<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------------------- to ---------------------
Commission File No. 1-8491
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HECLA MINING COMPANY
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0126240
- ------------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
- ------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 208-769-4100
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which each class is registered
- ------------------------------------------------- ------------------------------
<S> <C>
Common Stock, par value 25 cents per share )
Preferred Share Purchase Rights )
Liquid Yield Option Notes Due 2004 ) New York Stock Exchange
------------------------------
Series B Cumulative Convertible Preferred Stock,
par value 25 cents per share )
- -------------------------------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Shares of Common Stock, $.25 par value per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes XX . No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's voting Common Stock held by
non-affiliates was $427,958,537 as of February 25, 1994. There were 34,582,508
shares of the Registrant's Common Stock outstanding as of February 25, 1994.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III, the information
contained in the Proxy Statement for the 1994 Annual Meeting of
Shareholders of the Registrant, which will be filed with the Commission
pursuant to Regulation 14A within 120 days of the end of the Registrant's
1993 fiscal year. See Part III.
<PAGE> 2
PART I
Item 1. Business1
GENERAL
Hecla Mining Company (the Company), originally incorporated in 1891, is
principally engaged in the exploration, development and mining of precious
and nonferrous metals, including gold, silver, lead and zinc, and certain
industrial minerals. The Company owns or has interests in six precious
and nonferrous metals properties and five industrial minerals businesses.
In 1993, the Company's attributable gold and silver production was 60,715
ounces and 2,974,698 ounces, respectively. The Company also shipped
approximately 888,000 tons of industrial minerals products during this
period, including ball clay, kaolin, feldspar, landscape materials, and
specialty aggregates.
The Company's principal producing metals properties include the La Choya
gold mine, located in Sonora, Mexico, which began operations in January
1994; the Lucky Friday silver mine, located near Mullan, Idaho, which is a
significant primary producer of silver in North America; the Republic gold
mine, located in the state of Washington, historically one of the
lowest-cost gold operations in North America; and the Greens Creek mine,
located near Juneau, Alaska, a large polymetallic mine in which the
Company owns 29.7% interest. In April 1993, operations at the Greens
Creek mine were suspended by the manager of the mine in response to
depressed metals prices.
The Company's industrial minerals businesses consist of Kentucky-Tennessee
Clay Company (Ball Clay and Kaolin Divisions), K-T Feldspar Corporation,
K-T Clay de Mexico, S.A. de C.V., Colorado Aggregate Company of New
Mexico, and Mountain West Bark Products, Inc. The Company's industrial
minerals segment has positioned itself as a leading producer of three of
the four basic ingredients required to manufacture ceramic and porcelain
products, including sanitaryware, pottery, dinnerware, electric
insulators, and tile. At current production rates, the Company has over
20 years of proven and probable reserves of ball clay, kaolin and
feldspar. During 1993, the industrial minerals businesses provided
approximately $6.6 million of cash from operations which served to
partially offset the impact of decreasing gold production from the
Company's metals segment.
On December 29, 1993, the Company, two wholly owned Canadian subsidiaries
of the Company, and Equinox Resources Ltd. (Equinox), a mining,
exploration and development company, incorporated under the laws of the
Province of British Columbia and headquartered in Vancouver, Canada,
executed an Acquisition Agreement providing for the Company's acquisition
of Equinox. Pursuant to the Acquisition Agreement and related Plan of
Arrangement, upon consummation of the transactions contemplated thereby,
(i) Equinox common shareholders will receive 0.3 common share of the
Company (Company common shares), for each outstanding Equinox common
share, (ii) holders of Equinox's Series "A" production participating
preferred shares will receive
- ------------------------
1For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the end of
Item 1, page 27.
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newly issued production notes of the Company with the same material terms
and conditions, and (iii) outstanding Equinox options and warrants will
become exercisable for Company common shares. In connection with the
acquisition of Equinox, the Company expects to issue approximately 6.3
million Company common shares, including shares issuable upon exercise of
outstanding options and warrants.
The Board of Directors of the Company and Equinox have each approved the
Acquisition Agreement. On February 25, 1994, the shareholders of Equinox
also approved the Acquisition Agreement. However, the transactions
contemplated by the Acquisition Agreement are subject to a number of
conditions including, without limitation, approval by a Canadian court of
the Plan of Arrangement.
If consummated, the Company will acquire Equinox's primary producing
property, the American Girl gold mine, located in Imperial County,
California, which is operated by its joint venture partner MK Gold
Company. In addition, the Company believes that Equinox's Rosebud gold
property, located in Pershing County, Nevada, has significant exploration
and development potential.
The Company's strategy is to focus its efforts and resources on the
development and construction of the Grouse Creek gold project and to
expand its gold and silver reserves via a combination of acquisition and
exploration efforts. During 1994, the Company's most important priority
will be the timely development and construction of the Grouse Creek gold
project which is expected to commence production during the fourth quarter
of 1994. Additionally, the Company's exploration plan consists primarily
of exploring for additional reserves and mineralization at or in the
vicinity of the Republic and La Choya gold mines, the Lucky Friday and
Greens Creek silver mines and the Grouse Creek gold project. At the same
time, the Company will continue to evaluate acquisition and other
exploration opportunities, primarily in North America, that will
complement its existing operations.
The Company's revenues and profitability are strongly influenced by the
world prices of silver, gold, lead and zinc. Metals prices fluctuate
widely and are affected by numerous factors beyond the Company's control,
including inflation and worldwide forces of supply and demand. The
aggregate effect of these factors is not possible to accurately predict.
