OTTAWA, ONTARIO AND VANCOUVER, BRITISH
COLUMBIA--(Marketwire - July 20, 2009) - Paramount Gold and Silver
Corp. (NYSE:PZG)(TSX:PZG)(FRANKFURT:P6G)(WKN:A0HGKQ)
("Paramount") and Klondex Mines Ltd. (TSX:KDX)(OTCBB:KLNDF)
are pleased to announce that they have entered into a binding letter
agreement (the "Letter Agreement") to combine the two
companies under a plan of arrangement, in a transaction valued at
approximately C$80 million (the "Transaction" or the
"Paramount Transaction"). The Letter Agreement has been
unanimously approved by the Board of Directors of each of Paramount and
Klondex, as well as by the Special Committee of the Board of Directors
of Klondex.
Pursuant to the Letter Agreement, each Klondex share will be exchanged
for 1.45 Paramount shares, implying a purchase price of C$2.32 per
Klondex share using closing share prices on the TSX on July 17, 2009. The
Transaction represents a premium of 33.3% to the closing price of
Klondex shares and a 30.3% premium to the implied value of the
unsolicited proposal by Silvercorp Metals Inc. ("Silvercorp.")
as of July 17, 2009. The Silvercorp proposal was announced on June 8,
2009, and was rejected by the Klondex Board of Directors as providing
inadequate consideration for Klondex shareholders.
Klondex recommends that shareholders SUPPORT the Paramount Transaction
and REJECT the Silvercorp offer by NOT TENDERING their shares to the
Silvercorp offer. Any Klondex Shareholder who has tendered their
Klondex Shares to the Silvercorp offer should WITHDRAW those Klondex
Shares.
A shareholder meeting will be scheduled for Klondex shareholders to
approve the Transaction. Klondex shareholders with questions on how to
support the Paramount Transaction may contact David Collins, Ratula
Velez Roy or Jim Leahy at Jaffoni & Collins toll free at
877-882-2587 or 212/835-8500 or via e-mail at kdx@jcir.com.
William Solloway, President and director of Klondex stated, "The
Transaction with Paramount is the result of our strategic review process
and delivers significant value to Klondex shareholders while creating a
powerful North American Gold & Silver Exploration platform with
substantial growth potential. We are very excited to be associated with
the Paramount team and are confident that the Transaction will provide
substantially greater value for Klondex shareholders than was
contemplated in Silvercorp's hostile bid. We urge all shareholders to
join us in supporting the Transaction, which combines two high-quality
gold ore bodies in the Americas, proven exploration professionals and
avoids many of the risks inherent in the Silvercorp bid."
Highlights of Combination
Christopher Crupi, CEO of Paramount stated, "The combination of
Paramount and Klondex will create an exciting new company focused on
developing high-grade gold projects in North America. Our two major
projects will be located in excellent mining jurisdictions, near major
producers and close to infrastructure. Both projects have unusual
potential for growing resources with compelling economics. Our largest
stockholder, Albert Friedberg, provides a strong and proven track
record with the financial leadership to bring the combined company to a
significantly higher valuation over time."
The combination of Paramount and Klondex will move Paramount closer to
its goal of increasing value for its stockholders through property
acquisition and aggressive development. The Transaction adds Klondex's
Fire Creek and other projects in Nevada to Paramount's existing San
Miguel property in Chihuahua, Mexico, which significantly increases the
combined entity's resource base. In addition to the 2.65 million ounce
gold-equivalent inferred resource Paramount has established at San
Miguel, Klondex has established a high-grade resource at Fire Creek of
1.64 million gold-equivalent ounces in the indicated category, grading
10.11 g/t Au(eq.) at a cut off of 5 g/t, plus an additional 0.51
million ounces in the inferred category, grading 8.63 g/t Au(eq.) at a
cut off of 5 g/t. Summaries of the mineral resources contained on
Paramount's properties are available in Paramount's public filings with
the United States Securities and Exchange Commission ("SEC")
at www.sec.gov and with the applicable Canadian securities regulators at www.sedar.com, and summaries of the mineral resources contained on Klondex's
properties are available in Klondex's public filings with the
applicable Canadian securities regulators at www.sedar.com. Other highlights of the combined entity are:
- Expanded and diversified operations with significant reserve/resource
upside on two flagship projects, San Miguel and Fire Creek;
- Expanded resource base of 1.69 million ounces indicated and 3.15
million ounces inferred
- Paramount's experienced personnel is poised to aggressively explore
and develop its flagship projects;
- Enhanced market presence with pro forma market capitalization of
approximately C$210 million; and
- Strategic position and management experience to enhance market
valuation of the combined entity under Paramount.
