SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(D)(4) OF
THE SECURITIES EXCHANGE ACT OF 1934
KINAM GOLD INC.
(Name of Subject Company)
KINAM GOLD INC.
(Name of Person Filing Statement)
$3.75 SERIES B CONVERTIBLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
49448220
(CUSIP Number of Class of Securities)
SHELLEY M. RILEY
Secretary
Kinross Gold Corporation
52nd Floor, Scotia Plaza
40 King Street West
Toronto, Ontario, Canada M5H 3Y2
Telephone: (416) 365-5123
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications on Behalf of the
Filing Person)
COPY TO:
KEITH L. POPE, ESQ.
Parr Waddoups Brown Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111-1537
(801) 532-7840
|_| Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
- --------------------------------------------------------------------------------
ITEM 1. SUBJECT COMPANY INFORMATION.
The subject company to which this Solicitation/Recommendation Statement
on Schedule 14D-9 (this "Schedule 14D-9") relates is Kinam Gold Inc., a Nevada
corporation ("Kinam"), and the address and telephone number of its principal
executive office are 802 East Winchester Avenue, Suite 100, Murray, Utah 84107,
and (801) 290-1101.
The title of the class of equity securities to which this Schedule
14D-9 relates is the $3.75 Series B Convertible Preferred Stock, par value $1.00
per share, of Kinam ("Kinam Preferred"). There are currently 1,840,000
outstanding shares of Kinam Preferred.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
Kinam is the person filing this Schedule 14D-9 and is the subject
company of the tender offer. The address and telephone number of Kinam's
principal executive office are listed in Item 1 above.
This Schedule 14D-9 relates to the tender offer by Kinross Gold U.S.A.,
Inc. (the "Purchaser"), a Nevada corporation and a wholly-owned subsidiary of
Kinross Gold Corporation, an Ontario corporation ("Kinross," which includes,
where appropriate, the Purchaser when Kinross is acting through that company),
to purchase all of the outstanding shares of Kinam Preferred not held by Kinross
(the "Publicly Held Shares") at a purchase price of $16.00 per share, upon the
terms and subject to the conditions set forth in Kinross' Offer to Purchase (the
"Offer to Purchase") dated February 20, 2002, and in the related Letter of
Transmittal (which, together with the Offer to Purchase and any amendments or
supplements thereto, collectively constitute the "Offer"). Kinross and the
Purchaser filed a Tender Offer Statement on Schedule TO with the Securities and
Exchange Commission (the "Commission") on February 20, 2002, which includes the
Offer to Purchase and the Letter of Transmittal as exhibits.
The address and telephone number of Kinross' principal executive office
are 52nd Floor Scotia Plaza, 40 King Street West, Toronto, Ontario, Canada M5H
3Y2 and (416) 365-5123. The address and telephone number of the Purchaser's
principal executive office are 802 East Winchester, Suite 100, Murray, Utah
84107 and (801) 290-1101.
All information contained in this Schedule 14D-9 or incorporated herein
by reference concerning Kinross, the Purchaser or their affiliates (other than
Kinam), or actions or events with respect to any of them, was provided for
inclusion herein by Kinross or the Purchaser or obtained from reports or
statements filed by Kinross or the Purchaser with the Commission, including
without limitation, the Schedule TO, and Kinam takes no responsibility for such
information.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
HISTORY AND BACKGROUND.
Kinross acquired control of Kinam on June 1, 1998, by completing a
merger in which Kinam became a majority owned subsidiary of Kinross. Immediately
following the merger, Kinross held 100% of Kinam's outstanding common stock.
Kinross subsequently transferred ownership of such shares to the Purchaser,
which is currently Kinam's sole common shareholder. In July, 2001, Kinross
acquired 945,400 shares of the Kinam Preferred, 51.4% of the issued and
outstanding Kinam Preferred. These shares have also been transferred to the
Purchaser. Kinross, through the tender offer, is now seeking to acquire the
shares of Kinam Preferred stock it does not currently own.
In connection with the 1998 merger, Kinross advanced $255.8 million to
Kinam for repayment of Kinam's outstanding third-party bank debt. During the
balance of 1998, Kinam repaid $41.6 million of this obligation. In 1999, Kinross
advanced an additional $16.6 million to Kinam to permit it to purchase assets
related to the True North property in Alaska. An additional $6.7 million was
advanced by Kinross in 2000, and approximately $14.9 million in the first nine
months of 2001, primarily for True North property development and to repay
third-party long-term debt obligations of Kinam. Kinam has repaid a portion of
the original advance of $255.8 million and the additional advances, with the
result that the balance of this obligation was $234.8 million at September 30,
2001. During the fourth quarter of 2001, this obligation was reduced by an
additional $18 million, resulting in a balance of approximately $216.8 million
as of December 31, 2001. These advances are non-interest bearing, are due on
demand, and have no fixed terms of repayment.