Sales of metal concentrates and products are made principally to custom
smelters and metal traders. The percentage of revenue contributed by each
class of product is reflected in the following table:
<TABLE>
<CAPTION>
Years
--------------------------------
Product 1993 1992 1991
----------------- ----- ----- -----
<S> <C> <C> <C>
Gold 25.5% 30.8% 43.8%
Silver 8.5 12.0 10.9
Lead 4.4 7.4 6.0
Industrial minerals 54.6 42.5 34.5
All others 7.0 7.3 4.8
</TABLE>
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Reference is made to Note 1 of Notes to Consolidated Financial Statements
for information with respect to export sales.
The principal executive offices of the Company are located at 6500
Mineral Drive, Coeur d'Alene, Idaho 83814-8788, telephone (208)
769-4100.
METALS SEGMENT
La Choya Gold Mine - Sonora, Mexico
The La Choya gold mine is located 30 miles south of the U.S. border in
the State of Sonora, Mexico, and is the Company's first operation outside
the U.S. and Canada. In May 1992, the Company exercised its option to
purchase the Mexican mineral concessions related to this property, which
includes a land position of over 36,000 acres.
The La Choya gold mine commenced operations in January 1994. The Company
expects to produce approximately 63,000 ounces of gold in each of 1994,
1995 and 1996. Current proven and probable gold reserves at the La Choya
gold mine are expected to be substantially depleted in 1996 or early
1997.
An exploration drilling program is planned for 1994 to attempt to expand
the gold reserves at the La Choya gold mine. The Company believes there
is the potential to discover additional gold reserves within the mining
concessions currently controlled by the Company. The drilling program
will continue with the objective of expanding the current project and
extending the life of the mine.
As of December 31, 1993, the Company has expended approximately $18.8
million (excluding capitalized interest) on the purchase and development
of the La Choya gold mine. Electrical power is provided by on-site
diesel generators. The following table presents the proven and probable
ore reserves for the La Choya gold mine for the periods indicated:
<TABLE>
<CAPTION>
Year Total Gold Gold
Ended Reserves Avg. Grade Content
12/31 (Tons) (oz/ton) (ozs.)
----- -------- ---------- -------
<S> <C> <C> <C>
1993 6,138,000 0.037 225,500
1992 4,283,277 0.039 167,000
</TABLE>
At December 31, 1993, there were 87 employees at the La Choya gold mine.
The National Union of Mine, Metallurgical and Related Workers of the
Mexican Republic is the bargaining agent for the La Choya gold mine
employees. The current labor agreement expires on September 7, 1994.
Grouse Creek Gold Project - Idaho
The Grouse Creek gold project is located in central Idaho, 27 miles
southwest of the town of Challis in the Yankee Fork Mining District.
Mineral rights comprising the Grouse Creek gold project cover 21.4 square
miles. The Grouse Creek gold project consists of 18 patented lode mining
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claims and two patented placer claims, 43 unpatented millsite claims, and
17 unpatented lode claims for which patent applications are pending. With
respect to the 17 unpatented lode claims, the Company has received the
first half of a Mineral Entry Final Certificate. Upon certification by a
United States Federal Mineral Examiner and issuance of patents for these
claims, all of the current proven and probable reserves at the Grouse
Creek gold project will be located within patented mining claims. The
remainder of the mineral rights in the Yankee Fork Mining District consist
of 846 unpatented claims.
The Company acquired these patented and unpatented mining claims as a
result of its acquisition of CoCa Mines Inc. (CoCa) in 1991. During 1989
CoCa purchased the assets of Geodome Resources Limited and its limited
partner interests in the Grouse Creek project. As partial consideration,
CoCa issued 1,023,169 shares of Common Stock valued at $9.5 million and
472,427 warrants to purchase Common Stock valued at $0.2 million. In
addition, CoCa issued promissory notes payable to purchase limited partner
interests in the Grouse Creek property acquired from Geodome Resources
Limited (See Note 7 of Notes to Consolidated Financial Statements).
On February 8, 1994, the Company sold to Great Lakes Minerals, Inc. of
Toronto (Great Lakes) a 20% undivided interest in the Company's Grouse
Creek gold project. Proceeds received from the sale, totaling $13.3
million, represent the sales price of $6.8 million for 20% of the amount
spent by the Company on acquisition, exploration and development of the
project through June 30, 1993, including a fixed premium of $1.25 million,
plus Great Lakes' pro-rata share of construction costs for Grouse Creek
from July 1, 1993 through January 31, 1994. Pursuant to the acquisition
and joint venture agreements, Great Lakes is required to fund its 20%
pro-rata portion of remaining capital expenditures required to bring the
Grouse Creek project to commercial production. In addition, these
agreements provide that Great Lakes has the option, at any time prior to
12 months following the commencement of commercial production at the
Grouse Creek gold project, to purchase up to an additional 10% undivided
interest in the project and fund its increased share of capital
expenditures.
As of December 31, 1993, the Company and its predecessors had expended
approximately $54.0 million (excluding capitalized interest) on the
acquisition, exploration and development of the Grouse Creek project.
Based on the current mine plan, the Company's share of additional capital
costs for the project are expected to total approximately $50.0 million in
1994 and $3.4 million (primarily for equipment) during 1995. The Company
currently estimates that production will commence during the fourth
quarter 1994, with full production achieved in 1995. The Company
estimates, that assuming timely commencement of production during the
fourth quarter, its share of total production at the Grouse Creek gold
project will be approximately 53,000 gold ounces in 1994 and 106,000 gold
ounces in 1995.
