UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 14, 2006
CAPITAL GOLD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-13078 13-3180530
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
76 Beaver Street 10005
New York, NY
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 344-2785
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Rights Agreement
On August 14, 2006, the Board of Directors (the "Board") of Capital Gold
Corporation (the "Company") declared a dividend (the "Dividend") of one Series B
common share purchase right (a "Right") for each outstanding share of common
stock, par value $.0001 per share. The Dividend is payable to holders of record
on August 14, 2006. In connection with the Dividend, the Company entered into a
Rights Agreement with American Stock Transfer & Trust Company as Rights Agent
(the "Rights Agreement"), specifying the terms of the Rights. A description of
the Rights Agreement is set forth below in Item 3.03.
Project Finance Credit Facility
On August 15, 2006, we entered into a credit agreement (the "Credit
Agreement") involving our wholly-owned subsidiaries Minera Santa Rita S. de R.L.
de C.V. ("MSR") and Oro de Altar S. de R.L. de C.V. ("Oro"), as borrowers, us,
as guarantor, and Standard Bank PLC ("Standard Bank"), as the lender and the
offshore account holder. Under the Credit Agreement, MSR and Oro have agreed to
borrow money in an aggregate principal amount of up to US$12.5 million (the
"Loan") for the purpose of constructing, developing and operating the El Chanate
gold mining project in Sonora State, Mexico (the "Mine"). We are guaranteeing
the repayment of the loan and the performance of the obligations under the
Credit Agreement. The Loan is scheduled to be repaid in fourteen quarterly
payments with the first principal payment due after certain Mine start-up
production and performance criteria are satisfied, which we believe will occur
in the first calendar quarter of 2008. The Loan bears interest at LIBOR plus
4.00%, with LIBOR interest periods of 1, 2, 3 or 6 months and with interest
payable at the end of the applicable interest period. A copy of the Credit
Agreement is attached hereto as Exhibit 10.1 and is incorporated by reference
herein.
The Credit Agreement contains covenants customary for a project financing
loan, including but not limited to restrictions (subject to certain exceptions)
on incurring additional debt, creating liens on our property, disposing of any
assets, merging with other companies and making any investments. We are required
to meet and maintain certain financial covenants, including (i) a debt service
coverage ratio of not less than 1.2 to 1.0, (ii) a projected debt service
coverage ratio of not less than 1.2 to 1.0, (iii) a loan life coverage ratio of
at least 1.6 to 1.0, (iv) a project life coverage ratio of at least 2.0 to 1.0
and (v) a minimum reserve tail. We are also required to maintain a certain
minimum level of unrestricted cash, and upon meeting certain Mine start-up
production and performance criteria, MSR and Oro will be required to maintain a
specified amount of cash as a reserve for debt repayment.
The Loan will be secured by all of the tangible and intangible assets and
property owned by MSR and Oro pursuant to the terms of a Mortgage Agreement, a
Non-Possessory Pledge Agreement, an Account Pledge Agreement and certain other
agreements to be entered into in Mexico (the "Mexican Collateral Documents").
MSR and Oro will not be able to borrow under the Credit Agreement until the
Mexican Collateral Documents have been formalized under Mexican law. As
additional collateral for the Loan, we, together with our subsidiary, Leadville
Mining & Milling Holding Corporation, will pledge all of our ownership interest
in MSR and Oro. In addition to these collateral arrangements, MSR and Oro will
be required to deposit all proceeds of the Loan and all cash proceeds received
from operations and other sources in an offshore, controlled account with
Standard Bank. Absent a default under the loan documents, MSR and Oro may use
the funds from this account for specific purposes such as approved project costs
and operating costs.
As part of the fee for entering into and closing the Credit Agreement, we
have issued to Standard Bank 1,150,000 shares of our restricted common stock and
a warrant for the purchase of 12,600,000 shares of our common stock at an
exercise price of $0.317 per share, expiring on the earlier of (a) December 31,
2010 or (b) the date one year after the repayment of the Credit Agreement.