Pursuant to the 1998 merger, Kinross acquired a demand loan in the
principal amount of $92.3 million from Cyprus Amax Minerals Company, the former
parent of Kinam, that was an obligation of Kinam. Kinross has not charged Kinam
interest on this loan. Subsequent partial repayments reduced this demand loan
payable to $73.6 million at December 31, 2000, and it has remained unchanged
through December 31, 2001. The demand loan is non-interest bearing, due on
demand, and does not have any fixed terms of repayment.
Effective January 1, 2001, Kinross transferred all of the outstanding
shares of La Teko Resources, Inc. to Kinam in exchange for the issuance of 100
shares of Kinam common stock. This transaction was recorded on the financial
statements of Kinam at the carrying value of La Teko's assets of approximately
$36 million at December 31, 2000.
Kinross has arranged for the issuance of letters of credit under a
syndicated credit facility to guarantee the obligations of Kinam under the Fort
Knox Industrial Revenue Bonds totaling $49.9 million as of December 31, 2001.
The Kinam assets associated with Fort Knox are pledged to secure this syndicated
credit facility. In addition, Kinross has guaranteed surety bonds for Kinam on
various projects in the aggregate principal amount of approximately $40 million.
CONFLICTS OF INTEREST BETWEEN KINROSS AND KINAM
Kinross currently controls the business, management, and direction of
Kinam. Since Kinross controls Kinam, the financial results of both businesses
are reported on a consolidated basis. The Kinam Preferred is currently reflected
as a minority interest liability on the Kinross balance sheet at a balance of
$48 million. The acquisitions of the Kinam Preferred that Kinross does not
currently own will eliminate this liability and, to the extent that the
acquisition cost of the Kinam Preferred is less than the carrying value on the
Kinross consolidated balance sheet, the difference will be used to reduce the
carrying value of certain property, plant and equipment on Kinross' balance
sheet. This will reduce the future amortization, depletion and depreciation
charges associated with these assets. In addition, Kinross will no longer be
required to reflect the dividends accrued on the Kinam Preferred as an expense,
thereby increasing earnings, if any, that Kinross can report in the future.
In addition, Kinross has historically advanced funds to Kinam to pay
for expenses and obligations that are not otherwise covered by Kinam's cash from
operations and does not receive any interest on these advances. In addition,
Kinross has not charged Kinam a management fee for the services provided to
Kinam by Kinross' officers. Consequently, Kinross indirectly bears the burden of
the costs and management time spent in preparing and filing periodic reports of
Kinam pursuant to the Securities Exchange Act of the United States. If Kinam
terminates its obligation to file reports under the United States securities
laws, Kinross would save the costs associated with these filings, including the
preparation and audit of separate financial statements for Kinam. All of the
foregoing benefit Kinross and are not necessarily beneficial from the point of
view of the holders of the Publicly Held Shares.
Kinross controls the shareholder vote for all matters presented jointly
to the common and preferred shareholders of Kinam and thus controls the election
of directors of Kinam. After Kinam's failure to pay six consecutive quarterly
dividend payments, which occurred November 15, 2001, the holders of the
preferred stock, voting separately as an independent class, have the right to
elect two directors to Kinam's board. However, since Kinross holds 51.4% of the
outstanding preferred stock, it also controls this vote.
CONFLICTS OF INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS
The directors and the executive officers of Kinam have interests in
connection with the Offer that present them with actual or potential conflicts
of interest, as summarized herein.
All of the members of the board of directors of Kinam, including the
members of the special committee that were appointed by the Kinam directors, are
directors or officers of Kinross. In addition, all of the executive officers of
Kinam are executive officers of Kinross and are paid for their services by
Kinross. Kinross does not charge Kinam for the management services provided to
Kinam by the officers and directors of Kinross. The members of the Kinam special
committee also hold Kinross common shares and options to acquire Kinross common
shares (in the aggregate, less than 1% of the outstanding Kinross common
shares). In addition, one of the members of the special committee, Cameron
Mingay, is a partner in a law firm that provides legal services to both Kinam
and Kinross. Other directors and officers of Kinam also have equity interests in
Kinross.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
The board of directors of Kinam appointed a special committee to review
the fairness of the offer to the holders of the Publicly Held Shares (the
"non-affiliated holders.") The members of this special committee are not
employees of either Kinam or Kinross but are directors of Kinross and hold
equity positions in Kinross, in the aggregate totaling less than 1% of the
issued and outstanding Kinross common shares. In addition, one of the members of
the special committee, Cameron Mingay, is a partner in a law firm that provides
legal services to both Kinam and Kinross. The special committee retained
independent counsel to advise it and Raymond James Ltd. ("Raymond James") to
provide an opinion regarding the fairness, from a financial point of view, of
the offer to the holders. Based on a number of factors, including the opinion
provided by Raymond James, the special committee unanimously concluded that the
terms of the offer, including the offer price of $16.00 per share, were fair to
the non-affiliated holders. However, no representative acting solely on behalf
of the non-affiliated holders participated in the negotiations of the terms of
the offer and the tender is not subject to approval by the majority of the
non-affiliated holders.
