SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 11,
1996
____________________
USMX, INC.
(Exact name of registrant as specified in its charter)
____________________
Delaware 0-9370 84-1076625
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) No.)
141 Union Boulevard,
Suite 100
Lakewood, Colorado 80228
(Address of principal (Zip Code)
executive offices)
(303) 985-4665
Registrant's telephone number, including area code
Item 2. Acquisition or Disposition of Assets.
(a) Effective July 11, 1996, the Company acquired
leasehold and other property interests in the
Illinois Creek Project in north central Alaska from
North Pacific Mining Corporation ("NPMC"). The
Company made initial payments to NPMC totaling
$100,000 in 1994 to evaluate the Illinois Creek
property. The Company entered into an agreement
with NPMC effective December 16, 1994, which was
amended on February 5, 1996 (the "Agreement").
Pursuant to the Agreement, the Company agreed to
make a $1,000,000 non-refundable payment to NPMC in
cash or shares of the Company's $.001 par value
common stock (the "Common Stock"). The Company
elected to make the payment in Common Stock, and
based upon an average market price of the Common
Stock on The Nasdaq Stock Market as provided in the
Agreement, the Company was required to issue to NPMC
449,754 shares. The Company also agreed that, upon
obtaining the necessary permits and if no material
adverse economic change had occurred, the Company
would make a production decision and issue to NPMC
an additional $3,000,000 in cash or Common Stock.
The Company received the key permits related to the
Project, and determined that no material adverse
economic change had occurred with respect to the
Project economics. The Company made a production
decision and agreed to issue to NPMC an additional
1,090,909 shares of Common Stock. The calculation
of the number of shares was based on the average
market price of the Common Stock on The Nasdaq Stock
Market as provided in the Agreement.
Effective July 11, 1996, the Company issued the
aggregate of 1,540,663 shares of Common Stock to
NPMC. As a result of this transaction, NPMC owns
approximately 9.5% of the Company's issued and
outstanding Common Stock. The Company also granted
a security interest to NPMC in the property, which
is subject to a subordination arrangement with the
Company's lender on this Project. See Item 5 below
for a description of this facility. The Company had
also agreed with NPMC in the Agreement to file a
Registration Statement relating to the resale of
these shares, which Registration Statement has been
filed and declared effective by the Securities and
Exchange Commission. The Company has agreed to use
its best efforts to keep this Registration Statement
effective until NPMC has sold these shares or until
June 1999.
In addition to the Common Stock, NPMC had the
right to enter into a mining venture agreement with
the Company in which the Company would transfer to
NPMC an undivided 25% interest in the Illinois Creek
Mining Leases, or to receive a 5% net returns
royalty. NPMC chose to receive a 5% net returns
royalty on production from the Illinois Creek Upland
Mining Lease. No decision has been made regarding
the property covered by the Illinois Creek Roundtop
Mining Lease, which area has not yet been explored
by the Company.
If the Company delineates the existence of
additional ore reserves on the lease known as the
Illinois Creek Upland Mining Lease, which increases
the total proven ore reserves to at least 1,000,000
ounces of equivalent gold ore reserves beyond the
mineralization stated in the Company's February 1996
feasibility report, then NPMC will have the right to
elect to participate in subsequent mining operations
with respect to those additional reserves for a 25%
working interest by reimbursing the Company 120% of
NPMC's 25% share of exploration, development and
capital costs incurred by the Company subsequent to
February 1996 which are directly related to
delineation and/or production of the additional
reserves.
Pursuant to the Agreement, the Company has
until December 16, 1997, to achieve "commercial
production" which is defined as the delivery to a
bona fide purchaser of minerals produced for a
minimum period of 45 consecutive days at not less
than 70% of the pro forma production capacity as set
forth in the Project feasibility report. This
period may be extended at the option of the Company
for two additional one-year periods upon payment by
the Company of a $300,000 advance royalty, adjusted
for inflation, for each one-year extension. The
Agreement terminates on December 16, 1999, if the
Company has not achieved commercial production by
that date.
NPMC is a wholly-owned subsidiary of Cook Inlet
Region, Inc., an Alaska Native Regional Corporation
("CIRI"). Except for the transactions involving the
Illinois Creek Project, the Company has not had any
material relationship with NPMC or CIRI and the
Company is unaware of any material relationship
between the Company's affiliates, any director or
officer of the Company, or any associate of any such
director or officer, with NPMC or CIRI.
The Company has transferred its property
interest in the Project to its wholly-owned
subsidiary, USMX of Alaska, Inc. ("AK"). The
Company intends to use its internal cash resources
and the proceeds from borrowings to finance the
development and construction costs of the Project.
