of mining and processing facilities. Development can take a number of years, requiring substantial expenditures and there is no assurance that we will have, or be able to raise, the required funds to engage in these activities or to meet our obligations with respect to the exploration properties in which we may acquire an interest. Any one or more of these factors or occurrence of other risks could cause us not to realize the anticipated benefits of an acquisition of properties or companies.

 

U.S. Internal Revenue Service designation as a “passive foreign investment company” may result in adverse U.S. tax consequences to U.S. Holders.

 

U.S. persons should be aware that we have determined that we were a "passive foreign investment company" (a "PFIC") under Section 1297(a) of the Internal Revenue Code of 1986, as amended, for the taxable year ended December 31, 2007, when we issued the Notes, we have continued to be a PFIC since that time, and we expect to be a PFIC for the taxable year ending December 31, 2012.  As a result, U.S. persons will generally be subject to various adverse U.S. federal income tax consequences in connection with the ownership of the Notes, Modified Notes, and Commons Shares as described in “Certain Material U.S. Federal Income Tax Considerations for U.S. Holders.”

 

 

The U.S. federal income tax treatment of the CVR is unclear.

 

There is substantial uncertainty as to the tax treatment of the CVR. The receipt of the CVR as part of the Proposed Restructuring may be treated as a “closed transaction” or as an “open transaction” for U.S. federal income tax purposes, which affects the amount of gain or loss, if any, that may be recognized at the time of the exchange under the Proposed Restructuring.  Please see “Certain Material U.S. Federal Income Tax Considerations for U.S. Holders.”

 

It may be difficult to bring certain actions or enforce judgments against the Company and/or its directors and executive officers.

 

Investors in the U.S. or in other jurisdictions outside of Canada may have difficulty bringing actions and enforcing judgments against the Company, our directors or executive officers based on civil liability provisions of federal securities laws or other laws of the U.S. or any state thereof or the equivalent laws of other jurisdictions of residence. We are organized under the laws of Yukon, Canada. Some of our directors and officers, and some of the experts named from time to time in our filings, are residents of Canada or otherwise reside outside of the U.S. and all or a substantial portion of their and our assets, may be located outside of the U.S. As a result, it may be difficult for investors in the U.S. or outside of Canada to bring an action in the U.S. against directors, officers or experts who are not resident in the U.S. It may also be difficult for an investor to enforce a judgment obtained in a U.S. court or a court of another jurisdiction of residence predicated upon the civil liability provisions of Canadian security laws or U.S. federal securities laws or other laws of the U.S. or any state thereof against us or those persons.

 

 

 

 

 

IMPORTANT INFORMATION CONCERNING THE PUT OPTION AND ALTERNATIVE TRANSACTION

 

1.             Information Concerning Gold Reserve.  Gold Reserve Inc., a company incorporated under the laws of Yukon, Canada (“GR” or the “Company” or “We”), is offering to repurchase for cash its 5.50% Senior Subordinated Convertible Notes due 2022 (the “Notes”) as required by the Indenture (the “Indenture”), dated May 16, 2012, by and among the Company and Bank of New York Mellon, as Successor-in-Interest to the Bank of New York, as Trustee (“Trustee”) and the Co-Trustee named therein.  The Company is also offering an Alternative Election, as described below.

 

The Company is engaged in the business of acquiring, exploring and developing mining projects. The Company is an exploration stage company incorporated in 1998 under the laws of Yukon, Canada and is the successor issuer to Gold Reserve Corporation which was incorporated in 1956. From 1992 to 2008 the Company focused substantially all of its management and financial resources on the development of the Brisas gold and copper project located in the Kilometer 88 mining district of the State of Bolivar in south-eastern Venezuela (the “Brisas Project” or “Brisas”). The Brisas Project was expropriated by the Venezuelan government in 2008.

 

As previously disclosed in its Annual Report on Form 10-K/A filed with the Commission, the Company determined as of June 30, 2011 (the last business day of its most recently completed second fiscal quarter), that less than 50 percent of its outstanding voting securities were directly or indirectly held of record by residents of the United States.  Because the share ownership percentage of United States residents of the Company is less than 50% and the Company is organized under the laws of Yukon, Canada, the Company is a “foreign private issuer” pursuant to Rule 3b-4 under the Securities Exchange Act of 1934, as amended  The Company previously reported as a foreign private issuer for many years prior to its annual report on Form 10-K for the fiscal year ended December 31, 2009, as during 2009 its shareholder composition changed such that more than 50 percent of its outstanding voting securities were directly or indirectly held of record by residents of the United States.   The Company has returned to foreign private issuer reporting for administrative ease and as a cost-savings measure.

 

The Company’s administrative office is located at 926 West Sprague Avenue, Suite 200, Spokane, WA  99201, U.S.A. and its telephone and fax numbers are 509.623.1500 and 509.623.1634, respectively.

 

1.1          Use of Proceeds.

 

We will not receive any cash proceeds in connection with the Put Option or the Proposed Restructuring described below. We will pay all of the fees and expenses related to the Put Option and the Proposed Restructuring that we incur. We will not pay any commissions or concessions of any broker dealer or any other costs or expenses you may incur in participating in the Put Option or the Proposed Restructuring.  Any Notes that are properly tendered pursuant to the Put Option or the Alternative Election will be retired.

 

1.2          Ratios of Earnings.

 

The following table sets forth information regarding our ratio of earnings to fixed charges. For purposes of determining the below ratio, earnings consist of pre-tax income or loss from continuing operations before adjustment for non-controlling interests in consolidated subsidiaries or income or loss from fixed charges. Fixed charges consist of interest expenses, amortization of debt issuance costs and accretion of debt discount.

 

 

1.3          Market for the Notes and Common Stock.

 

There is no established reporting system or trading market for trading in the Notes.  However, quotations of prices for the Notes are available.  We will not receive any cash proceeds from the repurchase or restructuring of our Notes. We will pay all of the fees and expenses related to the Right of Repurchase and offer to participate in the Alternative Election that we incur. We will not pay any commissions or concessions of any broker dealer or any other costs or expenses you may incur in participating in the Right of Repurchase or the offer to participate in the Alternative Election. Any Notes that are properly tendered and accepted pursuant to the Put Option or the Alternative Transaction will be retired.  To the extent that the Notes are traded, prices of the Notes may fluctuate widely depending on trading volume, the balance between buy and sell orders, prevailing interest rates, GR’s operating results and the market for similar securities.  To the extent available, Holders are urged to obtain current market quotations for the Notes before making any decision with respect to the Put Option or Alternative Election.  The Notes are held through the Depository Trust Company (“DTC”).  As of May 16, 2012, there was $102,347,000 aggregate principal amount of Notes outstanding, and DTC was and is the sole record Holder of the Notes.

 

 

The Common Stock into which the Notes are convertible is traded in Canada on the TSX Venture symbol “GRZ.V”. Prior to February 1, 2012, the shares of Common Stock were traded on the TSX. The shares are also traded in the United States on the NYSE MKT under the symbol “GRZ.” The Notes are not listed for trading on any exchange. The following table sets forth, for the fiscal quarters indicated, the high and low sales prices of the Common Stock as reported on the TSX Venture and NYSE MKT.

 

 

On May 15, 2012, the closing price for the Common Stock was Cdn $3.88 per share on the TSX Venture and U.S. $3.70 per share on the NYSE MKT. As of May 31, 2012, there were a total of 59,788,972 Class A common shares and 500,236 Class B common shares issued and outstanding. The number of holders of Class A and Class B common shares of record on May 15, 2012 was approximately 448. As of May 15, 2012, based on information received from our transfer agent and other service providers, we believe our common shares are owned beneficially by approximately 7,500 shareholders.

 

GR urges you to obtain current market information for the Notes, to the extent available, and the Common Stock before making any decision to surrender your Notes pursuant to the Put Option or participate in the Proposed Restructuring by electing the Alternative Election.

 

1.4          Capitalization. 

 

The following table sets forth our cash and cash equivalents and our combined capitalization as of June 27, 2012 (i) on an actual basis and (ii) on an as-adjusted basis to reflect the Proposed Restructuring, as follows:

 

·         giving effect to the Put Option, as if all outstanding Notes not held by the Large Noteholders were tendered and accepted pursuant to the Put Option (excluding any accrued interest and dividends); and

·         giving effect to the Proposed Restructuring.

 

The as-adjusted information assumes that the relevant transactions were consummated on June 27, 2012.

 

 

2.             Information Concerning the Outstanding Notes.  The Notes were issued under an Indenture, dated May 18, 2007 (the “Indenture”), by and among the Company and The Bank of New York Mellon, as successor in interest to The Bank of New York, as Trustee and the Co-Trustee named therein, (the “Trustee”).  The Notes mature on June 15, 2022.

 

2.1          GR’s Obligation to Repurchase the Notes.  Pursuant to the terms of the Indenture and the Notes, unless earlier redeemed, GR is obligated to repurchase all Notes validly surrendered for repurchase and not withdrawn, at the Holder’s option on June 15, 2012 at a repurchase price of 100% of the principal amount of Notes, plus any accrued and unpaid interest to, but excluding, the Repurchase Date (as defined below). Holders of approximately 87.8% of the outstanding Notes (the “Large Noteholders”) have agreed to exercise the Put Option for $12.7 million in principal amount of their Notes for cash, with the balance of the Notes held by them being subject to the restructuring of Notes described herein (the “Alternative Election”), the terms of which will also be made available  to holders other than the Large Noteholders (the “Other Holders”).

 

As of May 16, 2012, there was $102,347,000 aggregate principal amount of Notes outstanding. Accordingly, the aggregate maximum Repurchase Price for all Notes GR anticipates will be tendered pursuant to this Amended Notice would be $25.2 million plus accrued and unpaid Interest to, but excluding, the Repurchase Date.

 

This Put Option will expire at 5:00 p.m., New York City time, on Friday, June 15, 2012 (the “Repurchase Date”), unless extended in connection with the finalization of the Alternative Election.  Provided that the repurchase by GR of validly surrendered Notes is not unlawful, such repurchase will not be subject to any other conditions and will be made promptly after expiration of the Put Option.  The payment by GR for validly tendered Notes is subject to the Payment Agent’s receipt of a validly and timely delivered Repurchase Notice and receipt of the certificate(s) representing the surrendered Notes.

 

2.2          Repurchase Price.  Pursuant to the terms of the Indenture and the Notes, the repurchase price to be paid by GR for the Notes (the “Repurchase Price”) that will be tendered pursuant to this Amended Notice promptly after the Repurchase Date is $1,000 per $1,000 principal amount of the Notes, plus any accrued and unpaid interest to but excluding the Repurchase Date.  The Repurchase Price will be paid in cash with respect to any and all Notes for which a valid Repurchase Notice has been delivered and not withdrawn and for which a certificate representing the surrendered Notes has been delivered.  If you are surrendering only a portion of your Notes for repurchase, such Notes will be accepted only in principal amounts at maturity equal to $1,000 or integral multiples thereof.

 

The Repurchase Price is based solely on the requirements of the Indenture and the Notes and bears no relationship to the market price of the Notes or Common Stock (as defined below).  Thus, the Repurchase Price may be significantly higher or lower than the current market price of the Notes.  Holders of Notes are urged to obtain the best available information as to potential current market prices of the Notes, to the extent available, and Common Stock (as defined below) before making a decision whether to surrender their Notes for repurchase.

 

None of GR or its board of directors or employees are making any recommendation to Holders as to whether to surrender or refrain from surrendering the Notes for repurchase pursuant to this Amended Notice.  Each Holder must make his, her or its own decision whether to surrender his, her or its Notes for repurchase and, if so, the principal amount of Notes to surrender based on such Holder’s assessment of current market value and other relevant factors.

 

2.3          Conversion Rights of the Notes.  The Notes are convertible into shares of GR’s Common Stock, no par value (the “Common Stock”), in accordance with and subject to the terms of the Indenture and the Notes.  Holders may convert their Notes into Common Stock of GR at any time prior to stated maturity.  The Notes are currently convertible into Common Stock.  The conversion rate of the Notes as of May 16, 2012 is 132.626 shares of Common Stock per $1,000 principal amount of the Notes, which is equivalent to a conversion price of $7.54 per share of Common Stock (subject to adjustment in accordance with the terms of the Indenture).  The Paying Agent is currently acting as Conversion Agent for the Notes.

 

 

Holders that do not surrender their Notes for repurchase pursuant to the Put Option will maintain the right to convert their Notes into Common Stock in accordance with and subject to the terms of the Indenture and the Notes.  Any Notes as to which a Repurchase Notice has been given may be converted in accordance with the terms of the Indenture only if the applicable Repurchase Notice has been validly withdrawn at or before 5:00 p.m., New York City time, on June 15, 2012, as described in Section 4 hereto.

 

2.4          Redemption.  The Notes are redeemable by the Company any time until June 15, 2012, 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 the Common Shares on the NYSE MKT 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, the Company may, at its option, 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.  The Company has agreed to limit its redemption rights with respect to Holders who participate in the Alternative Election.