Each of the members of the special committee is a director of Kinross
and holds an equity position in Kinross and, consequently, is not independent
from the Kinross tender offer. As a result of this lack of independence, the
special committee did not deem it appropriate for it to make a recommendation
with respect to whether the non-affiliated holders should accept or reject the
tender offer. The special committee therefore determined that it should remain
neutral and did not recommend for, recommend against, or express an opinion with
respect to whether the non-affiliated holders should accept the tender offer.
Each holder of the Publicly Held Shares should independently decide based on the
information contained in this Solicitation/Recommendation Statement, the
information in the offer to purchase, the information about Kinam and Kinross
that is publicly available, and any other factors deemed relevant by the holder,
whether or not it is in such holder's best interests to accept or reject the
tender offer.
In reaching the determination that the tender offer was fair to the
non-affiliated holders, the special committee considered, among other matters,
the following items:
o That Raymond James, an independent financial advisor, provided a
fairness opinion to the special committee of Kinam directors, which
opinion concluded, as of February 14, 2002, based upon and subject to
the various considerations set forth in its opinion, that the $16.00
per share offer price is fair, from a financial point of view, to the
holders of the Kinam preferred stock;
o The financial analyses contained in the report delivered to the
special committee by Raymond James in connection with its fairness
opinion;
o The fact that Kinross' offering price represents a premium of 71.4%
above the average closing price for the Kinam preferred stock of
$9.337 for the 30 trading days prior to the first announcement
regarding Kinross' consideration of the tender offer at a potential
price of $16.00 per share;
o The fact that the historical trading volume for the Kinam preferred
stock has been limited and that the trading market is illiquid, which
may cause isolated transactions in the stock to have a significant
impact on the trading price and which may make it difficult for
holders of a substantial amount of preferred stock to sell their
securities at prices reported by the American Stock Exchange;
o The current conversion rate of the Kinam preferred stock under the
Kinam articles of incorporation of 4.8512 shares of Kinam common
shares for each share of Kinam preferred stock and the recent trading
prices of the Kinross common shares;
o The fact that Kinam's financial statements, as of September 30, 2001,
reflect that its liabilities exceed its assets by $81.3 million, and
that Nevada corporate laws prohibit the payment of dividends by a
corporation if, after payment of the dividend, its liabilities would
exceed the value of its assets;
o The fact that Kinam suffered net losses of $53.2 million and $112.7
million for the years ended December 31, 2000 and 1999, respectively,
and $12.8 million for the nine months ended September 30, 2001, even
though it was not paying interest on its obligations to Kinross or
paying for the management services provided by Kinross;
o The significant obligation of Kinam to Kinross in the amount of
approximately $290 million at December 31, 2001;
o The rights and preferences of the Kinam preferred stock, as set forth
in the articles of incorporation of Kinam, including the dividend and
liquidation preferences, voting rights, conversion rights, and the
redemption provisions;
o The fact that the liquidation preference set forth in the Kinam
preferred stock designation would be subject to the payment of all of
the other liabilities and obligations of Kinam and, in a liquidation
event, the assets of Kinam may not be sufficient to pay any or all of
such liquidation preference;
o The fact that no provision in the Kinam preferred stock designation
obligates Kinross to repurchase or redeem the shares of Kinam
preferred stock or to liquidate Kinam at any set time in the future;
and
o The future business prospects of Kinam and the gold market in general,
including Kinam's operations and assets and their relationship to the
price of gold.
In coming to its conclusion that the offer is fair to the
non-affiliated holders, the special committee of Kinam directors also considered
the following negative factors:
o The fact that Kinross acquired the shares of Kinam preferred stock
that it now holds in July 2001 in exchange for Kinross common shares
which were valued at more than the $16.00 price per share offered in
the tender offer;
o The fact that shareholders who tender their shares, or who receive
cash in exchange for their shares in any merger following the tender
offer, will no longer be holders of the Kinam preferred stock and,
therefore, will not participate in any future earnings or growth of
Kinam that may otherwise affect the value of the Kinam preferred
stock, to the extent any occurs;
o The fact that the special committee of Kinam directors that was formed
for the purpose of independently analyzing the fairness of the Kinross
tender offer are all also directors and equity holders of Kinross and
thus subject to conflicts of interest with respect to their
recommendation and findings related to the Kinross offer; and
o The fact that, since Kinross owns 100% of the outstanding common
shares and over 50% of the outstanding preferred shares of Kinam, no
third-party would be likely to make any bid for the publicly-held
shares of Kinam preferred stock and, consequently, there can be no
"market check" on the transaction by someone making a competing bid.