Two distinct mineral deposits have been identified at the Grouse Creek
project: the Sunbeam deposit and the Grouse deposit, which includes the
Grouse pit and the Grouse underground high-grade ore zone.
As a result of drilling programs conducted in 1991 and 1992, the Company
discovered the Underground Deposit, a high-grade gold ore zone beneath the
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proposed Upper Grouse Pit, approximately 500 feet below the existing
surface. The Underground Deposit is open at depth and has good potential
to contain additional high-grade ore.
The Sunbeam deposit was defined by 721 reverse circulation test holes
totaling 198,097 feet and 22 diamond core drill holes totaling 7,152 feet.
Test-hole drilling has been completed on an approximate 75-foot grid over
the Sunbeam deposit. The deposit is above the water table. The Upper
Grouse Pit has been defined by 416 reverse circulation test holes totaling
175,508 feet and 22 diamond core drill holes totaling 8,488 feet. The
higher sections of the deposit are drilled on an approximate 75- to
100-foot grid. Portions of the Upper Grouse Pit ore body are below the
water table. The deeper high-grade gold ore zone in the Underground
Deposit has been defined by a reverse circulation test-hole grid pattern
on approximately 50-foot centers.
The following table presents the Company's share of the proven and
probable ore reserves for the Grouse Creek gold project for the periods
indicated:
<TABLE>
<CAPTION>
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (Tons) (oz./ton) (ozs.) (oz./ton) (ozs.)
----- ---------- ---------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1993(1) 12,104,000 0.055 671,200 1.07 12,972,800
----
1992 14,467,000 0.057 831,000 1.21 17,474,000
----
1991 15,018,600 0.048 719,150 1.2 17,276,810
----
</TABLE>
-----------------------
(1) 1993 proven and probable ore reserves reflect only the
Company's share (80%) pursuant to the February 8, 1994,
sale of a 20% interest in its Grouse Creek project to
Great Lakes Minerals, Inc. of Toronto, Canada.
Pursuant to the mine plan, the Sunbeam Deposit and the Underground Deposit
are to be mined simultaneously beginning in the fourth quarter of 1994,
followed by the Upper Grouse Pit. The mine plan for the Underground
Deposit proposes a panel cut-and- fill method. The ore zone is
approximately 30-feet thick and will be mined in panels 10-feet high and
20-feet wide. Cemented backfill will be used to obtain nearly 100%
extraction of the underground reserve. Conventional underground mining
equipment will be used for drilling, blasting, loading, and hauling. Both
the Sunbeam Deposit and the Upper Grouse Pit will use conventional surface
mining methods. Blasthole assays will be used to determine ore grade
material. The material will be segregated and hauled by off-highway
trucks to the mill. Waste material will be hauled to a waste storage area
or will be used as construction material in the tailings dam. Both
deposits will mine ore on 20-foot benches. The milling process involves a
6,000-ton-per-day gold recovery facility. The recovery process involves
crushing and grinding of the ore and recovering approximately 50% of the
gold in a gravity circuit. The remaining gold and silver is dissolved in
a weak
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<PAGE> 7
sodium cyanide solution and recovered with carbon adsorption and
Merrill-Crowe precipitation. Overall recoveries are currently estimated
at 94% gold and 41% silver for ore from the Sunbeam Deposit, 74% gold and
64% silver for ore from the Upper Grouse Pit and 95% gold and 85% silver
from the Underground Deposit. A refinery on the property will produce
dore that will be further processed by commercial refiners. The tailings
from the cyanide process will be impounded in a 15.5 million ton capacity
double-lined tailings pond. All permits for this facility have been
approved.
The Sunbeam Deposit will be mined at a rate of 7,700 tons of ore per day
at a cut-off grade of 0.020 ounce per ton of gold equivalent and a
stripping ratio of 3.2:1. The Upper Grouse Pit will be mined at
approximately the same rate and will have a cut-off grade of 0.031 ounce
per ton of gold equivalent and a stripping ratio of 5.1:1. Based upon the
information developed to date, the Underground Deposit is expected to
produce 183,000 tons of ore in each of 1994 and 1995 containing
approximately 96,000 ounces of gold and over 400,000 ounces of silver.
The Company is currently developing the Underground Deposit.
Reclamation activities include the partial backfill and revegetation of
the Sunbeam Deposit and the Grouse Deposit and covering, recontouring and
revegetating the tailings surface and construction of a permanent
spillway. The waste dump and haul roads will be recontoured and
revegetated. Process facilities will be removed and foundations will be
buried. Concurrent reclamation practices will be employed whenever
possible. The reclamation plans have been approved by the appropriate
state and federal agencies.
The Company believes that there is excellent potential for extending and
discovering additional gold reserves at the project including a
continuation of the high-grade underground mineralization which remains
unexplored under most of the deposits. To date, the Company has
identified 15 exploration targets. Within the immediate area of the Upper
Grouse Pit, the Company also believes that there could be additional
high-grade zones accessible through the underground operations. An
exploration program will be undertaken during 1994 to begin to evaluate
the economic potential of areas below and adjacent to the Upper Grouse
Pit.