Upon completion of the Transaction, Paramount will have approximately
132.4 million shares of its common stock issued and outstanding. Existing
Paramount stockholders will retain approximately 62.4% ownership while
Klondex shareholders will have approximately 37.6% ownership in the
combined company.
Both Paramount and Klondex have agreed to obtain support agreements
from each of their respective directors and certain of their
shareholders to vote any shares which they control in favor of the
Transaction. Shares to be voted with respect to support agreements
would represent approximately 29% and 18% of the shares outstanding for
Paramount and Klondex, respectively, on a fully diluted basis.
Transaction Details
The Transaction is expected to be structured as a statutory plan of
arrangement. Under the terms of the Transaction, Klondex shareholders
will receive 1.45 shares of common stock of Paramount for each common
share of Klondex. All options and warrants of Klondex outstanding at
the time of the Transaction will also be exchanged for options and
warrants of Paramount on the same basis. On closing of the Transaction
Klondex will become a wholly-owned subsidiary of Paramount. Following
closing of the Transaction, one Klondex director, Robert Sibthorpe,
will join the Paramount Board of Directors.
The letter agreement setting out the Transaction includes a commitment
by Klondex not to solicit alternative transactions to the proposed
Transaction. Paramount has also been provided with certain other rights
customary for a transaction of this nature, including the right to
match competing offers made to Klondex. The letter agreement also
provides a reciprocal break fee of US$2.85 million to be payable by
each of the parties under certain circumstances.
The letter agreement will provide a basis for the preparation of a
definitive agreement which will also include representations and
warranties and covenants customary for a transaction of this nature.
Klondex & Paramount have agreed to hold meetings of their
shareholders to secure their approval by not later than October 31,
2009, and the Transaction is expected to be completed in the fourth
quarter of 2009. Completion of the Transaction is subject to a number
of conditions, including: the approval of the Supreme Court of British
Columbia, the approval of not less than 66 2/3% of the outstanding
shares of Klondex being voted in favor of the Transaction at a meeting
of Klondex shareholders, the approval of not less than 50% plus one of
the outstanding shares of Paramount being voted in favor of the
Transaction at a meeting of Paramount shareholders and certain
customary conditions, including receipt of all necessary regulatory
approvals and third party consents.
Dahlman Rose & Company, LLC ("Dahlman Rose") is acting as
financial advisor to Paramount, and the Board of Directors of Paramount
has received an opinion from Dahlman Rose that the exchange ratio
contemplated in the Letter Agreement is fair, from a financial point of
view, to Paramount. Gowling Lafleur Henderson LLP and Troutman Sanders
LLP are acting as legal counsel to Paramount.
Scotia Capital is acting as financial advisor to Klondex, and the Board
of Directors of Klondex has received an opinion from Scotia Capital
that the consideration to be received by Klondex shareholders pursuant
to the Letter Agreement is fair, from a financial point of view, to
Klondex. Lang Michener LLP is acting as legal counsel to Klondex and
Lawson Lundell LLP is acting as legal counsel to the Special Committee
of the Board of Directors of Klondex.
Full details of the Transaction will be included in a management
information circular to be filed with the regulatory authorities and
mailed to Klondex shareholders in accordance with applicable securities
laws. Investors are cautioned that, except as disclosed in that
management information circular, any information released or received
with respect to the Transaction may not be accurate or complete and
should not be relied upon.
Klondex shareholders are cautioned that an arrangement where Klondex
shareholders will receive Paramount shares directly may result in a
taxable event for Canadian shareholders. The parties have committed to
establish a structure for the merger before the execution of the
definitive agreement, having regard to relevant securities, corporate
and regulatory laws, stock exchange requirements and the tax planning
considerations of each of the parties and their shareholders, including
in particular, consideration of a share exchange structure to allow
Klondex shareholders to receive Paramount securities on a tax-deferred
basis. There is no guarantee the parties will be able to establish such
a structure. Shareholders should consult with their own advisors.
About Paramount Gold and Silver Corp.
Paramount Gold and Silver Corp. is a precious metals exploration
company listed on the Toronto Stock Exchange (TSX) and the NYSE Amex
under the symbol "PZG", and listed on the Deutsche Borse
under the symbol "P6G" (WKN:A0HGKQ).
Paramount holds a 100% interest in the San Miguel Project and has
completed 47,560
meters of diamond drilling on 213 holes and 3,743 meters
of exploration trenching at San Miguel since the summer of 2006. Paramount
has recently expanded its land holdings by acquiring a 100% interest in
the Temoris Project from Garibaldi Resources; a land package of over 54,000 hectares.
Paramount's land package now includes most of the ground surrounding
Coeur d'Alene Mines (NYSE:CDE) Palmarejo Mine project and is in excess
of 140,000
hectares.
About Klondex Mines Ltd.