 

2.5          Fundamental Change.  The Notes may be put to GR for cash at the option of the Holder if there is a Fundamental Change (as defined in the Indenture) at a redemption 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 redemption date

 

2.6          Ranking.  The notes are unsecured obligations and rank (1) subordinate in right of payment to future unsubordinated indebtedness for the construction and development of Brisas, and effectively subordinate to the extent of the collateral securing such indebtedness, (2) subordinate to senior secured bank indebtedness in right of payment, and 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 the Company or any of its subsidiaries for the period that the guarantee is in effect, (4) equal in right of payment to any of the Company’s other existing and future unsecured and unsubordinated indebtedness, and (5) senior in right of payment to all of the Company’s future subordinated debt.

 

3.             Procedures to be Followed by Holders Electing to Surrender Notes for Repurchase Pursuant to Put Option.  Holders will not be entitled to receive the Repurchase Price for their Notes unless they validly deliver and do not withdraw a Repurchase Notice at or before 5:00 p.m., New York City time, on June 15, 2012 and surrender their Notes for cancellation.  Only registered Holders are authorized to deliver a Repurchase Notice to surrender their Notes for repurchase.  Holders may surrender some or all of their Notes; however, if you are surrendering only a portion of your Notes, such Notes must be in $1,000 principal amount or an integral multiple thereof.

 

A Holder who is a DTC participant may elect to surrender to GR his, her or its beneficial interest in the Notes by electronically transmitting his, her or its acceptance through DTC’s PTS no later than 5:00 p.m., New York City time, on June 15, 2012, subject to the terms and procedures of that system.  In surrendering through PTS, the electronic instructions sent to DTC by the Holder, and transmitted by DTC to the Paying Agent will acknowledge, on behalf of DTC and the Holder, receipt by the Holder of and agreement to be bound by the Repurchase Notice.

 

If Holders do not validly deliver and not withdraw a Repurchase Notice at or before 5:00 p.m., New York City time, on June 15, 2012, their Notes will remain outstanding, subject to the existing terms of the Notes.

 

HOLDERS THAT SURRENDER THROUGH DTC NEED NOT SUBMIT A PHYSICAL REPURCHASE NOTICE TO THE PAYING AGENT IF SUCH HOLDERS COMPLY WITH THE TRANSMITTAL PROCEDURES OF DTC.

 

3.1          Method of Delivery.  The method of delivery of the Notes, the related Repurchase Notice and all other required documents, including delivery through DTC and acceptance through DTC’s PTS, is at the election and risk of the person surrendering such Notes and delivering such Repurchase Notice and delivery will be deemed made only when actually received by the Paying Agent.  The date of any postmark or other indication of when a Note or the Repurchase Notice was sent will not be taken into account in determining whether such materials were timely received.  If such delivery is by mail, it is suggested that Holders use properly insured, registered mail with return receipt requested, and that Holders mail the required documents sufficiently in advance of the Repurchase Date to permit delivery to the Paying Agent no later than 5:00 p.m., New York City time, on June 15, 2012.

 

3.2          Repurchase Notice.  Pursuant to the Indenture, the Repurchase Notice must contain:

 

•              the certificate number of the Notes being delivered for repurchase;

 

•              the portion of the principal amount of the Notes which will be delivered to be repurchased, which portion must be in principal amounts of $1,000 at maturity or an integral multiple thereof; and

 

•              a statement that such Notes shall be purchased as of the Repurchase Date pursuant to the terms and conditions specified in the Indenture and the Notes.

 

 

3.3          Delivery of Notes. 

 

Notes in Certificated Form.  To receive the Repurchase Price, a Repurchase Notice must be validly delivered to the Paying Agent and not withdrawn at or before 5:00 p.m. New York City time on June 15, 2012 and the Notes must be surrendered for repurchase on, before or after the Repurchase Date.  The delivery of the Note is a condition to receipt by the Holder of the Repurchase Price for that Note.

 

Notes Held Through a Custodian.  A Holder whose Notes are held by a broker, dealer, commercial bank, trust company or other nominee must contact such nominee if such Holder desires to surrender his, her or its Notes and instruct such nominee to surrender the Notes for repurchase on the Holder’s behalf.

 

Notes in Global Form.  A Holder who is a DTC participant may elect to surrender to GR his, her or its beneficial interest in the Notes by:

 

•              electronically transmitting his, her or its acceptance through DTC’s PTS no later than 5:00 p.m., New York City time, on June 15, 2012, subject to the terms and procedures of that system.  In surrendering through PTS, the electronic instructions sent to DTC by the Holder and transmitted by DTC to the Paying Agent will acknowledge, on behalf of DTC and the Holder, receipt by the Holder of and an agreement to be bound by the Repurchase Notice; and

 

•              delivering to the Paying Agent’s account at DTC through DTC’s book-entry system his, her or its beneficial interest in the Notes.  Delivery of the beneficial interest in the Note is a condition to receipt by the Holder of the Repurchase Price for that Note.

 

The Notes and the Repurchase Notice must be delivered to the Paying Agent in the manner set forth herein to collect payment.  Delivery of documents to DTC or GR does not constitute delivery to the Paying Agent.

 

HOLDERS THAT SURRENDER THROUGH DTC NEED NOT SUBMIT A PHYSICAL REPURCHASE NOTICE TO THE PAYING AGENT IF SUCH HOLDERS COMPLY WITH THE TRANSMITTAL PROCEDURES OF DTC.

 

4.             Right of Withdrawal of Surrender for Purchase.  Repurchase Notices may be withdrawn at any time at or before 5:00 p.m., New York City time, on June 15, 2012, unless such date is extended.  In order to withdraw a Repurchase Notice, Holders must deliver to the Paying Agent written notice, substantially in the form enclosed herewith, containing:

 

•              the principal amount of the Note in respect to which such notice of withdrawal is being submitted;

 

•              the certificate number(s) (if such Note is held in other than Global Form) in respect of which such notice of withdrawal is being submitted, or the appropriate depositary information of the Note in respect of which such notice of withdrawal is being submitted is represented by a global note; and

 

•              the principal amount, if any, of such Notes which remain subject to the original Repurchase Notice and which have been or will be delivered to the Paying Agent for repurchase by GR.

 

The signature on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Rule 17Ad-15 of the Notes Exchange Act of 1934, as amended (the “Exchange Act”)) unless such Notes have been surrendered for repurchase for the account of an Eligible Institution.  Notes subject to any properly withdrawn Repurchase Notice will be deemed not validly surrendered for purposes of the Put Option.  Notes withdrawn from the Put Option may be re-surrendered by following the Repurchase Notice procedures described in Section 3 above.

 

HOLDERS THAT WITHDRAW THROUGH DTC NEED NOT SUBMIT A PHYSICAL WITHDRAWAL NOTICE TO THE PAYING AGENT IF SUCH HOLDERS COMPLY WITH THE WITHDRAWAL PROCEDURES OF DTC.

 

5.             Payment for Notes Surrendered for Repurchase.  The Repurchase Price for any Notes with respect to which a valid Repurchase Notice has been delivered and not withdrawn shall be paid to the Holder promptly following the later of the Repurchase Date and the time of delivery of such Notes by the Holder thereof in the manner required by the Indenture.  Each Holder of a beneficial interest in the Notes that has properly delivered a Repurchase Notice with respect to such beneficial interest through DTC and not validly withdrawn such delivery at or before 5:00 p.m., New York City time, on June 15, 2012, will receive the Repurchase Price promptly following the later of the Repurchase Date and the time of delivery of such Notes by the Holder thereof to the Paying Agent in the manner required by the Indenture.

 

 

The total amount of funds required by GR to repurchase all of the Notes that GR anticipates will be tendered pursuant to the Amended Notice is $25.2 million assuming (i) all of the Notes are validly surrendered for repurchase and accepted for payment, (ii) the Large Noteholders surrender a maximum of $12.7 million in principal amount of their Notes for cash pursuant to the agreement among the Large Noteholders and GR and (iii) the Holders of the remaining $12.5 million in principal amount of the outstanding Notes surrender all of their Notes for repurchase. Tendered Notes will be repurchased with cash on hand.

 

6.             Notes Acquired.  Any Notes repurchased by GR pursuant to the Put Option will be delivered to and cancelled by the Trustee, pursuant to the terms of the Indenture.

 

7.             Alternative Transaction .

 

The Company has agreed with holders identified below (the “Large Noteholders”) of approximately 87.8% of the Company’s outstanding 5.50% senior subordinated convertible notes (“Notes”) to refinance the Notes pursuant to the terms of the Subordinated Note Restructuring Agreement dated May 25, 2012 (the “Restructuring Agreement”). The Notes were issued pursuant to an Indenture (the “Indenture”), dated May 18, 2007, by and between the Company and The Bank of New York Mellon, as successor in interest to The Bank of New York, as Trustee and the Co-Trustee named therein. As of May 25, 2012, there was $102,347,000.00 aggregate principal amount of Notes outstanding. 

 

The Notes will be restructured in one of two ways:  (1) if the Company’s shareholders approve the proposed restructuring, as recommended by the Board and management, then the Notes will be restructured as provided below under “Proposed Restructuring”; and (2) if the Company’s shareholders do not approve the Proposed Restructuring, the Notes will be restructured as provided below under “Replacement Restructuring.”  The Proposed Restructuring is subject to Shareholder approval and subject to such consents as may be required under the Indenture and, if approved, will allow the Company to redeem and restructure its Notes with a combination of cash, common shares, new terms for the remaining balance of the Notes and a Contingent Value Right, each as further described below.

 

In fulfillment of its obligations under the Indenture, the Company announced on May 17, 2012 that it would repurchase all Notes validly surrendered for repurchase and not withdrawn at a repurchase price of 100% of the principal amount of Notes, plus any accrued and unpaid interest to, pursuant to a Right of Repurchase provided in the Indenture. The Large Noteholders agreed pursuant to the Restructuring Agreement to surrender a specified percentage of their Notes as follows:

 

• Steelhead Navigator Master, L.P. will put 5% of its Notes to the Company for cash pursuant to the Put Option under the terms of the Indenture. The remaining 95% of its Notes (in the approximate amount of $54.123 million) will be restructured as set forth below.

 

• Funds managed by Greywolf Capital Management LP will put 50% of its Notes to the Company for cash pursuant to the Put Option under the terms of the Indenture. The remaining 50% of its Notes (in the approximate amount of $9.836 million) will be restructured as set forth below.

 

• All Notes owned by funds managed by West Face Capital Inc. (in the approximate amount of $13.229 million) will be restructured as set forth below.

 

Proposed Restructuring

 

Under the terms of the Proposed Restructuring, the Notes of the Large Noteholders that are not put to the Company for cash will be modified upon the following terms for each $1,000 in principal amount, plus any accrued and unpaid interest on the Notes through the date on which the Proposed Restructuring is consummated (the “Closing Date”).

 

• $700 principal amount of Notes that are not put to the Company shall be exchanged for (i) USD $200.00 in cash, (ii) 147.06 Common Shares, and (iii) a pro rata portion of the aggregate 5% Contingent Value Right payable in respect of all Subject Notes; and

 

• $300 principal of Notes that are not put to the Company shall remain outstanding and represent the same continuing indebtedness, subject to the amended terms set forth in a Supplemental Indenture (or other Amended Note Documentation, as defined in the Restructuring Agreement) as follows (such Notes, as modified, referred to in this Amended Notice as “Modified Notes”):

 

• the maturity date will be June 29, 2014;

 

• the Conversion Rate will be increased from 132.6260 shares of Common Stock per $1,000 in principal amount of Modified Notes (equivalent to a Conversion Price of $7.54) to 250 shares of Common Stock per $1,000 in principal amount of Modified Notes (equivalent to a Conversion Price of $4.00);

 

 

• the Holder may convert its Modified Notes to shares of Common Stock at the Conversion Price at any time after the Closing Date upon 3 days prior written notice to the Company;

 

• the Company shall have a mandatory obligation to redeem the Modified Notes then outstanding, in whole or in part, for an amount of cash equal to 120% of the face value thereof plus accrued and unpaid interest upon (i) the Company’s receipt of payment of a settlement or award with respect to its pending arbitration proceedings related to Venezuela’s expropriation of the Brisas Project  (any such settlement or award, the “Arbitration Award”) or (ii) the Company’s receipt of proceeds from sale or other disposition of its mining data (the “Mining Data Sale”), in each case with 20 days’ notice to the Large Noteholders; provided, however, that the Company’s redemption obligations in (i) and (ii) shall be limited to the amount of the proceeds received by the Company (provided, further, that any subsequent receipt of additional proceeds shall be applied in a similar manner until such time as the redemption obligations have been satisfied in full);

 

• the Company may redeem the Modified Notes, in whole or in part upon 20 days’ notice to the Large Noteholders, for shares of Common Stock at the conversion price plus cash for any accrued and unpaid interest if the closing sale price of its common shares is equal to or greater than 200% of the conversion price for at least 20 trading days in the period of 30 consecutive trading days (and, for the avoidance of doubt with respect to the Modified Notes, this provision shall override the provision in the Indenture that permits the Company to redeem the Notes at any time after June 16, 2012); and

 

• unless previously converted by the Large Holder, or redeemed by the Company, the Company may satisfy the Notes, at maturity, by payment of cash in an amount equal to the principal plus accrued and unpaid interest thereon.