See Item 5 for a discussion of the Company's
borrowings from N M Rothschild & Sons Limited.
(b) The Property acquired from NPMC consisted
principally of leasehold interests in the Illinois
Creek Project. The Company has conducted
exploration activities at the site since 1994. The
Company has received all necessary regulatory
authorization and has commenced construction of the
mining, processing and related facilities. It is
the Company's goal to commence mining in late
summer, 1996. The Company expects to conduct gold
and silver mining operations on this property.
Item 5. Other Events
(a) Effective July 11, 1996, the Company
entered into credit agreements with N M Rothschild &
Sons Limited (the "Lender") for a $22,000,000
facility to finance the development and construction
costs of the Illinois Creek Project (the "Project").
The Company's wholly-owned subsidiary, AK, is the
borrower of $19.5 million of the $22 million
facility. Under certain circumstances, the loan to
AK may be in the form of a gold loan, in which event
the maximum credit amount would be the number of
ounces of gold equal to $19,500,000 divided by the
price of gold in London. However, the Company has
agreed with NPMC that it will not convert the loan
to a gold loan until such time as the Project has
achieved commercial production as defined in the
Agreement with NPMC. See Item 2. Advances will be
made by the Lender solely to an account dedicated to
Project operations and only if certain conditions
related principally to Project operations are
satisfactory to the Lender. In addition, AK will be
required to maintain a minimum balance in the
Proceeds Account equal to the sum of: (I) the
greater of $1,500,000 or a formula amount based on
the present value of future net cash flow from the
Project, (II) the lesser of $250,000 or interest
payable to the Lender for the following three
months, (III) capital expenditures scheduled for the
following three months and, (IV) any other payments
due to the Lender for the following three months.
It is expected that AK will need to deposit
approximately $1,500,000 for deposit in the Proceeds
Account by September 30, 1996, to maintain the
minimum balance. The Company has agreed to make a
$1,500,000 equity contribution to AK by that date.
AK will not be able to make withdrawals from
the Proceeds Account for its general corporate
purposes or to pay dividends until "Completion" has
occurred. The requirements for Completion include
the construction of the Project facilities, which
facilities and the equipment thereon must be
mechanically complete and electrically operable
("Mechanical Completion"), the achievement of
production amounts and grades, costs and reserves
similar to the development plan, and the absence of
any default in the credit agreement. The note
evidencing the $19.5 million obligation bears
interest, payable quarterly, at 2.25% above LIBOR
until Completion and 1.875% thereafter for the
remainder of the approximate four-year term of the
loan. Principal payments will be made in eight
amortized installments on September 30 and December
31 of each year, commencing September 30, 1997.
Subject to satisfaction of the requirements for
maintenance of the Proceeds Account, advances will
be made by the Lender to AK until the first to occur
of September 30, 1997, or Mechanical Completion. AK
paid an establishment fee of $292,500 to the Lender.
AK will also be required to pay a commitment fee of
one-half of one percent of the difference between
the principal amount outstanding and the maximum
credit amount.
The balance of the facility is represented by a
$2.5 million note made by the Company which may be
converted into Common Stock at the conversion price
of $3.40 per share at the option of the Lender at
any time during the approximate four-year term of
the note. The Company may also require conversion
if the note is not in default and the daily closing
price of the Common Stock exceeds $4.75 for 30
consecutive trading days. A total of 735,294 shares
of Common Stock (subject to adjustment for certain
events) is reserved for issuance by the Company upon
conversion of the $2.5 million loan. The Company
has also agreed to register the Common Stock for
resale under certain circumstances. During the term
of the convertible note evidencing this loan, the
Lender will have the opportunity to profit from an
increase in the market price of the Common Stock
with resulting dilution to the holders of Common
Stock. The existence of such convertible securities
may adversely affect the terms on which the Company
can obtain additional financing, and the holders of
such convertible note can be expected to convert the
securities at a time when the Company may be able to
obtain additional capital by offering shares of the
Common Stock on terms more favorable to the Company
than those provided by the conversion of this note.
The $2.5 million loan bears interest at 2% above
LIBOR and will be payable no less frequently than
semi-annually.
In accordance with the requirements of the
related credit agreements, the Company deposited the
entire proceeds of the $2.5 million loan into the
Proceeds Account and such proceeds are not available
for general corporate purposes. Payments may be
made to the Company from the Proceeds Account in an
amount sufficient for the Company to make interest
payments. AK will not be permitted to repay the
$2.5 million to the Company or other advances by the
Company in the approximate amount of $3.4 million
unless certain conditions are satisfied, principally
related to repayment of the notes to the Lender and
satisfactory operation of the Project. The Company
has pledged to the Lender its stock in AK as well as
its notes from AK for advances made by the Company.