Klondex Mines Ltd. (TSX:KDX)(OTCBB:KLNDF) is engaged in acquiring,
exploring and developing high-grade gold and silver properties in North
Central Nevada and has to date identified an Indicated Mineral Resource
in excess of 1.6 million ounces of gold and an Inferred Mineral
Resource of over 0.5 million ounces of gold via its deep drilling
program at its 100% owned Fire Creek Property.
Klondex is focused on the exploration and development of Fire Creek on
the Northern Nevada Rift in North Central Nevada, an area of
substantial mining activity which has produced in excess of 100 million
ounces of gold. Klondex's property portfolio covers over 12,615 acres
or 19.7 square miles and includes three other gold exploration located
in areas with strong gold exploration prospects. For more information,
visit www.klondexmines.com.
Additional Information About the Transaction and Where to Find It
In connection with the Transaction, Paramount expects to file with the
SEC a proxy statement which will be sent to the shareholders of
Paramount seeking their approval of the merger. In addition, Paramount
may file other relevant documents concerning the Transaction with the
SEC. Security holders are urged to read the proxy statement and other
relevant documents when they become available because they will contain
important information about the Transaction.
Security holders of Paramount may obtain free copies of these documents
through the website maintained by the SEC at http://www.sec.gov. Security holders of Paramount may also obtain free copies of
these documents by directing a request by telephone or mail to
Paramount Gold and Silver Corp., 346 Waverley Street, Suite 100,
Ottawa, Ontario Canada K2P OW5 (telephone: (613) 226-9881) or by
accessing these documents at Paramount's website: www.paramountgold.com under "Investors". The information on Paramount's
website is not, and shall not be deemed to be, a part of this release
or incorporated into other filings made with the SEC.
Paramount and its directors, executive officers and members of
management may be deemed to be participants in the solicitation of
proxies from the shareholders of Paramount in connection with the
Transaction. Information about the directors and executive officers of
Paramount is set forth in the proxy statement for its 2009 annual
meeting of shareholders filed with the SEC on January 8, 2009. Information
regarding the interests of these participants and other persons who may
be deemed participants in the Transaction may be obtained by reading
the proxy statement regarding the Transaction when it becomes
available.
Cautionary Note to U.S. Investors Concerning Estimates of Indicated and
Inferred Resources: This press release uses the terms "indicated
resources" and "inferred resources". We advise U.S.
investors that while these terms are defined in and permitted by
Canadian regulations, these terms are not defined terms under SEC
Industry Guide 7 and are normally not permitted to be used in reports
and registration statements filed with the SEC. "Inferred
resources" have a great amount of uncertainty as to their
existence, and great uncertainty as to their economic and legal
feasibility. It cannot be assumed that all or any part of an inferred
mineral resource will ever be upgraded to a higher category. Under
Canadian rules, estimates of inferred mineral resources may not form
the basis of a feasibility study or prefeasibility studies, except in
rare cases. The SEC normally only permits issuers to report mineralization
that does not constitute SEC Industry Guide 7 compliant
"reserves" as in-place tonnage and grade without reference to
unit measures. U.S. investors are cautioned not to assume that any part
or all of mineral deposits in this category will ever be converted into
reserves. U.S. investors are cautioned not to assume that any part or
all of an inferred resource exists or is economically or legally
minable.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements in this document regarding the Transaction, the expected
timetable for completing the Transaction, benefits and synergies of the
Transaction, future opportunities for the combined company,
expectations regarding the value and benefits of the Transaction and
any other statements about Paramount or Klondex managements' future
expectations, beliefs, goals, plans or prospects constitute
forward-looking statements within the meaning of the United States
Private Securities Litigation Reform Act of 1995 and other applicable
securities laws. Any statements that are not statements of historical
fact (including statements containing the words "believes,"
"plans," "anticipates," "expects,"
estimates and similar expressions) should also be considered to be
forward-looking statements. There are a number of important factors
that could cause actual results or events to differ materially from
those indicated by such forward-looking statements, including, but not
limited to: the ability of the parties to consummate the Transaction
and satisfy the conditions thereunder; the ability to obtain, and the
timing of, the necessary exchange, regulatory and shareholder or
stockholder approvals for the Transaction; the impact of any actions
taken by Silvercorp. or any other party to complicate, delay or prevent
the Transaction; the ability to realize the anticipated synergies and
benefits from the Transaction and the combined company; and the other
factors described in Paramount's Annual Report and Annual Information
Form on Form 10-K for the year ended June 30, 2008 and its most recent
quarterly reports filed with the SEC available on www.sec.gov and applicable Canadian securities regulators available on www.sedar.com and Klondex's filings with the applicable Canadian securities
regulators available on www.sedar.com. Except as required by applicable law, each of Paramount and
Klondex disclaims any intention or obligation to update any
forward-looking statements as a result of developments occurring after
the date of this document.
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