Lucky Friday Mine - Coeur d'Alene Mining District - Idaho
The Lucky Friday, a deep underground silver and lead mine, located in
northern Idaho and 100% owned by the Company, has been a producing mine
for the Company since 1958. The mine operated continuously until low
metals prices and rockburst activity forced the suspension of operations
in April 1986. During the shutdown, the Company's engineers began
converting portions of the mine to a mechanized underhand mining method
designed to increase productivity and reduce rockburst activity.
Production was resumed at the Lucky Friday mine in June 1987 and has
continued uninterrupted since that time.
The ore-bearing structure at the Lucky Friday mine is the Lucky Friday
Vein, a fissure vein typical of many in the Coeur d'Alene Mining District.
The ore body is located in the Revett Formation which is known to provide
excellent host rocks for a number of ore bodies in the Coeur d'Alene
District. The Lucky Friday Vein strikes northeasterly and dips steeply to
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the south, with an average width of six to seven feet. The principal ore
minerals are galena and tetrahedrite, with minor amounts of sphalerite and
chalcopyrite. It appears that the ore occurs as a single continuous ore
body in and along the Lucky Friday Vein. The major part of the ore body
has extended from the 1200-foot level to and below the 5660-foot level,
which is currently being developed.
The ore produced from the mine is processed in a 1,000-ton-per-day
conventional flotation mill at a current rate of 700 tons per day at the
Lucky Friday mine site. The flotation process produces both a silver-lead
concentrate and a zinc concentrate. During 1993 approximately 98% of the
silver, 97% of the lead, and 86% of the zinc were recovered. The Company
believes that adequate provision has been made for disposal of mine waste
and mill tailings in a manner which complies with current federal and
state environmental requirements.
The Lucky Friday mine's mill facility and surface and underground
equipment are in good working condition. The mill was originally
constructed approximately 32 years ago. The Company maintains and
modernizes the plant and equipment on an ongoing basis. Significant
improvements to the mill include installation of coarse ore feeder bins in
1982, a new ball mill in 1984, installation in 1989 of a new zinc column
cell to improve the purity of zinc concentrates, and in 1991, upgrading of
tailings pumps. Improvements to the mine include construction of the
Silver Shaft and installation of a new compressor plant during 1980
through 1983; installation of a new ventilation system during 1985; and,
since 1986, construction of a new ore pass system servicing the Silver
Shaft at the deepest levels of the mine. The net book value of the Lucky
Friday mine property and its associated plant and equipment was $28.1
million as of December 31, 1993. Washington Water Power Company supplies
electrical power to the Lucky Friday mine.
The Lucky Friday silver-lead concentrate product is shipped primarily to
the ASARCO smelter at East Helena, Montana. The silver contained in the
concentrates is returned to the Company under a tolling arrangement. The
Company then sells the tolled silver to major metal brokers. The pricing
of the silver is based on worldwide bullion markets. The lead and gold
contained in the concentrates are sold to ASARCO. The Lucky Friday zinc
concentrates are shipped to Cominco's smelter in Trail, British Columbia,
Canada, and are sold under an agreement with Cominco Ltd.
In the event agreements with ASARCO and Cominco are terminated, the
Company believes that new agreements could be negotiated with other
smelters at terms that would not have a material effect upon the overall
results of operations or financial condition of the Company.
Based on the Company's experience in operating deep mines in the Coeur
d'Alene Mining District, where the persistence of mineralization to
greater depths may be reliably inferred from operating experience and
geological data, the Company's policy is to develop new levels at a
minimum rate consistent with the requirements for uninterrupted and
efficient ore production. A new level is developed and brought into
production only to replace diminishing ore reserves from levels being
mined out.
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<PAGE> 9
The length and strength of the ore body have not materially diminished on
the lowest developed level of the mine. Based upon this factor, drilling
data and extensive knowledge of the geologic character of the deposit, and
many years of operating experience in the Lucky Friday mine and Coeur
d'Alene Mining District, there are no geologic factors known at present
which appear to prevent the continuation of the Lucky Friday ore body for
a considerable distance below the lowermost working level. Although there
can be no assurance of the extent and quality of the mineralization which
may be developed at greater depths, the existing data and operating
experience justify, in the opinion of the Company's management and based
upon industry standards, the conclusion that the mineralization will
extend well below the 6200-foot level, which is the existing bottom of the
mine's Silver Shaft.
The principal mining method, underhand cut and fill, was piloted in 1985
and 1986, and has since been fully implemented. This method utilizes
mechanized equipment, a ramp system and cemented sand fill. The method
has proven effective in reducing mining costs and limiting rockburst
activity. Without this mining method, the mine would be unworkable in
certain stopes because of the unstable nature of the rock. However,
rockbursting continues to be a concern in the one-mile-deep mine.
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of silver produced for the past five
years is set forth in the table below:
<TABLE>
<CAPTION>
Years
-----------------------------------------------------------------------
Production (100%) 1993 1992 1991 1990 1989
- ------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ore milled (tons) 179,579 175,170 152,150 147,671 138,720
Silver (ounces) 2,122,738 2,031,779 1,850,531 1,894,944 1,904,038
Gold (ounces) 972 965 928 916 944
Lead (tons) 19,795 21,336 18,857 17,333 16,094
Zinc (tons) 4,385 4,213 3,164 3,306 3,253
Copper (tons) 339 129 175 49 281
Proven and Probable
Mineral Reserves1
- ----------------
Total tons 414,315 446,105 440,060 527,830 458,800
Silver (oz. per ton) 14.4 14.3 13.6 14.5 16.1
Lead (percent) 14.3 13.4 12.8 13.4 14.4
Zinc (percent) 3.0 2.3 2.8 2.7 2.4
Average Cost per Ounce
of Silver Produced
- ----------------------
Cash Production Costs $ 5.54 $ 4.12 $ 5.01 $ 4.54 $ 4.57
Full Production Cost $ 6.77 $ 5.35 $ 6.20 $ 6.25 $ 6.35
</TABLE>
- ------------------------------------
1 Reserves lying above or between developed levels are
classified as proven reserves. Reserves lying below
the lowest developed level,
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<PAGE> 10
projected to 100 feet below the lowest level or to one-half
the exposed strike length, whichever is less, are classified
as probable reserves. Mineralization known to exist from
drill-hole intercepts does not meet the Company's current
proven or probable reserve criteria and is excluded from these
reserve categories.