After considering the factors described above, the Kinam special
committee unanimously concluded that the offer is fair to the non-affiliated
holders of Kinam preferred stock. The foregoing discussion of the information
and factors considered by the special committee is not intended to be
exhaustive, but is believed to include all material factors considered by the
special committee.
The members of the special committee evaluated the Offer in light of
their knowledge of the business, financial condition and prospects of Kinam and
the advice of its legal and financial advisors. In view of the variety of
factors considered in connection with their evaluation of the Offer, the special
committee did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the factors set forth above. Rather, the
special committee reached its determination based on the totality of the
circumstances and the advice of the legal and financial advisors separately
retained by the special committee to assist it in making its determinations. The
determination by the special committee does not purport to be the only
conclusion possible. In the final analysis, the adequacy, fairness, and
acceptability of the tender offer is for each non-affiliated holder to decide in
the manner that each holder deems best.
The shares of Kinam Preferred currently held by Kinross Gold USA will
not be tendered into the Offer. None of the officers or directors of Kinross,
Kinam Gold USA or Kinam owns any shares of the Kinam Preferred.
FAIRNESS OPINION OF RAYMOND JAMES
The special committee retained Raymond James to provide it with a fairness
opinion in connection with the tender offer. Raymond James was selected to act
as the special committee's financial advisor based on Raymond James'
qualifications, expertise, and reputation. At the meeting of the special
committee on February 14, 2002, Raymond James rendered to the special committee
of the Kinam board of directors its oral opinion, subsequently confirmed in
writing, that as of that date, and subject to and based on the various
considerations set forth in its opinion, the price to be received by the holders
of Kinam preferred stock pursuant to the tender offer was fair from a financial
point of view to the holders of shares of preferred stock and that the $16.00
offer fell within the valuation range for the Kinam preferred stock established
by Raymond James.
THE FULL TEXT OF RAYMOND JAMES' WRITTEN OPINION AND REPORT TO THE SPECIAL
COMMITTEE, DATED AS OF FEBRUARY 14, 2002, WHICH SET FORTH, AMONG OTHER THINGS,
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON
THE SCOPE OF THE REVIEW UNDERTAKEN BY RAYMOND JAMES IN RENDERING ITS OPINION, IS
ATTACHED AS EXHIBITS (a)(2)(A) AND (a)(2)(B) TO THE SCHEDULE TO FILED BY KINROSS
AND THE PURCHASER WITH THE SECURITIES AND EXCHANGE COMMISSION. A COPY OF THE
OPINION OF RAYMOND JAMES IS INCLUDED WITH THIS SOLICITATION/RECOMMENDATION
STATEMENT. COPIES OF THE OPINION AND REPORT ARE AVAILABLE FOR INSPECTION AND
COPYING BY HOLDERS OF KINAM PREFERRED STOCK OR THEIR PROPERLY DESIGNATED
REPRESENTATIVES AT KINROSS' PRINCIPAL BUSINESS OFFICES, 52ND FLOOR, SCOTIA
PLAZA, 40 KING STREET WEST, TORONTO, ONTARIO M5H 3Y2, CANADA, DURING REGULAR
BUSINESS HOURS. RAYMOND JAMES' OPINION IS DIRECTED TO THE SPECIAL COMMITTEE OF
THE KINAM DIRECTORS, ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW
OF THE TENDER OFFER, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE TENDER OFFER
NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF THE SHARES OF PREFERRED
STOCK TO TENDER SHARES PURSUANT TO THE TENDER OFFER. THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION AND THE REPORT.