The foregoing description of the Credit Agreement is not complete and is
qualified in its entirety by reference to the full text of the Credit Agreement,
which is attached hereto as Exhibit 10.1.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF THE REGISTRANT
The information set forth in Item 1.01 of this Current Report on Form 8-K
is incorporated herein by reference. The Company, Oro and MSR are in the process
of complying with certain conditions precedent to the initial funding of the
Loan.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
As part of the fee for entering into the Credit Agreement, we issued to
Standard Bank on August 15, 2006 an aggregate of 1,150,000 shares of our common
stock and a warrant to purchase an aggregate of 12,600,000 shares of our common
stock at an exercise price of $0.317 per share. The warrant is exercisable until
the earlier of (a) December 31, 2010 or (b) the date one year after the
repayment of the Credit Agreement. We have agreed to register for resale the
foregoing shares and shares issuable upon exercise of the warrant.
The shares and warrant were issued to Standard Bank in reliance upon the
exemption from registration requirements set forth in Section 4(2) of the
Securities Act of 1933, as amended. Standard Bank has represented to us its
status as a sophisticated purchaser buying for investment, and that it has had
access to information from us comparable to that which would have been provided
in a registration statement had the shares and warrants been registered.
ITEM 3.03 MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS
The Rights will impose a significant penalty upon any person or group that
acquires beneficial ownership of 20% or more of our company's outstanding common
stock without the prior approval of the Board. The Rights Agreement provides an
exemption for any person who is, as of August 15, 2006, the beneficial owner of
20% or more of our outstanding common stock, so long as such person does not,
subject to certain exceptions, acquire additional shares of our common stock
after that date. The Rights Agreement will not interfere with any merger or
other business combination approved by the Board.
The following is a summary of the terms of the Rights Agreement. This
description is qualified in its entirety by reference to the full text of the
Rights Agreement, which is attached hereto as Exhibit 4.1 and is incorporated by
reference herein.
The Rights. The Rights will initially trade with, and will be inseparable
from, our existing common stock. The Rights are evidenced only by certificates
that represent shares of existing common stock. New Rights will accompany any
new shares of common stock we issue until the Distribution Date described below.
Exercise Price. Each Right will allow its holder to purchase from us one
one-thousandth of a share of Series B Common Stock (a "Series B Share") for
$3.00 once the Rights become exercisable. This portion of a Series B Share will
give the stockholder dividend and liquidation rights that are senior, but
generally similar, to those carried by one share of common stock, and one
one-thousandth of the voting rights of one share of common stock. Prior to
exercise, the Right does not give its holder any dividend, voting or liquidation
rights.
Exercisability. The Rights will not be exercisable until
o 10 days after the public announcement that a person or group has
become an "Acquiring Person" by obtaining beneficial ownership of
20% or more of our existing common stock, or, if earlier,
o 10 business days (or a later date determined by the Board before any
person or group becomes an Acquiring Person) after a person or group
begins a tender or exchange offer which, if completed, would result
in that person or group becoming an Acquiring Person.
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The date when the Rights become exercisable is referred to as the "Distribution
Date." Until that date, the common stock certificates will also evidence the
Rights, and any transfer of shares of common stock will constitute a transfer of
Rights. After that date, the Rights will separate from the common stock and be
evidenced by book-entry credits or by Rights certificates that we will mail to
all eligible holders of common stock. Any Rights held by an Acquiring Person are
void and may not be exercised.
Consequences Of A Person Or Group Becoming An Acquiring Person.
o Flip In. If a person or group becomes an Acquiring Person, all
holders of Rights except the Acquiring Person may, for $3.00,
purchase shares of our common stock with a market value of $6.00,
based on the market price of the common stock prior to such
acquisition.
o Flip Over. If we are later acquired in a merger or similar
transaction after the Distribution Date, all holders of Rights
except the Acquiring Person may, for $3.00, purchase shares of the
acquiring corporation with a market value of $6.00, based on the
market price of the acquiring corporation's stock prior to such
merger.
Series B Share Provisions. Each one one-thousandth of a Series B Share, if
issued:
o will not be redeemable;
o will entitle holders to quarterly dividend payments of $0.001 per
each one-thousandth of a Series B Share, or an amount equal to the
dividend paid on one share of our existing common stock, whichever
is greater;
o will entitle holders upon liquidation either to receive $1.00 per
one-thousandth of a Series B Share or an amount equal to the payment
made on one share of our existing common stock, whichever is
greater;
o will have one one-thousandth of the voting power of one share of our
existing common stock;
o if shares of our existing common stock are exchanged via merger,
consolidation, or a similar transaction, will entitle holders to a
per share payment equal to the payment made on one share of such
common stock.