 

Each Large Noteholder will be entitled to a contingent value right (“CVR”) that will entitle the Large Noteholders to receive, net of certain deductions, a pro rata portion of and aggregate amount of 5% of the proceeds actually received by the Company with respect to (i) the Arbitration Award and (ii) the Mining Data Sale, net of certain deductions.  The Large Noteholders will be eligible to participate pro rata in the 5% CVR. The proceeds received by the Company in which the Large Noteholders will participate through the CVR may be cash, commodities, bonds, shares or any other consideration received by the Company as a result of the Arbitration Award or the Mining Data Sale.  If such proceeds are other than cash, the Large Noteholders shall receive their pro rata share of 5% of such non-cash proceeds, net of any required deductions (e.g., for taxes) based upon the fair market value of such non-cash proceeds.  For purposes of the foregoing, each Holder’s pro rata share of the CVR shall be based on the amount of such Holder’s Notes that are amended.

 

The obligations under the CVR may be accelerated upon the occurrence of an Enterprise Sale, which includes any (i) merger, plan of arrangement or other business combination transaction involving the Company or any of its subsidiaries, (ii) a sale, pledge (with certain limited exceptions), transfer or other disposition of  85% or more of the Company’s then outstanding shares or (iii) sale, pledge, transfer or other disposition, directly or indirectly, of all or substantially all of the assets of the Company.

 

In addition, each Holder that participates in the Proposed Restructuring will be entitled to an additional cash payment of a  pro rata percentage (based on the outstanding principal amount of the Notes held by such Holder) of a maximum of up to $1,000,000 depending upon the participation of the Holders in the Alternate Transaction.

 

The cash, Common Shares, Modified Notes and Contingent Value Rights to be delivered by the Company if the Proposed Restructuring is approved by the Shareholders is collectively referred to as the “Offer Consideration.”

 

The CVR will be increased proportionately for any Other Holders that elect to participate in the Alternative Election and the CVR amounts will be shared pro rata with holders of the Notes who participate in the Proposed Restructuring based on the principal amount of Notes delivered to the Company by all participating holders of Notes.

 

Replacement Restructuring

 

If the shareholders do not approve the Proposed Restructuring, and the transactions contemplated thereby, the following changes will be made with respect to the Notes or the Notes will be exchanged for new notes which have terms substantially similar to the Notes, with the changes listed below (collectively referred to as “Replacement Restructuring”).  For the avoidance of doubt, all Other Holders that elect the Alternative Election will receive the same treatment automatically.

 

• the Repurchase Date (as defined in the Indenture) will be deferred for 90 days (to Friday, September 14, 2012);

 

• the price of the Common Stock to be used  in calculating the number of Common Shares to be delivered upon exercise of the Repurchase Put Right (as defined in the Indenture) will have a floor price of $3.61 and a ceiling price of $4.00;

 

• the Conversion Rate will be increased from 132.6260 shares of Common Stock per $1,000 principal amount of Notes (equivalent to a Conversion Price of $7.54) to 250 shares of Common Stock per $1,000 principal amount of Notes (equivalent to a conversion price of $4.00 per share);

 

 

• subject to the mandatory redemption obligation specified immediately below, the Company will not exercise its redemption rights before September 14, 2014;

 

• the Company shall redeem the Notes then outstanding, in whole or in part (on a pro-rata basis), for an amount of cash equal to 120% of the face value thereof plus accrued and unpaid interest upon (i) the Company’s receipt of payment of the Arbitration Award or (ii) the Company’s receipt of proceeds from the Mining Data Sale, in each case with 20 days’ notice to the Large Noteholders; provided, however, that the Company’s redemption obligations in (i) and (ii) shall be limited to the amount of the proceeds received by the Company (provided, further, that any subsequent receipt of additional proceeds shall be applied in a similar manner until such time as the redemption obligations have been satisfied in full); and

 

• the Company will provide a first priority blanket lien on all of the Company’s mining data to secure the Company’s obligations under the Notes and the Company shall deliver such instruments and agreements on the date of close as the Large Noteholders may reasonably require to memorialize and perfect the first-priority security interest in all of the Company’s mining data.

 

If shareholder approval is obtained on or prior to June 27, 2012, then, subject to the satisfaction or waiver of the other conditions set forth in the Restructuring Agreement, the Company anticipates closing the Proposed Restructuring on June 29, 2012.  If shareholder approval is not obtained by June 27, 2012, then, subject to certain exceptions, the Replacement Restructuring shall be consummated on June 29, 2012.  If shareholder approval is obtained after the June 27, 2012, but prior to July 31, 2012, then, the closing of the Proposed Restructuring shall occur on the earlier of (i) two Business Days following the date of such shareholder approval or (ii) July 31, 2012. The failure of the Company to hold the meeting at which it seeks shareholder approval on or prior to June 27, 2012 shall be a breach of the Restructuring Agreement and the Company shall pay to each Large Noteholder such Holder’s pro rata portion of $125,000, multiplied by  the number of Business Days from the fifth Business Day following June 27, 2012 through the date on which the meeting is held at which Shareholder approval is sought.

 

If a meeting of shareholders has been held at which approval of the Proposed Restructuring has been sought as provided herein but such meeting has not been held on or prior to June 27, 2012, and shareholder approval is not obtained at such meeting, then, the Company shall close on the Replacement Restructuring on the earlier of (x) two Business Days following the date of such meeting or (y) July 31, 2012. The failure of the Company to hold the meeting at which it seeks shareholder approval on or prior to June 27, 2012 shall be a breach of the Restructuring Agreement and the Company shall pay to each Large Noteholder such Holder’s pro rata portion of  $125,000, multiplied by  the number of Business Days from the fifth Business Day following June 27, 2012 through the date on which the meeting is held at which shareholder approval is sought.

 

If the Replacement Restructuring closing has not occurred by August 15, 2012, for any reason, each Large Noteholder (and each Other Holder, as applicable) may elect to have the Company redeem any or all of the Notes held by it on such date in accordance with the terms of the Indenture by providing written notice of such election within 30 days of August 15, 2012.

 

The failure of the Company to obtain shareholder approval of the Proposed Restructuring, as set forth in the Restructuring Agreement, and the transactions contemplated thereby, would have adverse consequences to the Company, including the following:

 

• The Large Noteholders will retain the right to put their Notes to the Company, which has the option to pay for the Notes with its Common Shares;

 

• Shareholders would be subject to dilution because the Company would not satisfy 20% of the Large Holder’s Notes for cash; and

 

• The limited waivers executed by the Company’s executive management and directors would not apply, thereby resulting in substantial change in control payments.

 

The foregoing summary is qualified in its entirety by the Subordinated Note Restructuring Agreement, a copy of which is attached as Exhibit 99.1  to the Company’s Report on Form 6-K filed with the SEC on May 30, 2012. 

 

Support of Proposed Restructuring; Waiver of Certain Change of Control Rights in Connection with Proposed Restructuring

 

Members of management and the directors have agreed to support the transactions contemplated by the Restructuring Agreement and have agreed to limited waivers of their rights under their respective change in control agreements with respect to the Proposed Restructuring. In consideration for such waivers, the Company has agreed to pay an aggregate amount of $337,850 to those directors and employees who agree to execute limited waivers. Each individual salaried employee will be paid an amount of cash equal to 25% of his or her annual salary, Mr. Coleman will be paid $25,000, Mr. Geyer will be paid $20,000; however, Messrs. Potvin, McChesney and Mikkelsen agreed to forgo an immediate cash payment by accepting a participation of up to 2% of the pool established under the Bonus Plan described below under 2012 Bonus Pool Plan.

 

 

Recommendation of the Board

 

The Board has concluded that the approval of the Proposed Restructuring, as set forth in the Restructuring Agreement, and consummation of the transactions described therein, is in the best interests of the Company.

 

8.             Procedures to be Followed by Holders Electing to Participate in Alternative Transaction.  

 

The tender of a Note pursuant to a validly executed Letter of Transmittal and the acceptance of tendered Notes by us will constitute a binding agreement between the tendering Holder and us upon the terms and conditions described in Section 7 and in the accompanying Letter of Transmittal. Except as described below, a holder who wishes to tender Notes for the Offer Consideration must tender either through ATOP, and follow the procedures for book-entry transfer described below, or by signing and returning the appropriate Letter of Transmittal, including all other documents required by the Letter of Transmittal. We do not intend to permit tenders of Notes by guaranteed delivery procedures. All Notes not tendered for the Offer Consideration in connection with the Alternative Election will be returned to the tendering holders at our expense promptly after the termination or withdrawal of the Alternative Election.

 

THE METHOD OF DELIVERY OF NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF  DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.

 

8.1          Method of Delivery

 

To effectively tender Notes held through DTC, DTC participants may electronically transmit their tender through ATOP, for which the transaction will be eligible, and DTC will then edit and verify the acceptance and send an Agent’s Message (as defined below) to the Agent for its acceptance. Delivery of tendered outstanding Notes held through DTC must, if made by book-entry delivery, be made to the Agent pursuant to the book-entry delivery procedures set forth below. The term “Agent’s Message” means a message transmitted by DTC, received by the Agent, which states that DTC has received an express acknowledgement from the DTC participant tendering Notes that such DTC participant has received and agrees to be bound by the terms of the Alternative Election as set forth in this Amended Notice and the applicable letter(s) of transmittal and that we may enforce such agreement against such participant.  Delivery of the Agent’s Message by DTC may be done in lieu of execution and delivery of a letter of transmittal by the participant identified in the Agent’s Message. Accordingly, a letter of transmittal need not be completed by a holder tendering through ATOP (although, as stated above, the holder will be deemed to be bound by the terms of the Offer as set forth in this Offer and the applicable letter(s) of transmittal with respect to all securities so tendered).

 

8.2          Delivery of Notes

 

The Agent will establish one or more accounts with respect to the outstanding Notes at DTC for purposes of the Offer. Any financial institution that is a participant in DTC may make book-entry delivery of their outstanding Notes by causing DTC to transfer their outstanding shares or Notes to the Agent’s account at DTC in accordance with DTC’s procedures for transfer. DTC will then send an Agent’s Message to the Agent. Although delivery of outstanding Notes may be effected through book-entry at DTC, the letters of transmittal, with any required signature guarantees, or an Agent’s Message in connection with a book-entry transfer, plus, in any case, all other required documents, must be transmitted to and received by the Agent at one or more of its addresses set forth in this Offer to Exchange prior to 5:00 p.m., New York City time, on the Alternative Transaction Expiration Date. Holders desiring to tender Notes on the Alternative Election Expiration Date through ATOP should note that they must allow sufficient time for completion of the ATOP procedures during the normal business hours of DTC. Unless the Notes being tendered are deposited with the Agent at or prior to 5:00 p.m. on the Alternative Election Expiration Date (accompanied by a properly transmitted Agent’s Message in the case of Notes tendered through ATOP), we may, at our option, treat such tender as defective and decline to accept the tendered securities for payment of the Offer Consideration.  

 

Each signature on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed, unless the Notes surrendered for exchange with that letter of transmittal are tendered (1) by a registered holder of the Notes who has not completed either the box entitled “Special Exchange Instructions” or the box entitled “Special Delivery Instructions” in the letters of transmittal, or (2) for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agent Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program, each known as an “eligible institution.” In the event that a signature on a letter of transmittal, or a notice of withdrawal, as the case may be, is required to be guaranteed, the guarantee must be by an eligible institution. The term “registered holder” as used in this paragraph with respect to the Notes means any person in whose name the Notes are registered on the books of the registrar for the Notes.

 

 

All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Notes tendered for exchange will be determined by us in our sole discretion. We and the Agent reserve the absolute right to reject any and all Notes not properly tendered and to reject any Notes the acceptance of which might, in our judgment or in the judgment of the Agent or their counsel, be unlawful. We and the Agent also reserve the absolute right to waive any defects or  irregularities or conditions of the Offer as to particular Notes either before or after the Offer Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Notes in the Offer). Unless waived, any defects or irregularities in connection with tenders of Notes for exchange must be cured within the period of time we determine. We and the Agent will use reasonable efforts to give notification of defects or irregularities with respect to tenders of Notes for exchange but will not incur any liability for failure to give the notification. We will not deem Notes tendered until irregularities have been cured or waived.

 

Any determination by the Company as to the validity, form, eligibility and acceptance of Notes for the Offer Consideration, or any interpretation by the Company as to the terms and conditions of the Offer, is subject to applicable law and, if challenged by holders of Notes or otherwise, to the judgment of a court of competent jurisdiction.