In connection with rendering its opinion, Raymond James, among other things:
o reviewed certain publicly available financial statements and other
information of Kinross and Kinam, respectively;
o reviewed certain internal information, including life of mine analyses
for Kinross and Kinam, respectively;
o reviewed the trading activity and prices for the Kinam preferred stock
and the common shares of Kinross;
o compared the trading activity and price of the Kinam preferred stock
and the common shares of Kinross with other publicly-traded companies
comparable to Kinam and Kinross;
o reviewed certain gold industry reports and certain research reports
published by United States and Canadian investment banks on Kinross
and other gold producers;
o reviewed the articles of incorporation of Kinam;
o reviewed the past, current, and anticipated financial returns of the
Kinam preferred stock under different gold price scenarios;
o reviewed the financial terms, to the extent publicly available, of
certain similar tender offers;
o discussed the strategic and financial considerations for the tender
offer with the management of Kinross and the special committee of
Kinam directors;
o discussed the current and prospective business outlook of Kinross and
Kinam with the management of Kinross and Kinam, respectively;
o reviewed correspondence from counsel for the Franklin Funds relating
to its negotiations with the management of Kinross over the sale of
its shares of the preferred stock;
o held discussions with the auditors of Kinam and Kinross;
o held discussions with the legal advisors of Kinross and Kinam; and
o performed such other analyses and considered such other factors as it
deemed appropriate.
In rendering its opinion, Raymond James assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion including, without limitation,
any information obtained in the context of the actions outlined above and any
information provided by Kinross or Kinan and their legal or accounting advisors.
With respect to the internal information, Raymond James assumed that it was
reasonably prepared and reflected the best currently available estimates and
judgments of the future performance of Kinam and Kinross, respectively. Raymond
James did not make any independent valuation or appraisal of the assets or
liabilities of Kinam or Kinross; nor was it furnished with any such appraisals.
The opinion of Raymond James is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made available to it,
as of February 14, 2002.
The following is a brief summary of the material financial analyses performed by
Raymond James in connection with its oral opinion and the preparation of its
written opinion dated February 14, 2002.
In analyzing the value of the Kinam preferred stock, Raymond James reviewed the
prices paid for shares of the Kinam preferred stock in prior transactions,
assessed the current and future financial performance of Kinam through the
discounted cash flow method, compared the preferred stock to similarly rated
publicly-traded securities with and without conversion features and reviewed
several "going private" transactions. Similar valuation techniques were applied
to Kinross, including a peer analysis of a group of senior and intermediate gold
producers. The discounted cash flow analyses were conducted at discount rates of
5% and 10% and at various price levels for gold from $275.00 per ounce to
$325.00 per ounce. Historical trading prices from the initial offering of the
Kinam preferred stock to the current date were reviewed, as were prices for the
Kinross common shares over the past five years.
Raymond James reviewed the Articles of Incorporation of Kinam and conducted a
financial review of Kinam, including common tests to determine the adequacy of
dividend coverage and book value per share reserves. As the Kinam preferred
stock is a hybrid instrument, Raymond James disaggregated it into its component
pieces and compared such pieces on a number of measures to other similarly rated
instruments and to the tender offer price.
PRECEDENT TRANSACTIONS ANALYSIS
No transaction utilized for comparative purposes is identical to the currently
contemplated transaction. A review of "going private" transactions under Rule
13E-3 was conducted to assess the level of premiums paid to minority
shareholders. While these transactions were not identical to the transaction in
question, the premiums offered to holders of Kinam preferred stock are
significantly higher on average than those offered to minority shareholders in
several of the precedent transactions examined. In order to assess the en-bloc
value of the common shares of Kinross to be received upon conversion of the
Kinam preferred stock, Raymond James also reviewed recent merger and acquisition
transactions in the mining industry, based upon value benchmarks implied by
price to cash flow ratios. Raymond James believes that a range of price to cash
flow ratios for Kinross' common shares on an en bloc basis implied by a price
range of $15.00 to $18.00 per share of Kinam preferred stock is fair based on
the life of Kinross' mine reserves and the cost of its operations relative to
other producers in the industry.
PRIOR PURCHASE ANALYSIS
Raymond James reviewed the terms of the purchase by Kinross of Kinam preferred
stock from certain of Kinam's preferred shareholders in July 2001. The sellers
in these transactions - the Franklin Funds, Capital Pro International, Inc. and
The Tell Fund - received consideration that was different from and valued higher
than the current tender offer price. Raymond James noted differences between
those sales and the tender offer which may account for the price differential;
namely the difference in the form of consideration, the apparent absence in the
earlier sales of any formal attempt to value the Kinam preferred stock and the
nature of the negotiations, including threatened litigation in the negotiations
with the Franklin Funds.
INTRINSIC VALUE ANALYSIS
Raymond James analyzed the market price of Kinam and other D-rated preferred
shares in comparison with their intrinsic value, which is defined as the value
of accrued dividends plus the value of the underlying Kinross common shares that
would be received upon conversion. Since the announcement of the suspension of
dividends on the preferred stock in July 2000, the premium of preferred stock
price to intrinsic value has declined steadily. Raymond James calculated that
other D-rated preferred shares are trading at a 31.4% discount to intrinsic
value. A price range of $15.00 to $18.00 per share of Kinam preferred stock
represents premiums of 27.7% to 53.2% to intrinsic value.