The value of one one-thousandth of a Series B Share should be roughly
approximate to the value of one share of our existing common stock.
Expiration. The Rights will expire on August 15, 2016.
Redemption. The Board may redeem the Rights for $0.001 per Right at any
time before any person or group becomes an Acquiring Person. If the Board
redeems any Rights, it must redeem all of the Rights. Once the Rights are
redeemed, the only right of the holders of Rights will be to receive the
redemption price of $0.001 per Right. The redemption price will be adjusted if
we effect a stock split or a dividend of common stock.
Exchange. After a person or group becomes an Acquiring Person, but before
an Acquiring Person owns 50% or more of our outstanding common stock, the Board
of Directors may extinguish the Rights by exchanging one share of the existing
common stock or an equivalent security for each Right, other than Rights held by
the Acquiring Person.
Anti-Dilution Provisions. The Board of Directors may adjust the purchase
price of the Series B Shares, the number of Series B Shares issuable and the
number of outstanding Rights to prevent dilution that may occur from a stock
dividend, a stock split, a reclassification of the Series B Shares or common
stock. No adjustments to the exercise price of less than 1% will be made.
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Amendments. The terms of the Rights Agreement may be amended by the Board
of Directors without the consent of the holders of the Rights. After a person or
group becomes an Acquiring Person, the Board of Directors may not amend the
agreement in a way that adversely affects holders of the Rights.
Stockholder Approval. The Rights Agreement is effective immediately, but
will be terminated unless approved by a majority of our stockholders at a
meeting held on or prior to February 4, 2007, and any other applicable
stockholder ratification requirements of the Toronto Stock Exchange are
satisfied at such meeting.
ITEM 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR
On August 14, 2006, the Board effected certain amendments to our bylaws.
The amendments:
o eliminate the ability of holders of 10% or more of our common stock
to cause us to call a special stockholders' meeting;
o require stockholders that seek to bring business before a meeting of
stockholders, including nominations of candidates for election as
directors, to provide notice of such business to us, and certain
other information, within a specified period prior to the meeting;
o authorize the Board of Directors to determine the record date
applicable to any proposed stockholder action to be taken by written
consent without a meeting, and require us to appoint an independent
inspector to the review the validity and sufficiency of any consents
received in connection with any such proposed action; and
o amend and restate the provisions of the bylaws relating to
indemnification, in particular by specifying certain procedural
aspects of any claim for indemnification and making clear that our
directors and officers may be entitled to the advancement of
expenses with respect to any proceeding where indemnification may be
sought, subject to the requirements of applicable law.
The foregoing description of the bylaw amendments is not complete and is
qualified in its entirety by reference to the full text of our amended and
restated bylaws, which are attached hereto as Exhibit 3.1.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits. The following exhibits are filed as part of this report
3.1 Amended and Restated Bylaws of Capital Gold Corporation.
4.1 Rights Agreement, dated August 15, 2006, between Capital Gold
Corporation and American Stock Transfer & Trust Company.
10.1 Credit Agreement dated August 15, 2006 among Minera Santa Rita S. de
R.L. de C.V. and Oro de Altar S. de R.L. de C.V., as the borrowers, Capital Gold
Corporation, as the guarantor, and Standard Bank PLC, as the lender and the
offshore account holder.
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SIGNATURE
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 hereunto duly authorized.
Date: August 16, 2006
By: /s/ Jeffrey W. Pritchard
-----------------------------------
Name: Jeffrey W. Pritchard
Title: Vice President
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
--------------------------------------------------------------------------------
3.1 Amended and Restated Bylaws of Capital Gold Corporation.
4.1 Rights Agreement, dated August 15, 2006, between Capital Gold
Corporation and American Stock Transfer & Trust Company.
10.1 Credit Agreement dated August 15, 2006, among Minera Santa
Rita S. de R.L. de C.V. and Oro de Altar S. de R.L. de C.V.,
as the borrowers, Capital Gold Corporation, as the guarantor,
and Standard Bank PLC, as the lender and the offshore account
holder.