 

If any letter of transmittal, endorsement, bond power, shares, power of attorney or any other document required by the letter of transmittal is signed by a trustee, executor, corporation or other person acting in a fiduciary or representative capacity, the signatory should so indicate when signing, and, unless waived by us, submit proper evidence of the person’s authority to so act, which evidence must be satisfactory to us in our sole discretion.

 

Any beneficial owner of the Notes whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender Notes in the Offer should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner’s behalf. If the beneficial owner wishes to tender directly, the beneficial owner must, prior to completing and executing the appropriate letter of transmittal and tendering Notes, make appropriate arrangements to register ownership of the Notes in the beneficial owner’s name. Beneficial owners should be aware that the transfer of registered ownership may take considerable time.

 

8.3  Withdrawal Rights  

 

You may withdraw your tender of Notes pursuant to the Alternative Election at any time prior to 5:00 p.m. (New York City time) on the Alternative Election Expiration Date. You may only withdraw your tender of Notes after the Alternative Election Expiration Date as permitted by law.

 

For a withdrawal of a tender of Notes to be effective, a written or facsimile transmission notice of withdrawal must be received by the Agent at or prior to 5:00 p.m. on the Alternative Election Expiration Date, by mail, fax or hand delivery or by a properly transmitted “Request Message” through ATOP. Any such notice of withdrawal must:

 

·         specify the name of the person who tendered the Notes to be withdrawn and the name of the DTC participant whose name appears on the security position listing as the owner of such Notes, if different from that of the person who deposited the Notes;

 

·         contain the aggregate liquidation preference or principal amount represented by the Notes to be withdrawn;

 

·         unless transmitted through ATOP, be signed by the holder thereof in the same manner as the original signature on the applicable letter of transmittal, including any required signature guarantee(s); and

 

• if the applicable letter of transmittal was executed by a person other than the DTC participant whose name appears on a security position listing as the owner of the Notes, be accompanied by a properly completed irrevocable proxy that authorized such person to effect such withdrawal on behalf of such holder.

 

Withdrawal of Notes can only be accomplished in accordance with the foregoing procedures.  Holders may not rescind their valid withdrawals of tendered Notes. However, Notes validly withdrawn may thereafter be retendered at any time at or prior to 5:00 p.m. on the Alternative Election Expiration Date by following the procedures described under “—Delivery of Notes.”

 

All questions as to the form and validity (including time of receipt) of any notice of withdrawal of a tender will be determined by us. In the event of a dispute, a court of competent jurisdiction has the power to review and make binding determinations with respect to our determinations of these matters. We reserve the absolute right to reject any or all attempted withdrawals of Notes that are not in proper form or the acceptance of which would, in our opinion, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of a withdrawal as to particular Notes. A waiver of any defect or irregularity with respect to the withdrawal of one Note shall not constitute a waiver of the same or any other defect or irregularity with respect to the withdrawal of any other Note except to the extent we may otherwise so provide. Withdrawals of Notes shall not be deemed to have been made until any defects or irregularities have been waived by us or cured. None of us, the Agent, the information agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal of a tender or incur any liability for failure to give any such notification.

 

 

9.             Interests of Directors, Executive Officers and Affiliates of GR in the Notes.  

 

Pursuant to the Restructuring Agreement, GR’s executive officers and directors will enter into Change of Control Waiver Agreements, whereby such executive officers and directors will waive their rights to receive change of control payments that would otherwise be triggered pursuant to the Proposed Restructuring.

 

In connection with services to GR, each of GR’s executive officers and directors is a party to stock option, stock unit or restricted stock plans or other arrangements involving the Common Stock.  Except as described above, GR is not and to the knowledge of GR, none of its affiliates, directors or executive officers, is a party to any contract, arrangement, understanding or agreement with any other person relating, directly or indirectly, to the Put Option or with respect to the Notes, including, but not limited to, any contract, arrangement, understanding or agreement concerning the transfer or the voting of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies, consents or authorizations.

 

A list of the directors and executive officers of GR is attached to this Amended Notice as Annex A.

 

Except as otherwise disclosed herein, to the knowledge of GR:

 

·         none of GR or its executive officers, directors, subsidiaries or other affiliates has any beneficial interest in the Notes;

 

·         none  of the officers or directors of the subsidiaries of GR has any beneficial interest in the Notes;

 

·         GR will  not repurchase any Notes from such persons; and

 

·         during the 60 days preceding the date of this Amended Notice, none of GR or its officers, directors or affiliates  has engaged in any transactions in the Notes.

 

10.          Comparison of Rights Among the Common Stock, the Notes and the Modified Notes.

 

The following briefly summarizes the material differences between the rights of holders of the Notes, the rights of holders of the Modified Notes and the rights of holders of our Common Stock. The discussion below is a summary and is qualified in its entirety by reference to our Articles of Incorporation, the Indenture relating to the Notes, the Supplemental Indenture relating to the Modified Notes, our Bylaws and applicable laws of Yukon, Canada. We urge you to read these documents for a more complete understanding of the differences between the Notes, the Modified Notes and the Common Stock.

 

Governing Documents

 

Notes: Holders of the Notes have the rights set forth in the Indenture.

 

Modified Notes: Holders of the Modified Notes have the rights set forth in the Supplemental Indenture.

 

Common Stock: Holders of our Common Stock have the rights set forth in our Articles of Incorporation, the bylaws and the laws of Yukon, Canada.

 

Dividends, Distributions and Interest Payments

 

Notes: Interest accrues at 5.50% per year on the principal amount and is payable semi-annually in arrears on June 15 and December 15 of each year.

 

Modified Notes: Interest will accrue at 5.50% per year on the principal amount and will be payable semi-annually in arrears on June 15 and December 15 of each year.

 

Common Stock: Shareholders are entitled to dividends if, as and when declared by our board of directors. 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.

 

 

Ranking

 

Notes: The Notes are unsecured obligations and rank (1) subordinate in right of payment to future unsubordinated indebtedness, and are effectively subordinate to the extent of the collateral securing such indebtedness, (2) subordinate to senior secured bank indebtedness in right of payment, and are 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 are 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.

 

Modified Notes: The Modified Notes will be unsecured obligations and rank (1) subordinate in right of payment to future unsubordinated indebtedness, 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 Modified 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.

 

Common Stock: The Common Stock ranks junior with respect to rights upon liquidation, dissolution or winding-up to all of our other securities and indebtedness, including the Notes and the Modified Notes.

 

Conversion Rights

 

Notes: Holders may convert their Notes into shares of Common Stock at the applicable conversion rate, at any time prior to stated maturity, in multiples of $1,000 principal amount.  The conversion rate for the Notes is 132.626 shares of Common Stock per $1,000 principal amount of Notes (equal to a conversion price of approximately $7.54 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. 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.

 

Modified Notes: Holders may convert their Modified Notes into shares of Common Stock at the applicable conversion rate, at any time after the closing date of the Modified Notes offering upon three (3) days prior written notice to the Company, in multiples of $1,000 principal amount.  The conversion rate for the Modified Notes will be 250 shares of Common Stock per $1,000 principal amount of Modified Notes (equal to a conversion price of approximately $4.00 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 Modified Notes in connection with such corporate transactions by a number of additional common shares. You will not receive any additional cash payment or additional shares representing accrued and unpaid interest and additional interest, if any, upon conversion of an Amended Note, except in limited circumstances. Instead, interest will be deemed paid by the common shares and cash, if any, issued to you upon conversion.

 

Common Stock: 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 the Company. Generally, each shareholder of Gold Reserve Corporation received one Class A common share of the Company 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 the Company 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. Holders of Class A common shares and Class B common shares are generally entitled to one vote per share and to vote together as a single class. Equity units, of which 500,236 were issued and outstanding at May 31, 2012, are not listed for trading on any stock exchange, but subject to compliance with applicable federal, provincial and state securities laws, may be transferred.

 

Voting Rights

 

Notes: Holders of Notes have no voting rights.

 

Modified Notes: Holders of Modified Notes have no voting rights.

 

 

Common Stock: Each holder of Common Stock is entitled to one vote for each share of Common Stock owned of record on any resolution to be passed at a meeting of shareholders.

 

Redemption at Holder’s Option

 

Notes: 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.

 

Modified Notes: 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.  

 

Common Stock: The Common Stock is not redeemable at the holder’s option.

 

Redemption at Our Option

 

Notes: The Notes are redeemable by the Company any time until June 15, 2012, 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 the Common Shares on the NYSE-Amex 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, the Company may, at its option, 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.

 

Modified Notes: The Company shall have a mandatory obligation to redeem the Modified Notes then outstanding, in whole or in part, for an amount of cash equal to 120% of the face value thereof plus accrued and unpaid interest upon (i) the Company’s receipt of payment of a settlement or award with respect to its pending arbitration proceedings related to Venezuela’s expropriation of the Brisas Project (any such settlement or award, the “Arbitration Award”) or (ii) the Company’s receipt of proceeds from sale or other disposition of its mining data (the “Mining Data Sale”), in each case with 20 days’ notice to the Large Noteholders; provided, however, that the Company’s redemption obligations in (i) and (ii) shall be limited to the amount of the proceeds received by the Company (provided, further, that any subsequent receipt of additional proceeds shall be applied in a similar manner until such time as the redemption obligations have been satisfied in full).

 

The Company may redeem the Modified Notes, in whole or in part upon 20 days’ notice to the Large Noteholders, for shares of Common Stock at the conversion price plus cash for any accrued and unpaid interest if the closing sale price of its common shares is equal to or greater than 200% of the conversion price for at least 20 trading days in the period of 30 consecutive trading days (and, for the avoidance of doubt with respect to the Modified Notes, this provision shall override the provision in the Indenture that permits the Company to redeem the Notes at any time after June 16, 2012).

 

Common Stock: The Common Stock is not redeemable at our option.

 

Listing

 

Notes: The Notes are not listed on any securities exchange or any automated dealer quotation system.

 

Modified Notes: The Modified Notes will not be listed on any securities exchange or any automated dealer quotation system.

 

Common Stock: The Common Stock is listed for trading in Canada on the TSX Venture Exchange under the symbol “GRZ.V.”  Prior to February 1, 2012, the shares of Common Stock were traded on the TSX.  The shares are also traded in the United States on the NYSE MKT under the symbol “GRZ.”

 

11.          Purchases of Notes by GR.  Each of GR and its affiliates, including its executive officers and directors, are prohibited under applicable U.S. federal securities laws from repurchasing the Notes (or the right to repurchase the Notes) other than through the Put Option until at least the tenth business day after the Repurchase Date.  Following such time, if any Notes remain outstanding, GR and its affiliates may purchase Notes in the open market, in private transactions, through a subsequent tender offer, or otherwise, any of which may be consummated at purchase prices higher or lower than the Repurchase Price.  Any decision to purchase Notes after the expiration of the Put Option, if any, will depend upon many factors, including the market price of the Notes, the amount of Notes surrendered for purchase pursuant to the Put Option, the market price of the Common Stock, the business and financial position of GR, and general economic and market conditions.

 

 

12.          Certain Material U.S. Federal Income Tax Considerations for U.S. Holders.

 

Certain U.S. federal income tax considerations.  The following is a summary of certain material U.S. federal income tax considerations relating to the exercise of the Put Option, the acquisition, ownership, and disposition of Modified Notes, Common Shares, cash and CVRs acquired pursuant to the Proposed Restructuring, and the ownership and disposition of Common Shares acquired upon a conversion of a Note or Modified Note (collectively, the “Transactions”) for U.S. Holders (defined below).

 

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 U.S. Holder.  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.  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 Transactions.

 

Authorities.   This summary is based on the Code, temporary, proposed and final Treasury Regulations promulgated thereunder, published rulings of the Internal Revenue Service (the "IRS"), published administrative positions of the IRS, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date hereof.  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 U.S. Holder 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, Modified Notes, Common Shares and CVRs 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 other entity taxable as a corporation for U.S. federal income tax purposes, that was created or organized in or under the laws of the U.S., any state thereof or the District of Columbia, (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (d) a trust, if (1) a court within the U.S. can exercise primary supervision over the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust was in existence on August 20, 1996, and validly elected to be treated as a U.S. person.

 

Non-U.S. Holders.  For purposes of this summary, a "non-U.S. Holder” is a beneficial owner of Notes, Modified Notes, Common Shares and CVRs 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 Transactions.

 

U.S. Holders subject to special U.S. federal income tax rules not addressed.  This summary applies only to U.S. Holders that hold the Notes, Modified Notes, Common Shares and CVRs as “capital assets” within the meaning of Section 1221 of the Code, and does not purport to deal with U.S. Holders that are subject to special provisions under the Code, including U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) 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) have a "functional currency" other than the U.S. dollar; (e) are subject to the alternative minimum tax under the Code; (f) own Notes, Modified Notes, CVRs or Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (g) acquired Notes or Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (h) hold the Notes, Modified Notes, Common Shares or CVRs other than as capital assets within the meaning of Section 1221 of the Code; or (i) 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 Transactions.