CONVERTIBLE ANALYSIS--METHOD 1
As the Kinam preferred stock is a hybrid instrument, Raymond James disaggregated
it into its component pieces of a fixed income security and an option and
compared these on a number of measures to other similarly rated instruments and
to the tender offer price. This analysis showed that:
o other D-rated preferred shares are trading at dividend yields of 63.5%
and net dividend yields (after adjusting for option value) in excess
of 100%; and
o Economic value is defined as the sum of implied fixed income value of
the shares at a given net dividend yield level plus the option value.
A price range of $15.00 to $18.00 at an implied net dividend yield of
50% represents a premium to economic value of 39% to 69%. . Applying
higher net dividend yields that are more consistent with market
comparables as described above would imply a greater premium to
economic value for the Kinam preferred stock.
CONVERTIBLE ANALYSIS--METHOD 2
Raymond James also compared the market conversion price of D-rated convertible
preferred shares to the price of the underlying common stock in order to
calculate their conversion premiums. Market conversion price is defined as the
market price of the preferred stock divided by its conversion ratio. Other
D-rated convertible preferred shares are currently trading at average conversion
premiums of 88%. A price range of $15.00 to $18.00 per share of Kinam preferred
stock represents conversion premiums of 189% to 247% to the price of Kinross'
common shares.
CONVERTIBLE ANALYSIS--METHOD 3
Raymond James compared a price range of $15.00 to $18.00 for the Kinam preferred
stock to the sum of the accrued dividends and the Black Scholes option value
implicit in the Kinam preferred stock. Raymond James then compared this
relationship to similar ratios for the group of D-rated convertible preferred
shares. Raymond James' calculations illustrated that other D-rated convertible
preferred shares are trading at, on average, a 22% discount to their combined
option value and accrued dividend value. In comparison,
a price range of $15.00 to $18.00 per share of Kinam preferred stock represents
premiums of 52% to 85% to the combined value of the accrued dividends of the
Kinam preferred stock and its implicit option value.
DISCOUNTED CASH FLOW ANALYSIS
Raymond James also conducted a discounted cash flow analysis, using a range of
assumptions regarding the price of gold, to calculate the net asset values of
Kinam. Assuming a 5% discount rate, Raymond James estimated the net asset value
of Kinam to be approximately negative $99 million, where the price of gold is
$300.00 per ounce in 2002, increasing to $325.00 in 2005; negative $73 million,
where the price of gold is $325.00 per ounce for the entire life of the mine;
and negative $116 million, where the price of gold is $300.00 per ounce in 2002,
increasing to $315.00 in 2004.
Raymond James performed a similar analysis for Kinross. See COMPARABLE COMPANY
ANALYSIS BELOW.
TRADING VALUE ANALYSIS
Raymond James reviewed the historical trading prices of the Kinam preferred
stock during the past year. Based on the closing price of the Kinam preferred
stock on February 1, 2002, the last day of trading prior to the Kinam Board's
announcement of the consideration of a possible offer, a $15.00 to $18.00 price
range represents a 4.5% discount to a 14.7% premium. Based on the average
trading price for the 30 calendar day period prior to February 4, 2002, a $15.00
to $18.00 price range represents premiums of 47.6% and 77.2%, respectively.
Based on the average trading price during the 365-day period prior to February
4, 2002, a $15.00 to $18.00 price range per share represents premiums of 67.9%
and 101.6%, respectively.
COMPARABLE COMPANY ANALYSIS
Holders of Kinam preferred stock are entitled to receive 4.8512 Kinross common
shares upon conversion of each share of Kinam preferred stock. Raymond James
analyzed the valuation of the underlying Kinross common shares to comparable
companies using industry benchmarks. Raymond James compared the effective price
to net asset value (P/NAV) ratio implied by a $15.00 to $18.00 price range to
industry averages, using a variety of net asset value estimates published by
industry research analysts on Kinross and on the industry,. Raymond James
concluded that the $15.00 to $18.00 price range implies effective P/NAV ratios
that are at a premium to the average industry P/NAV ratios and Kinross' current
P/NAV ratio.
Raymond James also calculated the effective price to cash flow ratio of each
Kinross common share to be received by a holder of Kinam preferred stock on
conversion for a price range of $15.00 to $18.00. A price range of $15.00 to
$18.00 per share implies price to 2002 cash flow ratios of 8.3x to 11.2x
compared to current industry average of 9.4x and Kinross' price to 2002 cash
flow ratio of 5.0x. A price range of $15.00 to $18.00 implies price to 2003 cash
flow ratios of 13.4x to 18.1x compared to an industry average of 10.9x and
Kinross' price to 2003 cash flow ratio of 8.1x.