The Company is also a guarantor of the $19.5
million loan to AK until it has been demonstrated
that the Project is operating in a manner
satisfactory to the Lender. There can be no
assurance when, or if, this will occur, and the
Company could have a substantial debt burden without
other resources to make repayment. In addition, the
Company will be a continuing guarantor of AK's
covenant to comply with environmental laws.
The Company's subsidiary, AK, must deliver to
the Lender, among other things, financial
information, reserve, hedging and operating reports,
and must use all commercially reasonable efforts to
maintain, develop and operate the Illinois Creek
Project in accordance with the present development
plan and prudent mining industry practices. AK must
also comply with applicable laws and maintain its
property rights in the Project, including payment of
royalties which may become due to NPMC. In
addition, except for limited circumstances, without
the Lender's consent, AK may not incur any
additional indebtedness, permit any liens on the
Project, assume or guarantee indebtedness of others,
invest in others, merge or change its capital
structure, sell the assets of the Project, or permit
Project reserves or future net cash flows to decline
materially from the present development plan. AK
must also achieve Mechanical Completion by July 31,
1997, and Completion by November 30, 1997. Such
restrictions could affect the Company's operations
and future plans.
The Company has also agreed with the Lender
that, so long as the $2.5 million Note made by the
Company is unpaid, or any other obligation of the
Company remains unsatisfied, including the Company's
Guaranty of the loan to AK, the Company will, among
other things, comply with all applicable laws,
provide the Lender with financial reports and
continue to engage principally in the mining
business. In addition, except for limited
circumstances, without the Lender's consent, the
Company may not incur indebtedness (other than
indebtedness after Completion to develop mining
properties where the sole recourse of the lender is
the mining property being developed), permit any
liens on the Project, assume or guarantee
indebtedness of others, invest in others, merge
(unless after Completion and the Company is the
survivor of the merger) or change its capital
structure, pay dividends or sell the assets of the
Project. Such restrictions could affect the
Company's operations and future plans.
The Company has also agreed with the Lender
that it shall not permit its (a) current ratio to be
less than 2.0 to 1.0; (b) consolidated tangible
stockholders' equity to be less than $17,500,000;
and (c) total consolidated liabilities to exceed
175% of its consolidated tangible stockholders'
equity.
There are substantial risk factors associated
with the Project and the Company's future
operations, including the substantial financial
commitment made by the Company to the development of
the Project, and the resultant strain on the
Company's liquidity and capital resources, delays
and other problems which may result from
difficulties in transportation of equipment,
supplies and personnel to the Project, potentially
adverse weather conditions and potentially
substantial costs to comply with environmental and
other laws, as well as gold price volatility and
other economic factors which are beyond the control
of the Company. Moreover, inasmuch as the Project
has not been fully constructed and is not yet
operational, there is no operating history upon
which to base estimates of future cash operating
costs and other operating requirements.
Accordingly, the Company is exploring alternatives
to provide additiional financing to enable it to
continue work to commence mining on the Project in
the near future, provide contingency funds for
unforeseen delays or other Project problems, and to
provide for future operations, including exploration
and development activities on other properties. The
Company is reviewing alternative means of augmenting
its capital base, but has no firm commitments for
other funding. The failure to obtain other funding
would have a material adverse effect on the Company.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit 2 Agreement, dated effective December 16, 1994,
between the Company and North Pacific Mining
Corporation, previously filed as Exhibit 10.46
to the Company's Report on Form 10-K for the
year ended December 31, 1994, and Letter dated
February 5, 1996, amending the Agreement dated
effective December 16, 1994, between the
Company and North Pacific Mining Corporation,
previously filed as Exhibit 10.46a to the
Company's Report on Form 10-K/A for the year
ended December 31, 1994, are incorporated
herein by this reference.
Exhibit 10(a) Credit Agreement between USMX of Alaska,
Inc. and N M Rothschild & Sons Limited.
Exhibit 10(b) Credit Agreement between USMX, INC. and N
M Rothschild & Sons Limited.
Exhibit 10(c) Guaranty of USMX, INC. to N M Rothschild &
Sons Limited
Exhibit 10(d) Hedging Agreement between USMX of Alaska,
Inc. and N M Rothschild & Sons Limited
Exhibit 10(e) Registration Rights Agreement between
USMX, INC. and N M Rothschild & Sons Limited.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned,
thereunto duly authorized.
USMX, INC.
(Registrant)
Date: July 24, 1996 By: /s/Donald E. Nilson
________________________
Donald E. Nilson, Vice
President - Finance, Chief
Financial Officer and
Secretary