 

If a partnership holds the Notes, Modified Notes, Common Shares or CVRs, the tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership.  This summary does not address partnerships or partners in partnerships.  A person that is a partner in a partnership holding the Notes, Modified Notes, Common Shares or CVRs should consult its own tax advisor regarding the tax consequences of the Transactions.

 

Tax consequences other than U.S. federal income tax consequences to U.S. Holders not addressed.  Other than the discussion of certain Canadian tax consequences set forth below, 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.  Each Holder should consult its own financial advisor, legal counsel, or accountant regarding the consequences of any of these laws on the Transactions.  In addition, this summary does not address the U.S. tax consequences to non-U.S. Holders.  Each non-U.S. Holder should consult its tax financial advisor, legal counsel, or accountant regarding the U.S. tax consequences of the Transactions.

 

 

We have determined that we are 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 U.S. Holders.  U.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 Code for the taxable year ended December 31, 2007, when the Notes were issued, we have continued to be a PFIC since that time, we expect to be a PFIC for the taxable year ending December 31, 2012, and for the foreseeable future.  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 the Modified Notes and 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 below.  

 

Additional adverse tax consequences could result to U.S. Holders of the Modified Notes or Common Shares for any taxable year in which we are (or were) 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 below. 

 

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" (“MTM 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. Holder's 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 or Modified Note may not make a QEF election with respect to a Note or Modified Note.  As a result, a U.S. Holder of Common Shares arising from the conversion of the Note or Modified Note, or from the Proposed Restructuring, 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 or Modified 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 Common Shares and his/her adjusted tax basis in the Common Shares.  With respect to a U.S. Holder who holds a Note or Modified Note, the holding period with respect to our Common Shares acquired upon conversion of such Note or Modified Note, or from the Proposed Restructuring, shall include the period that the Note or Modified Note were 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 received upon conversion of Notes or Modified Notes, or from the Proposed Restructuring, will be spread over the entire holding period for the Notes or Modified Notes and the Common Shares acquired thereby and (b) if a U.S. Holder makes a QEF election upon conversion of the Notes or Modified Notes, or in connection with the Proposed Restructuring, 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 or Modified Note or in connection with the Proposed Restructuring, 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 was sold on such date at fair market value.  In addition, under the Treasury Regulations, a disposition, other than by exercise, of a Note or Modified Note generally will be subject to the adverse taxation rules for PFICs discussed above. 

 

The determination of whether we and any subsidiary will be a PFIC for a future 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, and our subsidiaries' assets and income, 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 hereof.  However, we expect that we and/or one or more of our subsidiaries will be, or will continue to be, a PFIC for the foreseeable future.  Therefore, the following summary is based on the conclusion that we have been a PFIC since the Notes were first issued, and the expectation that we will continue to be a PFIC in the future. 

 

                Put Option

 

 

A U.S. Holder generally will recognize a gain (subject to the market discount rules discussed in “— Market Discount and Amortizable Bond Premium,” below) or loss on the surrender of a Note pursuant to the Put Option in an amount equal to the difference between (1) the amount of cash and the fair market value of property received for such Note (other than the portion that is properly allocable to accrued but unpaid interest, which portion will be treated interest income), and (2) the U.S. Holder’s “adjusted tax basis” for such Note at the time of sale. Generally, a U.S. Holder’s adjusted tax basis for a Note will be equal to the cost of the Note to such U.S. Holder. If applicable, a U.S. Holder’s tax basis in a Note also will be increased by any market discount previously included in income by such U.S. Holder pursuant to an election to include market discount in gross income currently as it accrues, and reduced by any amortizable bond premium which the U.S. Holder has previously elected to deduct. (See “— Market Discount and Amortizable Bond Premium,” below)  Any cash received for accrued but unpaid interest generally will be taxable to the U.S. Holder as ordinary interest income to the extent not previously included in gross income as interest income.

 

If the U.S. Holder recognizes a gain, since the Company is, and has been, a PFIC since the Notes were issued, a U.S. Holder generally will 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. Holder's holding period for the Notes while the Company was a PFIC.  If the Notes are sold at a loss, the loss should be a capital loss be treated as short or long term capital loss depending on whether the U.S. Holder has held the Notes for less or more than one year.  The deductibility of capital losses are subject to various limitations.

 

Proposed Restructuring

 

An exchange of a Note by a U.S. Holder pursuant to the Proposed Restructuring will also be a taxable transaction to such U.S. Holder for U.S. federal income tax purposes and the U.S. Holder will recognize income, gain or loss in a similar manner as described above under “—Put Option.”  Since the Company has determined that it has been a PFIC since the Notes were issued, 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. Holder’s holding period for the notes while the Company was a PFIC

 

The amount of gain or loss a U.S. Holder actually recognizes as a result of the Proposed Restructuring depends on the aggregate value of the cash, Common Shares, Modified Notes, and CVR that the U.S. Holder receives.  Gain or loss recognized in the transaction must be determined separately for each Note surrendered in the exchange.  The deductibility of both long-term and short-term capital loss is subject to certain limitations.  The timing of a portion of such gain or loss also depends, in part, on the U.S. federal income tax treatment of the CVR, with respect to which there is substantial uncertainty.  Because of the CVR, the receipt of consideration may be treated as either a “closed transaction” or an “open transaction” for U.S. federal income tax purposes. There is no authority directly on point addressing whether a sale of property for, in whole or in part, contingent rights with characteristics similar to the CVR should be taxed as “open transactions” or “closed transactions” and such question is inherently factual in nature. Accordingly, U.S. Holders are urged to consult their financial advisor, legal counsel or accountant regarding this issue.

 

The installment method of reporting any gain is generally not available if the Notes are traded on an established securities market.  The Company understands that the Notes are traded infrequently in transactions arranged through brokers and that market quotations for the Notes are available.  If this causes the Notes to be treated as being traded on an established securities market for purposes of the installment sale rules, the installment method of reporting any gain attributable to the receipt of a CVR will not be available.  The following discussion assumes that the Notes are traded on an established securities market and the installment method of reporting is not available.  The CVR may be treated as debt instruments for United States federal income tax purposes.  However as such treatment is unlikely, the discussion below does not address the tax consequences of such a characterization. You should consult your own financial advisor, legal counsel or accountant with respect to whether the installment method is available and the proper characterization of the receipt of the CVR.

                                 

                Contingent Value Right

 

                                Treatment as an Open Transaction.

 

The receipt of the CVR would generally be treated as an “open transaction” if the value of the CVR cannot be “reasonably ascertained.”  This determination is made based on a consideration of all of the facts and circumstances surrounding the transfer of the CVR. If a portion of the exchange under the Proposed Restructuring is treated as an “open transaction” for U.S. federal income tax purposes, a U.S. Holder will generally recognize gain for U.S. federal income tax purposes to the extent (x) the sum of (i) the amount of cash received, (ii) the fair market value of the Common Shares received and (iii) the issue price of the Modified Note exceeds (y) such U.S. Holder’s adjusted tax basis in the Notes surrendered in the exchange.

 

Subject to the discussion below under “—Contingent Value Right – Future Payments on the CVR”, if the transaction is “open” for U.S. federal income tax purposes, the CVR would not be taken into account in determining the U.S. Holder’s taxable gain and a U.S. Holder would have no tax basis in the CVR, but would recognize gain as payments with respect to the CVR are made or deemed made in accordance with the U.S. Holder’s regular method of accounting, but only to the extent the sum of such payments (and all previous payments under the CVR), together with cash and other property received in the exchange under the Proposed Restructuring, exceeds such U.S. Holder’s adjusted tax basis in the Notes surrendered in the exchange. Alternatively, U.S. Holder’s may recognize a loss in the year that the U.S. Holder’s right to receive further payments under the CVR terminates if the cumulative payments under the CVR are less than such Holder’s adjusted tax basis in the Notes surrendered in the exchange.

 

 

If the receipt of the CVR is treated as an open transaction, the application of the PFIC rules to such transaction is uncertain.  Therefore, U.S. Holders are urged to consult their own financial advisor, legal counsel or accountant with respect to the U.S. tax treatment. 

 

                                Treatment as a Closed Transaction. 

 

                If the value of the CVR can be “reasonably ascertained” the transaction should generally be treated as “closed” for U.S. federal income tax purposes, in which event a U.S. Holder should generally recognize gain or loss for U.S. federal income tax purposes upon the exchange equal to the difference between (x) the sum of (i) the fair market value of the CVR received, (ii) the amount of cash received, (iii) the issue price of the Modified Note and (iv) the fair market value of Common Shares received and (y) such U.S. Holder’s adjusted tax basis in the Notes surrendered in the exchange.  A U.S. Holder’s initial tax basis in the CVR should equal the fair market value of the CVR on the date of the exchange, and the holding period of the CVRs should begin on the day following the date of the exchange. 

Market Discount and Amortizable Bond Premium

 

                A U.S. Holder that acquired a Note at a “market discount,” that is, at a price less than the Notes' stated redemption price at maturity (generally, the sum of all payments required under the Notes other than payments of stated interest), may be affected by the market discount rules of the Code.  Subject to a de minimis exception, the market discount rules generally require a U.S. Holder who acquired the Notes at a market discount to treat any principal payment on the Notes and any gain recognized on any disposition of the Notes as ordinary income to the extent of the accrued market discount, not previously included in income, at the time of the principal payment or the disposition of the Notes.  In general, the amount of market discount that has accrued is determined on a straight-line basis over the remaining term of Notes as of the time of acquisition, or, at the election of the U.S. Holder, on a constant yield basis.  An election to apply the constant yield method applies only to the Notes with respect to which it is made and it may not be revoked.

                A U.S. Holder of the Notes acquired at a market discount also may elect to include the market discount in income as it accrues, rather than deferring the income inclusion until the time of a principal payment or the disposition of the Notes.  If a U.S. Holder so elects, the rules discussed above with respect to ordinary income recognition resulting from the payment of principal on the Notes would not apply, and the U.S. Holder’s tax basis in the Notes would be increased by the amount of the market discount included in income at the time it accrues.  However, because the Company has been and expects to continue to be a PFIC, any gain on the disposition of the Notes will nonetheless still be treated as ordinary income as discussed above.  This election would apply to all market discount obligations acquired by the U.S. Holder on or after the first day of the first taxable year to which the election applies and could not be revoked without the consent of the IRS.

                A U.S. Holder may be required to defer until maturity of the Notes (or, in certain circumstances, its earlier disposition) the deduction of all or a portion of the interest expense attributable to debt incurred or continued to purchase or carry the Notes with market discount, unless the U.S. Holder elects to include market discount in income on a current basis.

                If a U.S. Holder acquired the Notes for a price that exceeded the Notes' stated redemption price at maturity, the U.S. Holder generally will be considered to have acquired the Notes with “amortizable bond premium.”  A U.S. Holder may elect to amortize amortizable bond premium on a constant yield basis.  The amount amortized in any year generally will be treated as a deduction against the U.S. Holder’s interest income on the Notes.  If the amortizable bond premium allocable to a year exceeds the amount of interest income allocable to that year, the excess is allowed as a deduction for that year but only to the extent of the U.S. Holder’s prior inclusions of interest income (net of any deductions for bond premium) with respect to the Notes.  The premium on the Notes held by a U.S. Holder that does not make the amortization election will decrease the gain or increase the loss otherwise recognizable on the disposition of the Notes.  The election to amortize the premium on a constant yield basis generally applies to all bonds held by the electing U.S. Holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS.

Modified Notes

 

                Taxation of interest

 

For U.S. federal income tax purposes, stated interest on the Modified 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. Holder's method of accounting for U.S. federal income tax purposes.  Subject to applicable limitations under the Code and the U.S. Treasury Regulations and subject to the discussion below, any Canadian withholding tax imposed on interest payments in respect of the Modified Notes should be treated as a foreign income tax eligible for credit against a U.S. Holder's U.S. federal income tax liability (or, at a U.S. Holder's election, may, in certain circumstances, be deducted in computing taxable income).  Interest paid on the Modified Notes will be treated as income from sources outside the U.S.  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.

 

 

It is possible that the Modified Notes will also be issued with original issue discount (“OID”).  OID exists if the stated redemption price at maturity of the Modified Notes (generally all payments required under the Modified Notes other than stated interest) exceeds the issue price of the Modified Notes by more than a de minimis amount.  The issue price of the Modified Notes depends, in part, on whether the Notes are treated as being traded on an “established market” within the 60-day period that ends 30 days after the Modified Notes are issued.  The Treasury Regulations define the term “established market” to include a system of general circulation (including computer listings disseminated to subscribing brokers, dealers and traders) that provides a reasonable basis to determine fair market value by disseminating either recent price quotations or prices from actual sales.  The Company understands that the Notes are traded infrequently in transactions arranged through brokers and that market quotations for the Notes are available.  Therefore, it is possible that the Notes will be treated as traded on an established market for purposes of the Treasury Regulations.  If so, the issue price of the Modified Notes will equal the market value of the Notes on the date that the Modified Notes are issued.  If that market price is less than the stated redemption price at maturity of the Modified Notes by more than a de minimis amount, the Modified Notes will be considered to be issued with OID.  If the Notes are not treated as traded on an established market, the issue price of the Modified Notes should equal the face amount of the Modified Notes and, therefore, the Modified Notes should not have any OID.