During 1991, the Company discovered several mineralized structures
containing some high-grade silver ores in an area known as the Gold Hunter
property, about 5,000 feet northwest of the existing Lucky Friday
workings. In an extensive exploration program in 1992, the Company
undertook an underground evaluation of the Gold Hunter property
mineralization. The program discovered mineralization containing
significant amounts of silver and lead in an area accessible from the
4050-foot level of the Lucky Friday mine. The exploration program and a
feasibility study were completed during 1993. The Company's decision
regarding development of the Gold Hunter property is pending. The Gold
Hunter property is controlled by the Company under a long-term operating
agreement, which entitles the Company, as operator, to a 79.08% interest
in the net profits from operations from the Gold Hunter properties. The
Company will be obligated to pay a royalty after it has recouped its costs
to explore and develop the properties, which as of December 31, 1993,
totaled approximately $7.9 million. If the Gold Hunter property is
further developed, the Company currently estimates that $10-15 million of
capital expenditures would be required.
At December 31, 1993, there were 139 employees at the Lucky Friday mine.
The United Steelworkers of America is the bargaining agent for the Lucky
Friday hourly employees. The current labor agreement expires on June 12,
1996, and will be continued for an additional three years if the Company
develops the Gold Hunter property.
Republic Mine - Republic, Washington
The Company owns and operates the Republic mine located in the Republic
Mining District near Republic, Washington, which consists of several
associated deposits and properties, a mill and ancillary surface plants.
The property is readily accessible year-round by all-weather roads. The
mine produces gold-silver ore which is milled on the property. Products
of the mill are a gold-silver flotation concentrate and a gold-silver
dore.
The Company's land position in the Republic area consists of approximately
five square miles, where the Company is currently focusing exploration
efforts in search of additional gold mineralization. If additional
reserves are not discovered and developed, the Company expects that gold
reserves at the Republic mine will be substantially depleted in early 1995
and mining operations will cease. As further described below, the Company
has undertaken a significant exploration program to determine if there are
additional reserves on the property.
The mine is an underground operation using both conventional and
smaller-scaled mechanized underground mining methods. Access is provided
by shafts and a ramp decline. The ore from the mine is processed in a
325-ton-per-day flotation and cyanidation mill. Combined average recovery
for 1993 in the two mill products (flotation concentrate and dore)
amounted
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<PAGE> 11
to 91% of the gold and 80% of the silver contained in the crude ore. The
Company believes that adequate provision has been made for disposal of
mine waste and mill tailings in a manner which complies with current
federal and state environmental requirements.
The Republic mine's mill facility and surface and underground equipment
are in good working condition. The mill was constructed approximately 57
years ago. The Company maintains and modernizes the plant and equipment
on an ongoing basis. Significant improvements include, during 1989
through 1992, expansion of mill capacity, enhanced metals recovery through
installation of a counter-current decantation circuit, a closed ore
crushing circuit, an enhanced metals concentrate leaching and
electrowinning recovery circuit and a small refinery to further enhance
the value of the mine's products prior to shipment. Improvements to the
mine include a decline and development drift which the Company drove
during 1990 to improve access to mineralized areas, as well as allowing
direct underground access by rubber-tired vehicles and improving
ventilation. The net book value of the Republic mine property and its
associated plant and equipment is approximately $11.4 million as of
December 31, 1993. Ferry County P.U.D. supplies electrical power to the
Republic mine.
The mineral-bearing structures in the Republic Mining District are
dominantly quartz fillings in fissure veins. Less commonly,
mineralization is hosted by volcanic and sedimentary wall rocks near the
veins. Principal ore minerals are electrum, native gold and silver with a
variety of sulfosalts and selenides. The mine has been developed on 13
levels from the surface to a vertical depth of 1,750 feet. Since 1984,
the Golden Promise deposit of the mine has been developed on seven levels.
Ongoing exploration and development of the Golden Promise deposit are
complicated by post-ore faulting and by the occurrence of several styles
of mineralization. Development drilling during 1993 located several
ore-grade intercepts 250 feet below the lowest working level of the Golden
Promise (See "Exploration" for additional discussion of the Golden
Promise).
Flotation concentrates produced from the Company's Republic mill are
smelted by ASARCO Incorporated at East Helena, Montana. The silver
contained in the concentrates is sold directly to ASARCO. The dore
product is shipped to Johnson Matthey's refinery at Salt Lake City, Utah,
for further refining. The gold contained in the concentrate and the gold
and silver contained in the dore are then sold by the Company to metal
brokers, primarily under short-term contracts. Pricing of silver and gold
is based on worldwide bullion markets.
