Gold Reserve plans restructuring related to put option for 5.5% notes

By Susanna Moon

Chicago, May 17 - Gold Reserve Inc. announced a put option for its 5.5% senior subordinated convertible notes due 2022, along with a related restructuring proposal.

The notes are putable at par plus accrued interest, and they are convertible into 132.626 common shares for each $1,000 principal amount of notes.

The company reached an agreement with three noteholders representing 87.8% of the outstanding notes that allows the company to redeem and restructure its notes with a combination of cash, common shares, new terms for the remaining notes and a contingent value right, according to a company press release.

Because of the agreement, the company said it expects a maximum of $40.6 million will be required to fund the purchase if all the holders put their notes and the restructuring is completed as planned.

Holders who choose to put their notes must surrender their notes for repurchase to trustee and paying agent Bank of New York Mellon, as successor in interest to the Bank of New York, before 5 p.m. ET on June 15.

Proposed alternative election

The company said it will file a tender offer statement with the Securities and Exchange Commission and expects to amend the filing within 10 days to announce an alternative election to reflect the terms of a proposed restructuring of the notes with its three largest noteholders.

Subject to shareholder approval, holders may put all or some of their notes for the following payment for each $1,000 in principal amount of notes: (i) $200 in cash, (ii) 147.06 common shares, (iii) $300 of amended notes, which will remain outstanding under the indenture, (iv) a contingent value right entitling the holder to a percentage of an award or settlement of the company's arbitration claim against the Government of Venezuela for the expropriation of the company's Brisas project and any proceeds from the sale of its mining data and (v) a cash alternative election fee based on each holder's pro rata percentage of notes restructured under the alternative election in a total amount of up to $1 million.

The maximum contingent value right net of taxes and other deductions that will be paid if all holders elect this proposed alternative transaction will not exceed 5.81% of an award or settlement and sale of the mining data, the release noted.

The restructuring will be subject to the approval of the company's shareholders at a meeting set for June 27. If the restructuring is not approved by the shareholders, in lieu of the transaction described above, the put option will be deferred until Sept. 14 for those holders, including the three largest noteholders as well as any other holders that make the alternative election.

Holders of about 87.8% of the outstanding notes have agreed to elect to require the company to repurchase 14.1% of their notes under the put option and to require the company to repurchase about 85.9% of their notes for the alternative consideration, if approved.

Assuming that all notes other than those held by the three largest holders are tendered for repurchase, then together with the maximum principal amount of $12.7 million of notes that are to be surrendered by the three largest holders in connection with the put option, the company said it expects to use a maximum of $40.6 million of cash and, depending on the election of the holders, may issue from 11.4 million to 13.2 million common shares to repurchase the notes in connection with the restructuring.

Gold Reserve is a Spokane, Wash.-based gold and copper mining company.

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