 

If the Modified Notes are issued with more than a de minimis amount of OID, each U.S. Holder will generally be required to include the OID in its income as it accrues, regardless of its regular method of tax accounting, using a constant yield method, possibly before such U.S. Holder receives any payment attributable to such income. 

 

The rules regarding original issue discount are complex.  Accordingly, each U.S. Holder is urged to consult its own financial advisor, legal counsel or accountant regarding the OID rules and their potential application to the Modified Notes. 

                 

                Conversion of an Modified Note

 

A U.S. Holder generally will not recognize any income, gain or loss upon conversion of the Modified Notes into Common Shares, except with respect to (i) cash received in lieu of a fractional Common Shares, 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 Modified Notes instead of delivering Common Shares, such U.S. Holder should recognize gain or loss, if any, in the same manner as described below under "Sale, Retirement or Other Taxable Disposition of the Modified Notes."  Cash received in lieu of a fractional Common Shares upon conversion will be treated as a payment in exchange for such fractional shares.  Accordingly, the receipt of cash in lieu of a fractional Common Shares 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 ordinary interest income to the extent not previously included in gross income.

 

A U.S. Holder's initial tax basis in the Common Shares received on conversion of the Modified Notes will be the same as the U.S. Holder's adjusted tax basis in the Modified 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 Modified Notes that are converted.  To the extent any Common Shares issued upon a conversion are allocable to accrued interest, however, the U.S. Holder's 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 Modified Notes is subject to adjustment under certain circumstances.  Under Section 305 of the Code, adjustments to the conversion rate that increase a U.S. Holder's proportionate share of the Company's assets or the Company's earnings may in certain circumstances result in a constructive dividend that is taxable to such U.S. Holder to the extent of the Company's current and accumulated earnings and profits, as determined under U.S. 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 Modified Notes will not be considered to result in a constructive dividend.  However, certain adjustments provided in the Modified Notes (including, without limitation, adjustments to the conversion rate of the Modified Notes in connection with cash dividends to the Company's 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 Company's 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 Modified Notes to reflect a stock dividend or similar event could in some circumstances give rise to a constructive dividend to U.S. Holders of shares of Common Shares.

 

 

                Sale, Retirement or Other Taxable Disposition of the Modified Notes

 

Upon a sale, taxable exchange, retirement, redemption, repurchase or other taxable disposition of a Modified Note, a U.S. Holder generally will recognize gain or loss equal to the difference between the amount received upon such taxable disposition (less any amount attributable to accrued but unpaid interest, which will be taxable as ordinary income, if not previously included in gross income) and the U.S. Holder’s adjusted tax basis in the Modified Note at that time.

 

Loss realized by a U.S. Holder on the sale, taxable exchange, retirement or other taxable disposition of a Modified Note generally will be treated as U.S. source capital loss, and will be long-term capital loss if, at the time of sale, exchange, retirement or other taxable disposition, the Modified Note has been held for more than one year; otherwise, the capital loss will be short-term.  The deductibility of capital losses is subject to limitations.

 

                Since the Company is, has been, and expects to continue to be a PFIC, a U.S. Holder generally will, upon disposition of the Modified 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. Holder's holding period for the notes while the Company was a PFIC. 

The Common Shares

 

                Passive foreign investment company (“PFIC”)

The Company has determined that it was a PFIC under Section 1297(a) of the Code for the taxable year ended December 31, 2007, when the Notes were issued, it has continued to be a PFIC since that time, and the Company expect to be a PFIC for the taxable year ending December 31, 2012, and for the foreseeable future.  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 foreign 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, 2011, 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, 2012, and, as a result, will be treated as a PFIC for such taxable year.  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 PFICs for any taxable 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 or will not be a PFIC for any taxable year.  However, the Company expects it will continue to be a PFIC for each subsequent taxable year prior to the year any production begins, and this summary is based on that expectation. 

 

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" (i.e., a QEF election), or an election by such U.S. Holder to "mark-to-market" his Common Shares (i.e., an "MTM election"), as discussed below, will, upon certain distributions by the Company or upon disposition of the 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. Holder's holding period for the Common Shares while the Company was a PFIC. 

 

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. Holder's 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.  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 convertible note or to the stock subject to the convertible note.  Under Treasury Regulations, if a U.S. Holder holds a note that is convertible into stock of a PFIC, the holding period with respect to shares of stock of the PFIC acquired upon conversion of the note shall include the period that the convertible 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 common shares in a PFIC received upon conversion of convertible 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.  Therefore, U.S. Holders that receive Common Shares upon the conversion of a Note or Modified Note, on in connection with the Proposed Restructuring, will not be able to make a timely QEF election with respect to such Common Shares.  However, it appears that a U.S. Holder receiving Common Shares upon the conversion of a Note or Modified Note, or in connection with the Proposed Restructuring, 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 or Modified Note, or in connection with the Proposed Restructuring,, 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 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 to 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. Holder's 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 part of the Hiring Incentives to Restore Employment Act of 2010 (the “Act”), new reporting requirements were added under Section 1298(f) of the Code for U.S. persons who are shareholders in a PFIC (the “Section 1298(f) Requirements”).  The Internal Revenue Service and Treasury are developing further guidance regarding these reporting requirements.  In the interim, the Section 1298(f) Requirements are suspended pending release of a subsequent revision of Form 8621, modified to reflect the requirements of Section 1298(f), as set forth in guidance to be included in future Treasury Regulations.  You should consult your financial advisor, legal counsel, or accountant regarding the specific reporting obligations to you (including as a result of the Act).

 

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 "marketable stock" as defined under the rules governing the MTM election.  The Common Shares are marketable stock as required under the MTM rules.  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 Common Shares and the adjusted tax basis in the Common Shares.  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 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 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 Subsidiary PFIC makes a distribution, or an interest in the Subsidiary PFIC 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 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 Subsidiary PFIC.

 

 

Due to the complexity of the PFIC, QEF and MTM elections 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. Holder's acquisition, ownership and disposition of Modified Notes and Common Shares.

 

Contingent Value Right

 

The U.S. federal income tax treatment of the CVR is not clear.  Therefore, each U.S. Holder is urged consult with its own financial advisor, legal counsel, or accountant regarding the U.S. tax treatment of the CVR.  Set forth below is a summary of a couple potential ways in which future payments on a CVR, if any, could be treated for U.S. tax purposes. 

 

                Future Payments on the CVR

 

Treatment as an Open Transaction. If the transaction is treated as an “open transaction,” a payment pursuant to a CVR to a U.S. Holder of a CVR should be treated as a payment for the sale or exchange of the Notes.  Depending on the treatment of the CVR, a portion of that payment could be treated as interest under either Section 483 of the Code (related to interest on deferred payments) or Sections 1271 - 1275 (related to imputed interest rules).  The portion of the payment pursuant to a CVR that is not treated as interest under the Imputed Interest Rules will generally be treated as a payment with respect to the sale of the Notes, as discussed above.

 

Treatment as a Closed Transaction. If the transaction is treated as a “closed transaction,” there is no direct authority with respect to the tax treatment of holding and receiving payments with respect to property similar to the CVR. It is possible that payments received with respect to a CVR, up to the amount of the Holder’s adjusted tax basis in the CVR, may be treated as a non-taxable return of a United States Holder’s adjusted tax basis in the CVR, with any amount received in excess of basis treated as gain from the disposition of the CVR. Additionally, a portion of any payment received with respect to a CVR may constitute imputed interest or as ordinary income under the Section 483 Rules. If not treated as described above, payments with respect to a CVR may be treated as either (i) payments with respect to a sale of a capital asset, (ii) ordinary income or (iii) dividends.

 

                Sale, Exchange or Other Taxable Disposition of CVR

 

A U.S. Holder generally will recognize gain or loss for U.S. federal income tax purposes on the sale, exchange or other taxable disposition of the CVR in an amount equal to the difference between the amount realized from such sale, exchange or other taxable disposition and the U.S. Holders’ adjusted tax basis in such CVR.  A loss should be treated as a capital loss and capital losses are subject to certain limitations.  The treatment of a gain is unclear since the Company is a PFIC.  Therefore, each U.S. Holder is urged to consult its own tax advisor regarding the U.S. tax treatment of any gain or loss on the sale, exchange or other taxable disposition of the CVR.

 

Information Reporting; Backup Withholding Tax

 

In general, interest payments, dividend payments, other taxable distributions on the Company’s Common Shares, proceeds from the disposition of Common Shares, Notes or Modified Notes, and other so-called “reportable payments” as defined by the Code paid by a U.S. paying agent or other U.S. intermediary to a non-corporate U.S. 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) or a substitute Form W-9. 

 

Amounts withheld as backup withholding may be credited against the U.S. Holder’s U.S. federal income tax liability. Additionally, a U.S. 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.

 

Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the information reporting and backup withholding tax rules.

 

The foregoing summary does not discuss all aspects of U.S. taxation that may be relevant to particular U.S. Holders in light of their particular circumstances and income tax situations.  U.S. Holders should consult their own financial advisors, legal counsels, or accountants as to the particular tax consequences to them of the Transactions, including the effect of any US federal, state, local, foreign or other tax laws.

 

 

13.          Certain Material Canadian Federal Income Tax Considerations.

 

The following is, as of the date hereof, a general summary of the principal Canadian federal income tax considerations applicable to a holder of Notes in respect of the exercise of the Put Option, participation in the Proposed Restructuring and participation in the Replacement Restructuring.

 

This summary is based upon the current provisions of the Income Tax Act (Canada) and the regulations thereunder (the “Canadian Tax Act”), specific proposals to amend the Canadian Tax Act (the “Tax Proposals”) which have been announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof, and an 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 limited to Canadian federal income tax considerations.  This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder, and no representations with respect to the income tax consequences to any particular prospective purchaser are made. Accordingly, Holders should consult their own tax advisors for advice with respect to the tax consequences to them of exercising their Put Option and/or participating in the Proposed Restructuring or the Replacement Restructuring, including the application and effect of other tax laws of any country, province, state or local tax authority.  This summary is addressed to current holders of Notes and assumes a degree of familiarity with the Canadian tax considerations currently applicable in respect of the Notes.

 

For the purposes of the Canadian Tax Act all amounts arising in respect of the Notes, Common Shares or CVR must generally be translated into Canadian dollars based on the noon day rate quoted by the Bank of Canada or another rate of exchange that is acceptable to the Minister of National Revenue (Canada).

 

Holders resident in Canada

 

This portion of the summary is applicable only to a Holder who, at all relevant times, for the purposes of the Canadian Tax Act  (i) is resident in Canada; (ii) deals at arm’s length and is not affiliated with the Company; and (iii) holds Notes and any Common Shares or CRVs acquired on conversion of such Notes or under the Proposed Restructuring as capital property (a  “Resident Holder”). Any Notes, Common Shares or CVRs will generally be considered to be capital property to a Resident Holder unless the Resident Holder holds such properties 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 Resident Holders whose Notes or Common Shares might not otherwise qualify as capital property may be entitled to make the irrevocable election provided by subsection 39(4) of the Canadian Tax Act to have the Notes and every other “Canadian security” (as defined by the Canadian Tax Act) owned by such Resident Holder in the taxation year of the election and in all subsequent taxation years deemed to be capital property. Holders should consult their own advisors in light of their own circumstances in determining whether the Notes, Common Shares or CVRs will be capital property to them for purposes of the Canadian Tax Act.

 

This summary is not applicable to a Resident Holder that is a “financial institution” (as defined in the Canadian Tax Act for purposes of the mark-to-market rules), a Resident Holder that is a “specified financial institution”, a Resident Holder an interest in which is a “tax shelter investment” (all as defined in the Canadian Tax Act) or a Resident Holder that has made an election to use a functional currency other than Canadian dollars for purposes of the Canadian Tax Act.  Such Resident Holders should consult their own tax advisors having regard to their particular circumstances.

 

                Disposition of Notes pursuant to exercise of Put Option

 

On the disposition of a Note pursuant to the  Exercise of the Put Option, a Resident 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 Resident Holder’s income for the taxation year or a previous taxation year. In addition, the disposition will give rise to a capital gain (or capital loss) on the Note 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 Resident Holder immediately before the disposition.  Such capital gain or loss will be treated as described below under “Tax treatment of capital gains and losses”.