If ASARCO or Johnson Matthey should be unable to receive or process the
products, the Company believes that other purchasers or processors for the
products could be found without causing a material effect upon the overall
results of operations or financial condition of the Company.
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of gold produced for the past five
years is set forth in the table below:
-10-
<PAGE> 12
<TABLE>
<CAPTION>
Years
---------------------------------------------------------------------
Production (100%) 1993 1992 1991 1990 1989
- ------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Ore milled (tons) 110,846 102,631 96,562 92,843 82,961
Gold (Au) (ounces) 49,601 58,343 77,736 81,397 74,335
Silver (Ag) (ounces) 276,688 299,957 311,445 326,346 301,432
Proven and Probable
Mineral Reserves(1)
- ----------------
Total tons 103,533 269,736 401,318 437,580 412,300
Gold (oz. per ton) 0.43 0.52 0.53 0.65 0.81
Silver (oz. per ton) 2.7 3.2 3.2 3.5 3.3
Average Cost per
Ounce of Gold Produced
- ----------------------
Cash Production Costs $ 207.43 $ 176.47 $ 143.40 $ 127.97 $ 121.02
Full Production Cost $ 261.73 $ 220.64 $ 176.44 $ 142.92 $ 130.32
</TABLE>
- -------------------------------
(1) Reserves represent diluted in-place grades and do not reflect losses
in the recovery processes. Dilution was effected through
application of 1.0 feet on either side of the vein for any sample
thicker than 2.1 feet. For samples thinner than 2.1 feet, dilution
was effected with whatever thickness was necessary to equal 4.0
feet. Diluent grades are zero ounces per ton for both gold and
silver.
In 1993 a negative ore reserve adjustment was made totaling approximately
39,000 ounces of gold and 235,000 ounces of silver. Most of the
adjustment was necessary when development encountered erratic
mineralization in an upper level ore zone which was previously estimated
to be continuous reducing the tonnage available for mining by 33,765 tons.
Other various adjustments attributable to the reduction totaled 867 tons.
There were 116 people employed at the Republic mine at December 31, 1993.
Employees at Republic are not represented by a bargaining agent.
Cactus Mine - Mojave, California
The Cactus mine consists of approximately 1,600 acres of leasehold lands,
mining claims and millsites, located approximately 85 miles northeast of
Los Angeles, California, in the Mojave Mining District. The property is
readily accessible year-round by all-weather roads. The Company currently
has a 63.75% effective interest in Cactus Gold Mines Company (Cactus) and
manages Cactus' two open-pit heap leach mines, the Middle Buttes and
Shumake. The Company, as manager of Cactus, receives a management fee
equal to 2% of net revenues of Cactus as defined in the mining venture
agreement and is reimbursed for costs incurred on behalf of Cactus.
-11-
<PAGE> 13
The Middle Buttes mine began production in August 1986. During 1991,
operations were completed at the Middle Buttes mine, and the remaining
recoverable gold was processed. Development of the Shumake mine was
completed in November 1988, with commercial production beginning in
December 1988. Mining operations at the Shumake mine were completed in
February 1992. The Company's share of gold recovery from the heap is
estimated to be 3,250 ounces in 1994, which is expected to be the final
year of production. Reclamation efforts are ongoing.
The book value of the Company's interest in the Cactus mine property and
its associated plant and equipment was fully depreciated as of December
31, 1993. Southern CalEdison supplies electrical power to the Cactus
mine.
Cactus is owned 75% by Middle Buttes Partners Limited (MBPL) and 25% by
Compass Mining Inc. MBPL is a limited partnership in which the Company is
both the sole general partner (52.50%) and a limited partner (11.25%).
The Company, as general partner of MBPL, receives 75% of the production
from Cactus subject to payment of 11.25% of the net cash flows to the
other limited partner of MBPL.
The following table sets forth the information with respect to the
Company's share of production, proven and probable mineral reserves, and
average cost per ounce of gold produced for the past five years.
<TABLE>
<CAPTION>
Years
------------------------------------------------------------------------
Production (75%) 19931 19921 1991 1990 1989
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ore processed (tons) - - 315,328 1,760,714 1,750,275 1,704,518
Gold (ounces) 7,316 27,212 40,434 45,005 44,567
Silver (ounces) 24,165 114,415 162,760 184,349 199,982
Proven and Probable
Mineral Reserves
-------------------
Total tons - - - - 234,140 1,615,182 3,804,750
Gold (oz. per ton) - - - - 0.04 0.03 0.06
Average Cost per
Ounce of Gold Produced
----------------------
Cash Production Costs $ 242 $ 213 $ 246 $ 226 $ 276
Full Production Cost $ 309 $ 337 $ 437 $ 366 $ 371
</TABLE>
-------------------------------
(1) Mining operations were completed in February 1992. Gold recovery
from the heap continued through 1993, but is expected to be
completed in 1994.
Current operations at Cactus include approximately 17 employees. The
employees at Cactus are not represented by a bargaining agent.
-12-
<PAGE> 14
Granduc Mines Limited - British Columbia, Canada
On January 24, 1994, the Company sold its entire investment in Granduc by
selling 2,000,000 Granduc common shares to Conwest Exploration Company
Limited and 815,330 Granduc common shares to Jascan Resources Inc., both
of which are Toronto, Ontario, Canada based companies. The Company
recognized a gain on the sale of approximately $1,327,000 in the first
quarter of 1994.