In addition, Raymond James conducted additional tests to determine the value of
the preferred stock, including, but not limited to, reviews of the adequacy of
preferred dividend coverage, Kinam's record of dividend payments, equity (or
book value) of the preferred stock, and independent credit assessments. Raymond
James also analyzed the historical trading value of the preferred stock,
standing alone and as compared to other comparably rated securities. As a result
of the capital deficiency of Kinam, as confirmed by the results of the
discounted flow analysis, the preferred stock currently possesses insufficient
asset coverage for a liquidation analysis to be meaningful.
Based upon and subject to the analysis summarized above and certain other
qualifications, Raymond James opined on February 14, 2002, that the price to be
received by the holders of shares of Kinam preferred stock pursuant to the
tender offer was fair from a financial point of view to such holders and within
the range of value that it provided in its oral report on February 14, 2002.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Raymond James considered the results of all of its analyses as a
whole and did not attribute any particular weight to any particular analysis or
factor considered by it. Furthermore, Raymond James has informed the Kinam
special committee of its belief that selecting any portion of its analyses or
factors considered by it, without considering all analyses and factors as a
whole, would create an incomplete view of the process underlying its opinion. In
addition, Raymond James may have given various analyses and factors more or less
weight than other analyses and factors and may have deemed various assumptions
more or less probable than other assumptions, so that the results from any
particular analysis described above should therefore not be taken to be Raymond
James' view of the actual value of the preferred stock. Raymond James did not
draw any conclusion as to any particular analysis, but considered all of its
analyses as an entirety in reaching its conclusion as to fairness from a
financial point of view.
In performing its analyses, Raymond James made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Kinam or Kinross. Any estimates
contained in Raymond James' analysis are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable than
those suggested by such estimates. The analyses were prepared solely as part of
Raymond James' analysis of the fairness from a financial point of view of the
tender offer, and were conducted in connection with the delivery by Raymond
James of its opinion dated February 14, 2002 to the Kinam special committee. The
analyses do not purport to be appraisals or to reflect the prices at which the
preferred stock actually may be valued or the prices at which the preferred
stock may actually trade in the marketplace. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
In addition, as described above, Raymond James' opinion and presentation to the
special committee of the Kinam directors was one of many factors taken into
consideration by the special committee in making its determination that the
tender offer was fair to the non-affiliated holders. Consequently, the Raymond
James analyses as described above should not be viewed as determinative of the
opinion of the special committee of the Kinam directors with respect to the
value of the preferred stock. The purchase price of the tender offer and other
terms of the tender offer were determined by the Kinross board of directors.
Raymond James did not recommend any specific tender offer price to the special
committee of the Kinam directors or that any given tender offer price
constituted the only appropriate tender offer price.
Raymond James is an internationally recognized investment banking and advisory
firm. Raymond James, as part of its investment banking and financial advisory
business, is continuously engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of Raymond James' trading, brokerage and financing activities,
Raymond James or its affiliates may at any time hold long or short positions,
trade or otherwise effect transactions, for its own account or for the account
of customers, in the equity securities of Kinam or Kinross.
Pursuant to an engagement letter, dated January 24, 2002, between Raymond James
and Kinam, Raymond James provided a financial opinion and financial advice in
connection with the tender offer. Kinam agreed to pay Raymond James a fee of
$77,500 for providing a fairness opinion in connection with the tender offer. In
addition, Kinam has agreed to indemnify Raymond James and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Raymond James or any of its affiliates against certain liabilities
and expenses, including certain liabilities under the federal securities laws,
related to or arising out of Raymond James' engagement and any related
transactions. In April 1998, Goepel McDermid Securities, a predecessor of
Raymond James, provided a fairness opinion to Kinross on an unrelated matter and
received usual and customary fees for the rendering of these services.
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
Kinross retained Georgeson Shareholder Securities Corporation to
act as Dealer Manager in connection with the Offer. Georgeson Shareholder
Securities Corporation will receive usual and customary fees in connection with
the Offer, including, reimbursement for certain expenses for its services as
Dealer Manager. Georgeson Shareholder Securities Corporation will also be
indemnified against certain liabilities in connection with its engagement as
Dealer Manager, including certain liabilities under the federal securities laws.
Kinross also retained Georgeson Shareholder Communications Inc. to act
as Information Agent and Alpine Fiduciary Services, Inc., to act as Depositary
in connection with the Offer. The Information Agent and Depositary will receive
reasonable and customary compensation for their services, will be reimbursed by
Kinross for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities in connection with the Offer, including certain
liabilities under the federal securities laws.