 

                Tax treatment of capital gains and losses

 

 

One-half of the amount of any capital gain (a “taxable capital gain”) realized by a Resident Holder in a taxation year generally must be included in the Resident Holder’s income for that year, and one-half of the amount of any capital loss (an “allowable capital loss”) realized by a Resident Holder in a taxation year may generally be deducted from taxable capital gains realized by the Resident 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 Canadian Tax Act.

 

Participation in Proposed Restructuring

 

In connection with the participation in the Proposed Restructuring, the Company shall pay to each Holder the amount of accrued interest on the Notes held by such Holder.  In the case of a Resident Holder, the amount so received will be required to be included in income  to the extent that the interest has not otherwise been included in the income of the Resident Holder for the taxation year or a previous taxation year.

 

On participation in the Proposed Restructuring by a Resident Holder in respect of a particular Note, the Resident Holder will be considered to dispose of 70% of the Note for a combination of cash, Common Shares and a pro-rata portion of the CVR.  On such disposition, provided that the Resident Holder does not make a joint election with the Company under section 85 of the Canadian Tax Act in respect of such disposition, the Resident Holder’s proceeds of disposition will be equal to the amount of the cash received plus the fair market value of the Common Shares and interest in the CVR  so received.  Resident Holders who may wish to make such a joint election should consult their own tax advisors as to the advisability of,  and requirements for, making such a joint election, including as to the resulting proceeds of disposition of the 70% portion of the Note where such an election is made.

 

Because the amount to be received as a result of the CVR, if any, is uncertain, the fair market value thereof is unclear. Resident Holders will be required to value the CVR based on all available facts and circumstances.  Such valuation will not be binding on the CRA. 

The disposition of the 70% portion of the 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 portion of the Note disposed of,  determined immediately before the disposition.  Such capital gain or loss will be treated as described above under “Tax treatment of capital gains and losses”.

 

The income tax considerations in respect of the acquisition of Common Shares and CVR under the Proposed Restructuring are discussed below under the headings “Acquisition of Common Shares” and “Acquisition of CVR”, respectively. 

 

On the participation by a Resident Holder in the Proposed Restructuring in respect of a particular Note, the remaining 30% of the Note will be amended and remain outstanding.  Although the matter is not free from doubt, such amendment should not give rise to a disposition of such portion of the Note for Canadian income tax purposes and accordingly,  the Canadian tax treatment of interest thereunder, of the disposition of such Note and of the conversion of such Note to Common Shares should be the same as the current treatment of such items under the existing Notes.  

 

Acquisition, Holding and Disposition of Common Shares

 

Where a Resident Holder acquires Common Shares under the Proposed Restructuring, the cost to the Resident Holder of such Common Shares will be equal to their fair market value at the time the Common Shares are acquired, provided that the Resident Holder does not make a joint election with the Company under section 85 of the Canadian Tax Act in respect of the disposition of 70% of the Notes  under the Proposed Restructuring. Resident Holders who may wish to make such an election should consult their own tax advisors as to the advisability of, and requirements for, making such an election, including as to the resulting cost of the Common Shares where such an election is made.

 

Where a Resident Holder acquires Common Shares on conversion of a Note pursuant to the conversion privilege, the Resident Holder will not be considered to realize a capital gain (or capital loss) on the conversion. The cost to the Resident Holder of the Common Shares acquired on the conversion will be equal to the Resident Holder’s adjusted cost base of the Note immediately before the conversion.  Under the current administrative practice of the CRA, a Resident 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.

 

The adjusted cost base to the Resident Holder of any Common Shares acquired on the conversion  or under the Proposed Restructuring 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 Resident Holder as capital property.

 

 

A Resident 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. In certain circumstances, the amount of any resulting capital loss must be reduced to the extent of any dividends or deemed dividends received by the Resident Holder on the Common Share, to the extent and under the circumstances set forth in the detailed provisions of the Canadian Tax Act. Such capital gains and capital losses will be subject to tax in the manner described above under the heading “Tax treatment of capital gains and losses”.

 

Dividends (including deemed dividends) received on Common Shares by a Resident 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 Canadian Tax Act) paid by the Company.

 

                Acquisition, Holding and Disposition of CVR

 

Where a Resident Holder acquires an interest in the CVR under the Proposed Restructuring, the cost to the Resident Holder of such interest will be equal to its fair market value at the time such interest is so acquired.

 

A Resident Holder who disposes of an interest in the CVR should realize a capital gain (or capital loss) to the extent that the proceeds received therefor, net of any costs of disposition, exceed (or are less than) the adjusted cost base of the interest in the CVR to the Resident Holder. A Resident Holder who receives an interim payment under a CVR should realize a capital gain (or capital loss) to the extent that the amount of the payment exceeds (or is less than) the attributable portion of the adjusted cost base of the CVR to the Resident Holder.

 

Participation in Replacement Restructuring

 

On the participation by a Resident Holder in the Replacement Restructuring in respect of a particular Note, the Note will be amended and remain outstanding.  Although the matter is not free from doubt, such amendment should not give rise to a disposition of the Note for Canadian income tax purposes and accordingly,  the Canadian tax treatment of interest thereunder, of the disposition of such Note and of the conversion of such Note to Common Shares should be the same as the current treatment of such items under the existing Notes.

 

Holders not resident in Canada

 

This portion of the summary is applicable to a Holder who, at all relevant times for purposes of the Canadian Tax Act, (i) is not resident or deemed to be resident in Canada, (ii) deals at arm’s length with the Company, (iii) holds Notes and any Common Shares or CVR acquired on a conversion of such Notes or under the Proposed Restructuring as capital property and (iv) does not use or hold, and is not deemed to use or hold such properties in the course of carrying on, or otherwise in connection with, a business in Canada (a “Non-Resident Holder”). Any Notes, CVR or Common Shares will generally be considered to be capital property to a Non-Resident Holder unless the Non-Resident Holder holds such properties 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.

 

Disposition of Notes pursuant to exercise of Put Option

 

A Non-Resident Holder will not be subject to any non-resident withholding tax and, provided that the Notes do not constitute “taxable Canadian property”  for the purposes of the Canadian Tax Act will not be subject to any other Canadian income tax, in respect of any payment by the Company to the Non-Resident Holder pursuant to the exercise of the Put Option and resulting disposition of the Notes.

 

Provided that Common Shares are listed on a “designated stock exchange” (which currently includes the TSX), the Notes held by a particular Non-Resident Holder generally will not constitute taxable Canadian property unless at any time during the five-year period immediately preceding the disposition of the Notes (i) the Non-Resident Holder, persons with whom the Non-Resident Holder did not deal at arm’s length, or the Non-Resident Holder together with such persons, owned 25% or more of the issued shares of any class or series of the Company’s capital stock and (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from certain resource properties, timber resource properties or real or immovable properties situated in Canada (or a combination thereof).

 

Participation in Proposed Restructuring

 

 

In connection with the participation in the Proposed Restructuring, the Company shall pay to each Holder the amount of the accrued interest on the Notes held by such Holder.   No non-resident withholding tax or other Canadian income  tax will apply to the payment of such interest to a Non-Resident Holder.

 

On participation in the Proposed Restructuring by a Non-Resident Holder in respect of a particular Note, the Non-Resident Holder will be considered to dispose of 70% of the Note for a combination of cash, Common Shares and a pro-rata portion of the CVR.  A Non-Resident Holder will not be subject to any non-resident withholding tax in respect of such disposition and, provided that the Notes do not constitute “taxable Canadian property”  for the purposes of the Canadian Tax Act (as discussed above under the heading “Disposition of Notes pursuant to exercise of Put Option”), will not be subject to any other Canadian income tax in respect of such disposition. 

 

On the participation by a Non-Resident Holder in the Proposed Restructuring in respect of a particular Note, the remaining 30% of the Note will be amended and remain outstanding.  Although the matter is not free from doubt, such amendment should not give rise to a disposition of such portion of the Note for Canadian income tax purposes and accordingly, the Canadian tax treatment of interest thereunder and of the conversion of such Note to Common Shares should be the same as the current treatment of such items under the existing Notes.  As a result, the Non-Resident Holder should not be subject to any non-resident withholding tax or other Canadian income tax in respect of such interest or conversion. 

 

Acquisition, holding and disposition of Common Shares

 

Dividends on Common Shares paid or credited to a Non-Resident Holder by the Company are subject to Canadian withholding tax at the rate of 25%, subject to a reduction of such rate under an applicable income tax convention. Where the Non-Resident Holder is a resident of the United States and is entitled to the benefits of the Canada United States Income Tax Convention (the “Convention”), the rate of withholding tax on such dividends is generally limited to 15% of the gross amount of the dividend (or 5% in the case of a Non-Resident Holder that is a corporation beneficially owning at least 10% of the Company’s voting shares). Under the Convention, dividends paid by the Company to certain religious, 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.

 

A Non-Resident Holder will generally not be subject to tax under the Canadian 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 Canadian Tax Act at the time of the disposition. A Common Share that is listed on a designated stock exchange (which currently includes the TSX) will generally not be taxable Canadian property to a Non-Resident Holder unless at any time during the five-year period immediately preceding the disposition (i) the Non-Resident Holder, persons with whom the Non-Resident Holder did not deal at arm’s length, or the Non-Resident Holder together with such persons, owned 25% or more of the issued shares of any class or series of the Company’s capital stock and (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from certain resource properties, timber resource properties or real or immovable properties situated in Canada (or a combination thereof).  In addition, in certain circumstances set out in the Tax Act, Common Shares should be deemed to be taxable Canadian property.  By reason of the Convention, even if a Common Share constitutes taxable Canadian property to a particular Non-Resident Holder that is entitled to the benefits of the Convention, no tax will generally be payable under the Canadian Tax Act on a capital gain realized 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” as defined in the Convention.

 

Acquisition, holding and disposition of CVR

 

The CVR will not constitute taxable Canadian property for the purposes of the Canadian Tax Act.  A Non-Resident Holder will generally not be subject to non-resident withholding tax or other Canadian income tax in respect of any payments under the CVR or in respect of any gain or loss arising on the disposition of a CVR.

 

Participation in Replacement Restructuring

 

On participation by a Non-Resident Holder in the Replacement Restructuring in respect of a particular Note, the Note will be amended and remain outstanding.  Although the matter is not free from doubt, such amendment should not give rise to a disposition the Note for Canadian income tax purposes and accordingly, the Canadian tax treatment of interest thereunder, of the disposition of such Note and of the conversion of such Note to Common Shares should be the same as the current treatment of such items under the existing Notes.

 

 

 

14.          Additional Information.  GR is subject to the reporting and other informational requirements of the Exchange Act and, in accordance therewith, files reports and other information with the SEC.  Such reports and other information can be inspected and copied at the Public Reference Section of the SEC located at 100 F Street, Washington D.C. 20549.  Such material may also be accessed electronically by means of the SEC’s home page on the Internet at www.sec.gov. Also, the Company files reports and other announcements with the Canadian securities regulatory agencies, which can be viewed on-line at www.sedar.com.

 

GR has filed with the SEC a Tender Offer Statement on Schedule TO, pursuant to Section 13(e)(4) of the Exchange Act and Rule 13e-4 promulgated thereunder, furnishing certain information with respect to the Put Option and the Offer for Alternative Election.  The Tender Offer Statement on Schedule TO, together with any exhibits and any amendments thereto, may be examined and copies may be obtained at the same places and in the same manner as set forth above.

 

The documents listed below contain important information about GR and its financial condition.

 

•              GR’s annual report on Form 10-K for its fiscal year ended December 31, 2012;

 

•              GR’s reports on Form 6-K filed on May 30, 2012 and May 31, 2012;

 

•              All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the Form 10-K mentioned above;

 

•              All documents required to be filed with the SEC by GR pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this Amended Notice; and

 

•              The description of Capital Stock set forth in the Registration Statement on Form F-10 (File No. 333-142655) filed on May 7, 2007 including any amendment or report filed with the SEC for the purpose of updating such description.

 

In the event of conflicting information in these documents, the information in the latest filed documents should be considered correct.

 

15.          No Solicitations.  GR has not employed any persons to make solicitations or recommendations in connection with the Put Option or the Offer for Alternative Election.

 

16.          Definitions.  All capitalized terms used but not specifically defined herein shall have the meanings given to such terms in the Indenture.

 

17.          Conflicts.  In the event of any conflict between this Amended Notice and the accompanying Repurchase Notice on the one hand and the terms of the Indenture or any applicable laws on the other hand, the terms of the Indenture or applicable laws, as the case may be, will control.