INDUSTRIAL MINERALS SEGMENT
The Company's principal industrial minerals assets are its ball clay
operations in Kentucky, Tennessee, and Mississippi; its kaolin operations
in South Carolina and Georgia; its feldspar operations in North Carolina;
its clay slurry plant in Monterrey, Mexico; its lawn and garden products
operations in southern Idaho and western Montana; and its specialty
aggregate operations (primarily scoria) in southern Colorado and northern
New Mexico. The Company conducts these operations through five wholly
owned subsidiaries: (1) Kentucky-Tennessee Clay Company (K-T Clay),
which operates its Ball Clay and Kaolin Divisions; (2) K-T Feldspar
Corporation (K-T Feldspar), which operates the feldspar business; (3) K-T
Clay de Mexico, S.A. de C.V. (K-T Mexico), which operates the clay slurry
plant business; (4) Mountain West Bark Products, Inc. (Mountain West),
which operates a lawn and garden products business; and (5) Colorado
Aggregate Company (CAC), which operates the Company's specialty aggregate
business.
K-T Clay Ball Clay Division
K-T Clay is one of the nation's major suppliers of premium ball clay.
Ball clay is of sedimentary origin and consists of several basic clay
minerals along with a slight amount of organic content, a combination of
materials that gives ball clay its unique character. The principal use
of ball clay is in the ceramic and porcelain fields, which includes use
for such items as pottery, dinnerware, tile, electrical insulators and
sanitaryware. Ball clay is also used in refractories and abrasives and
has applications in other specialty industries as well.
Mining of ball clay is accomplished through strip mining methods. The
mining activity requires definition drilling and the removal of
overburden in order to expose the clay strata to be mined. Mining
activity is selective based on clay grade and strata control. The clays
are mined with loaders and backhoes, loaded into trucks and hauled to one
of K-T Clay's plants for processing. Processing of ball clay consists of
shredding and classification of clay by various grades, hammer or roller
milling to reduce particle size, drying and packaging. The grades can be
shipped in bulk or blended and bagged in order to meet a particular
customer's requirements. A particular clay or blend of several clays can
also be shipped to customers in slurry form in tanker trucks or rail
cars.
There are many grades of ball clay which K-T Clay mines, processes and
blends to meet the specifications and requirements of its various
customers. Different uses may require mixtures of ball clay having
substantially different physical properties, and K-T Clay, through many
years of experience and ongoing research performed in its laboratories,
-13-
<PAGE> 15
possesses the expertise that enables it to respond to changes in customer
requirements with minimal advance notice. The marketing of ball clays is
directed from K-T Clay's headquarters in Mayfield, Kentucky. K-T Clay's
marketing personnel are trained in ceramic engineering or related
technical fields, which also has enabled K-T Clay to respond to changes
in its customer requirements.
K-T Clay mines and processes different grades of ball clays in Kentucky,
Tennessee and Mississippi. K-T Clay has identified or delineated
deposits of ball clay on numerous properties. Such properties are either
owned in fee simple or held under long-term lease. The royalties or
other holding costs of leased properties are consistent with the
industry, and the expiration of any particular lease would not affect K-T
Clay's ability to operate at current levels of operations. K-T Clay has
sufficient reserve positions to maintain current operations in excess of
20 years. K-T Clay is also continuously exploring for new deposits of
ball clay, either to replace certain grades of clay that may become mined
out or to locate new deposits that can be mined at lower cost.
Minimum standards for strip mining reclamation have been established by
various governmental agencies which affect K-T Clay's ball clay mining
operations. The Tennessee Surface Mining Law and the Mississippi
Geological Economics and Topographical Survey, Division of Mining and
Reclamation, require K-T Clay to post a performance bond on acreage to be
disturbed. The release of the bond is dependent on the successful
grading, seeding and planting of spoil areas associated with current
mining operations. In addition, the United States Environmental
Protection Agency has issued guidelines and performance standards which
K-T Clay must meet. K-T Clay may be required to obtain other licenses or
permits from time to time, but it is not expected that any such
requirements will have a material effect upon the Company's results of
operations or financial condition.
There were 166 people employed by K-T Clay at its ball clay operations as
of December 31, 1993. Some of the hourly employees are represented by
the United Steelworkers of America. The three-year labor agreement will
expire on February 8, 1997.
K-T Clay Kaolin Division
K-T Clay acquired the kaolin operations and assets of Cyprus Minerals
Company's clay division on February 17, 1989, including kaolin mines and
plants at Deepstep and Sandersville, Georgia, and Aiken, South Carolina.
Kaolin, or china clay, is a near white clay of sedimentary origin, and is
consumed in a variety of end uses including ceramic whiteware, textile
grade fiberglass, as rubber and paper filler, and in miscellaneous
plastics, adhesives and pigment applications. Kaolin is a unique
industrial mineral because of its wide range of chemical and physical
properties. The Kaolin Division of K-T Clay mines, processes, and blends
numerous grades of clay to meet the specifications and requirements of
its customers.
Markets for K-T Clay's kaolin products are similar to ball clay and
adverse shifts in market demand could occur due to mineral substitution
and
-14-
<PAGE> 16
decreased demand for end-use products, which could adversely impact the
demand for kaolin. Kaolin currently competes with minerals such as
calcium carbonate in many filler applications, but the substitution of
other minerals for kaolin in ceramic and fiberglass applications is
limited. The marketing of kaolin to the ceramics industry is carried out
by K-T Clay's sales force. Marketing to other industries is done through
sales and distribution agents.