Kinross is paying approximately $75,000 to Georgeson for the
above-described services, in addition to amounts related to printing, filing and
other similar costs.
The special committee of the Kinam directors retained Raymond James to
provide it with a fairness opinion in connection with the tender offer. Kinam
agreed to pay Raymond James a fee of $77,500 for providing a fairness opinion in
connection with the tender offer. In addition, Kinam has agreed to indemnify
Raymond James and its affiliates, and their respective directors, officers,
agents and employees and each person, if any, controlling Raymond James or any
of its affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, related to or arising out of
Raymond James' engagement and any related transactions. In April 1998, Goepel
MeDermid Securities, a predecessor of Raymond James, provided a fairness opinion
to Kinross on an unrelated matter and received usual and customary fees for
rendering of these services. Raymond James was selected to act as the special
committee's financial advisor based on Raymond James' qualifications, expertise,
and reputation.
The special committee of Kinam directors also retained independent
legal counsel, Foley, Hoag and Eliot LLP, to advise it with respect to the
tender offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transaction in shares of Kinam Preferred has been effected within
the past 60 days by Kinam or, to the knowledge of Kinam, any executive officer,
director, affiliate or subsidiary of Kinam.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
(a) Except as indicated in Items 3 and 4 above, Kinam is not
undertaking or engaged in any negotiations in response to the Offer that relate
to a tender offer or other acquisition of Kinam's securities by Kinam, any of
its subsidiaries or any other person.
(b) Except as indicated in Items 3 and 4 above or in the following
paragraphs, Kinam is not undertaking or engaged in any negotiations in response
to the Offer that relate to (i) any extraordinary transaction, such as a merger,
reorganization or liquidation involving Kinam or any of its subsidiaries, (ii)
any purchase, sale or transfer of a material amount of assets of Kinam or any of
its subsidiaries, or (iii) any material change in the present dividend rate or
policy, or indebtedness or capitalization of Kinam.
It is anticipated that on completion of the Offer, Kinam will delist
its preferred stock from the American Stock Exchange and will terminate the
registration of the Kinam Preferred under the United States Securities Exchange
Act of 1934, as amended (the "Exchange Act"). As a consequence, Kinam will no
longer be subject to the reporting and other requirements of the Exchange Act,
including requirements to file annual and other periodic reports, to provide
proxy and information statements to stockholders in connection with annual and
special meetings of stockholders or to provide the type of going private
disclosure contained in the Offer to Purchase.
Holders of Kinam Preferred who do not tender their shares prior to the
expiration date would continue as stockholders of Kinam. In the event that
Kinross does not acquire all of the shares of the Kinam Preferred, Kinross has
indicated its intention to cause Kinam to complete a merger, or a
recapitalization, in which any remaining non-affiliated stockholders would
receive cash for their shares of Kinam Preferred, or Kinross may permit such
shareholders to remain as minority shareholders in Kinam. Kinross intends to
hold the Kinam Preferred acquired in the Offer. If Kinross acquires all of the
remaining 894,600 shares of Kinam Preferred that it does not already own,
through the Offer or otherwise, it will determine at that time whether to
retire, cancel or continue to hold the shares. At this time, Kinross has
indicated it has no intention or plan to cause any of the shares acquired in the
Offer to be redeemed by Kinam. At the time of this filing, Kinross owns 51.4% of
the outstanding shares of the Kinam Preferred. If Kinross acquires a sufficient
number of shares to give it control of 66.67% of the Kinam Preferred, it will
have the necessary vote to control all matters with respect to the Kinam
Preferred, including amendment of the preferred stock designation in Kinam's
articles of incorporation.
Except as indicated in Items 3 and 4 or in this Item 7, no transaction,
board resolution, agreement in principal or signed contract has been entered
into in response to the Offer that relates to the types of transactions referred
to in paragraphs (a) or (b) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION.
The information contained in the Exhibits listed in Item 9 below is
incorporated herein by reference.
ITEM 9. EXHIBITS.
(a)(1) Fairness Opinion, dated February 14, 2002, issued by Raymond
James Ltd.
(a)(2) Not applicable.
(a)(3) Not applicable.
(a)(4) Not applicable.
(a)(5) Press release, dated February 4, 2002, filed on Schedule 14D-9
on February 4, 2002.
(e) Not applicable.
(g) Not applicable.
SIGNATURE
After due inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this Schedule 14D-9 is true, complete,
and correct.
KINAM GOLD INC.
February 20, 2002 By /s/ Cameron A. Mingay
---------------------
Cameron A. Mingay
Director and Member of Special Committee
of Kinam Gold Inc. Directors