 

18.          Certain Securities Law Considerations.   

 

Certain U.S. Securities Law Considerations

 

All of the outstanding Notes and the common shares into which the Notes  may be converted or used by the Company to satisfy the Notes were registered with the are now freely tradable under the Securities Act by persons who are not our affiliates and who have not (directly or indirectly) acquired their securities from any of our affiliates in the past six months. The modification of the Notes and the issuance of Common Shares upon participation in the Proposed Restructuring is intended to be exempt from registration pursuant to Section 3(a)(9) of the Securities Act. Section 3(a)(9) provides an exemption from registration for any security exchanged by an issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. When securities are exchanged for other securities of an issuer under Section 3(a)(9), the securities received assume, in essence, the character of the exchanged securities for purposes of the Securities Act. Thus, the common shares issued in connection with the Proposed Restructuring will be freely tradable under the Securities Act by any person who is not an affiliate of ours and who has not (directly or indirectly) acquired the Common Stock (or the Notes restructured pursuant to the Proposed Restructuring) from any of our affiliates in the past six months.

 

Certain Canadian Securities Law Considerations

 

The Common Shares, Modified Notes and Contingent Value Rights to be issued to Holders resident in Canada will be issued pursuant to exemptions from the prospectus requirements of applicable Canadian securities laws and will be freely tradeable in Canada subject to restrictions applicable to Holders who are “control persons” in respect of the Company pursuant to such laws.

 

 

None of GR or its board of directors or employees are making any recommendation to any Holder as to whether to surrender or refrain from surrendering Notes for repurchase or to participate in the Alternative Transaction pursuant to this Amended Notice.  Each Holder must make his, her or its own decision whether to surrender his, her or its Notes for repurchase and, if so, the principal amount of Notes to surrender based on their own assessment of current market value and other relevant factors.

 

 

 

 

 

 

 

 

ANNEX A

 

BOARDS OF DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth the names of each of the members of GR’s board of directors and executive officers.

 

 

 

 

 

 

 

Exhibit 99(a)(1)(B)

 

REPURCHASE NOTICE WITH RESPECT TO PUT RIGHT

GOLD RESERVE  INC.

5.50% SENIOR SUBORDINATED CONVERTIBLE NOTES DUE 2022

 

CUSIP Number:  38068N AB4

 

Pursuant to the Company Repurchase Notice

Dated May 16, 2012, as amended

 

 

 

The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from Gold Reserve Inc. (“GR”) regarding the right of holders to elect to require GR to repurchase the Notes and requests and instructs GR to repay the entire principal amount of this Note, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture at the price of 100% of such entire principal amount or portion thereof, together with accrued Interest to, but excluding, June 15, 2012, to the registered holder hereof.  Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Indenture.  The Notes shall be repurchased by GR as of June 15, 2012 pursuant to the terms and conditions specified in the Indenture.

 

 

 

NOTICE:  The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever.

 

Note Certificate Number (if applicable):

 

Principal amount of Notes:

 

Principal amount to be repurchased (if less than all):

 

Social Security or Other Taxpayer Identification Number:

 

DTC Account:

 

Name:

 

Contact Information:

 

 

 

Exhibit 99(a)(1)(C)

 

NOTICE OF WITHDRAWAL
OF SURRENDER OF
GOLD RESERVE INC.
5.50% SENIOR SUBORDINATED CONVERTIBLE NOTES DUE 2022

WITH RESPECT TO PUT RIGHT

 

CUSIP Number:  38068N AB4

 

Pursuant to the Company Repurchase Notice
dated May 16, 2012, as amended

 

THIS OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 15, 2012 (THE “REPURCHASE DATE”).  HOLDERS OF NOTES MUST SUBMIT A REPURCHASE NOTICE NO LATER THAN 5:00 P.M., NEW YORK CITY TIME, ON JUNE 15, 2012 IN ORDER TO RECEIVE $1,000 PER $1,000 PRINCIPAL AMOUNT OF NOTES PLUS ANY ACCRUED AND UNPAID INTEREST TO BUT EXCLUDING THE REPURCHASE DATE (THE “REPURCHASE PRICE”).  REPURCHASE NOTICES MAY BE WITHDRAWN IF THE REGISTERED HOLDER SUBMITS AND THE PAYING AGENT RECEIVES THIS COMPLETED AND SIGNED NOTICE OF WITHDRAWAL AT OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON JUNE 15, 2012.  HOLDERS MUST ALSO SURRENDER A NOTE SUBJECT TO A VALID AND TIMELY REPURCHASE NOTICE TO THE PAYING AGENT BEFORE RECEIVING ANY REPURCHASE PRICE FOR THAT NOTE.   HOLDERS THAT SURRENDER THROUGH DTC NEED NOT SUBMIT A PHYSICAL REPURCHASE NOTICE TO THE PAYING AGENT IF SUCH HOLDERS COMPLY WITH THE TRANSMITTAL PROCEDURES OF DTC.

 

The Paying Agent is:

 

Bank of New York Mellon Corporation

101 Barclay Street  - 7 East

New York, New York 10286

Attn: Ms. Carolle Montreuil

Tel:  (212) 815-5920

Fax:  (212) 298-1915

 

All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Company Repurchase Notice, dated May 16, 2012, as amended, and the accompanying Repurchase Notice, of Gold Reserve Inc. (“GR”), relating to the repurchase by GR, at the option of the Holder thereof, of GR’s 5.50% Senior Subordinated Convertible Notes due 2022 (the “Notes”) for $1,000 per $1,000 principal amount of the Notes plus any accrued and unpaid interest to but excluding the Repurchase Date, subject to the terms and conditions of the Indenture and the Put Option.

 

This Notice of Withdrawal is to be completed by registered Holders of Notes desiring to withdraw the delivery of a Repurchase Notice with respect to such Notes in the Put Option if (i) a Repurchase Notice has previously been delivered to the Paying Agent, or (ii) delivery of a Repurchase Notice has been previously made pursuant to the procedures of the DTC described under the caption “Procedures to be Followed by Holders Electing to Surrender Notes for Repurchase” in the Company Repurchase Notice, as amended.

 

 

Ladies and Gentlemen:

 

The Undersigned hereby withdraws the Undersigned’s previously delivered Repurchase Notice with respect to the Notes described below.

 

The Undersigned understands that the withdrawal of the Repurchase Notice with respect to Notes previously surrendered in this Put Option, effected by this Notice of Withdrawal, may not be rescinded and that such Notes will no longer be deemed to be validly surrendered for repurchase for purposes of the Undersigned’s Repurchase Notice.  Such withdrawn Notes may be re-surrendered for repurchase only by following the procedures for surrendering set forth in the Company Repurchase Notice, as amended, and in the accompanying Repurchase Notice.

 

All authority conferred or agreed to be conferred in this Notice of Withdrawal shall not be affected by and shall survive the death or incapacity of the Undersigned, and any obligations of the Undersigned under this Notice of Withdrawal shall be binding upon the heirs, personal and legal representatives, trustees in bankruptcy, successors and assigns of the Undersigned.

 

*      *      *

 

 

 

DESCRIPTION OF NOTES BEING WITHDRAWN

 

 

(1)           Must correspond exactly to the name(s) that appear(s) on the certificate(s) for the Notes and the Paying Agent’s record of registered Holders or, if surrendered by a DTC participant, exactly as such participant’s name(s) and address(es) appear(s) on the security position listing of DTC.

 

(2)           Need not be completed if the Notes are being surrendered for repurchase by book-entry transfer.

 

(3)           Unless otherwise specified, the entire aggregate principal amount evidenced by such Notes will be deemed to have been withdrawn.

 

METHOD OF DELIVERY

 

o   CHECK HERE IF NOTES WERE PHYSICALLY DELIVERED TO THE PAYING AGENT.

 

o   CHECK HERE IF NOTES WERE DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE PAYING AGENT WITH DTC AND COMPLETE THE FOLLOWING:

 

Name of Surrendering Institution:

Address:

Telephone:

Facsimile:

Contact Person:

Date Surrendered:

DTC Account Number:

Transaction Code Number:

 

The principal amount, if any, of Notes which remain subject to the original Repurchase Notice and which have been or will be delivered for repurchase by GR:

 

 

 

SIGN HERE

 

(To Be Completed by All Registered Holders of Notes Being Withdrawn)

 

Must be signed by registered Holder(s) exactly as name(s) appear(s) on the Notes or on a security position listing or by person(s) authorized to become registered Holder(s) of the Notes by documents transmitted with this Notice of Withdrawal.  If the signature is by an attorney-in-fact, executor, administrator, trustee, guardian, partner, officer of a corporation or another party acting in a fiduciary or representative capacity, please set forth the signer’s full title.

 

 

 

 

 

 

Exhibit 99(a)(1)(D)

 

What Number to Give the Paying Agent

 

The Holder is required to give the Paying Agent his, her or its taxpayer identification number (“TIN”) (e.g., Social Security Number or Employer Identification Number).  If the Notes are held in more than one name or are held not in the name of the actual owner, consult the enclosed “Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9” for additional guidance on which number to report.

 

PAYING AGENT’S NAME:  The Bank of New York Mellon

 

 

 

 

 

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.

 

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

 

I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (b) I intend to mail or deliver an application in the near future.  I understand that if I do not provide a taxpayer identification number by the time of payment, 28% of all reportable payments made to me thereafter will be withheld.

 

 

 

 

IMPORTANT:  The Repurchase Notice must be received by the Paying Agent at the address set forth on the first page of the Repurchase Notice no later than 5:00 p.m., New York City time, on June 15, 2012.  Payment of the Repurchase Price with respect to Notes subject to a valid and timely Repurchase Notice will not be made until the Paying Agent receives the Notes or confirmation of book-entry transfer of the Notes and all other required documents.

 

 

 

Exhibit 99(a)(1)(E)

 

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9

 

Guidelines For Determining the Proper Identification Number to Give the Payer—Social Security Numbers (“SSNs”) have nine digits separated by two hyphens: i.e., 000-00-000.  Employer Identification Numbers (“EINs”) have nine digits separated by only one hyphen: i.e., 00-0000000.  The table below will help determine the number to give the payer.  All “section” references are to the Internal Revenue Code of 1986, as amended.  “IRS” is the Internal Revenue Service.

 

 

(1)   List first and circle the name of the person whose SSN you furnish.  If only one person on a joint account has an SSN, that person’s number must be furnished.

 

(2)   Circle the minor’s name and furnish the minor’s SSN.

 

(3)   You must show your individual name and you may also enter your business or “doing business as” name on the second line.  You may use either your SSN or EIN (if you have one), but the Internal Revenue Service encourages you to use your SSN.

 

(4)   List first and circle the name of the legal trust, estate or pension trust.  (Do not furnish the Taxpayer Identification Number of the personal representative or trustee unless the legal entity itself is not designated in the account title).

 

 

NOTE:  If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed.

 

 

 

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9

 

How to Get a TIN

 

If you do not have a TIN, apply for one immediately.  If you are a United States person, your TIN is generally your SSN or your employer identification number (EIN).  To apply for an SSN, obtain Form SS-5, Application for a Social Security Card, at the local office of the Social Security Administration or get this form on-line at www.ssa.gov.  Use Form SS-4, Application for Employer Identification Number, to apply for an EIN.  If you are a resident alien and do not have and are not eligible to get a social security number, your TIN is your IRS individual taxpayer identification number (ITIN).  Use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN.  You can get Forms W-7 and SS-4 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676) or from the IRS web site at www.irs.gov.  You can apply for an EIN online by accessing the IRS website at www.irs.gov/businesses and clicking on Employer Identification Number under Starting a Business.  All Section references herein are to the Internal Revenue Code of 1986, as amended.

 

If you do not have a TIN, write “Applied For” in Part 1, sign and date the form, and give it to the payer.  For interest and dividend payments and certain payments made with respect to readily tradable instruments, you will generally have 60 days to get a TIN and give it to the requester.  If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN.

 

Note:  Writing “Applied For” on the form means that you have already applied for a TIN or that you intend to apply for one soon.  As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester.

 

CAUTION:  A disregarded domestic entity that has a foreign owner must use the appropriate Form W-8.

 

Payees Exempt from Backup Withholding

 

Individuals (including sole proprietors) are NOT exempt from backup withholding.  Corporations are exempt from backup withholding for certain payments, such as interest and dividends.

 

Note:  If you are exempt from backup withholding, you should still complete Substitute Form W-9 to avoid possible erroneous backup withholding.  If you are exempt, enter your correct TIN in Part 1, check the “Exempt” box in Part 2, and sign and date the form.  If you are a nonresident alien or a foreign entity not subject to backup withholding, give the requester the appropriate completed Form W-8, Certificate of Foreign Status.

 

The following is a list of payees that are exempt from backup withholding.

 

An organization exempt from tax under section 501(a), any individual retirement plan (“IRA”), or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2).

 

The United States or any of its agencies or instrumentalities.

 

A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities.

 

A foreign government, a political subdivision of a foreign government, or any of their agencies or instrumentalities.

 

An international organization or any agency or instrumentality thereof.

 

Other payees that may be exempt from backup withholding include:

 

A corporation.

 

A foreign central bank of issue.

 

A dealer in securities or commodities registered in the United States, the District of Columbia, or a possession of the United States.

 

A futures commission merchant registered with the Commodity Futures Trading Commission.

 

A real estate investment trust.