Mining of kaolin is done by open-pit methods. Ore bodies are identified
and delineated by exploration drilling and overburden is removed by
scrapers down to favorable clay strata. Select mining of clay is then
accomplished by backhoe with over-the- road truck haulage to the
processing and stockpiling facilities. K-T Clay operates kaolin mines in
Georgia, serving its processing plants located at Sandersville and
Deepstep, Georgia. K-T Clay also operates kaolin mines located in South
Carolina, serving a processing plant located in Aiken, South Carolina.
Processing of the clays is completed by the air-floating method where
clay is shredded, dried, ground and separated by particle size at the
Sandersville, Deepstep and Aiken locations. In addition, clay is also
processed into a water slurry mixture at the Sandersville location.
K-T Clay's Kaolin Division holds in excess of 20 years of reserves based
on current sales and product mix. Reserves are held on fee simple and
leased property and K-T Clay plans to continue a very active kaolin
exploration and development program.
The Kaolin Division operates its mines in Georgia and South Carolina
under mine permits issued by the Environmental Protection Division,
Department of Natural Resources of the State of Georgia, and the Land
Resource Conservation Commission, Division of Mining and Reclamation of
the State of South Carolina. All mines and processing plants have
current permit status and are in good standing.
There were 92 people employed by K-T Clay at its Kaolin Division as of
December 31, 1993, with less than 25% of the labor force being
represented by the Cement, Lime, Gypsum and Allied Workers, Division of
International Brotherhood of Boilermakers. The current labor contract at
the Sandersville, Georgia operation expires on March 1, 1995.
Both the Ball Clay and Kaolin Divisions of K-T Clay's plants and
equipment have been operational in excess of 25 years. The Company has
upgraded and modernized these facilities over the years and has a
continuing maintenance program to maintain the plant and equipment in
good physical and operating condition. The net book value of the K-T
Clay property and its associated plant and equipment was $19.1 million as
of December 31, 1993. K-T Clay utilizes power from several public
utilities as well as local utility co-operatives located in the vicinity
of K-T Clay's operating plants.
K-T Feldspar Corporation
The Company acquired the operations and assets of K-T Feldspar on
December 13, 1990, including sodium feldspar mines and a processing plant
located near Spruce Pine, North Carolina. Feldspars are a mineral group
-15-
<PAGE> 17
that are the major constituents of igneous rocks and important
constituents of other major rock types. The feldspars are the most
widespread mineral group and make up 60% of the earth's crust.
Chemically the feldspars are aluminosilicates that contain potassium,
sodium and calcium.
K-T Feldspar mines, processes and blends sodium feldspar and
feldspar-silica products. It also produces by-product mica concentrate
and construction sand. K-T Feldspar products are primarily used in the
ceramic whiteware, glass and paint industries.
Markets for feldspar have fluctuated slightly over time as a result of
mature market conditions. However, adverse shifts in market demand could
occur due to mineral substitution and decreased demand for end-use
products. Feldspar currently competes with nepheline syenite in some
market segments and substitution between minerals is linked to economics,
physical-chemical characteristics and supplier reliability. The
marketing of feldspar to the ceramics and filler industries is carried
out by K-T Clay's sales force and through sales and distribution agents.
Feldspar ore is mined by open-pit methods using a 40-foot bench mining
plan. Ore is drilled and blasted, loaded by hydraulic shovel or
front-end loader into off-highway dump trucks and transported to the
processing plant. K-T Feldspar operates several mine locations in the
Spruce Pine, North Carolina area, all serving the centrally located
processing plant. Processing of the feldspar ores consists of crushing,
grinding, density separation, flotation, drying and high intensity
magnetic separation.
K-T Feldspar holds in excess of 20 years of reserves based on current
sales, product mix and lease terms. Reserves are held on fee simple and
leased properties.
K-T Feldspar operates its mines and plant under permits issued by the
North Carolina Department of Natural Resources and Community Development.
All permits are in good standing.
K-T Feldspar's plant and equipment have been operational in excess of 25
years. The Company has upgraded and modernized these facilities over the
years and has a continuing maintenance program to maintain the plant and
equipment in good physical and operating condition. The net book value
of the K-T Feldspar property and its associated plant and equipment was
$5.8 million as of December 31, 1993. Carolina Power & Light Company, a
regulated public utility, provides the electric power utilized for
operations at K-T Feldspar.
There were 44 employees employed by K-T Feldspar as of December 31, 1993;
none of whom are represented by a bargaining agent.
K-T Clay de Mexico, S.A. de C.V.
In 1993, K-T Clay substantially completed construction of its clay slurry
plant in Monterrey, Mexico, which now supplies clay slurry to the Mexican
ceramics industry. Bulk semi-dry clay is shipped by rail from K-T Clay's
domestic operations to the K-T Mexico slurry plant in Monterrey. The
clay
-16-
<PAGE> 18
is blended to customer specifications and converted to a slurry form for
final shipment to its customers.
Approximately $5.8 million was expended in constructing the clay slurry
plant. K-T Mexico utilizes electrical power from the local public
utility. There were 14 people employed by K-T Mexico as of December 31,
1993, who are represented by a bargaining agent.
Mountain West Bark Products, Inc.
The Company acquired the operations and assets of Mountain West in
December 1993 (See Note 2 of Notes to Consolidated Financial Statements).
Mountain West's primary business is the purchasing, processing and
marketing of certain waste products from lumber milling operations in the
western intermountain region. These products are sold as organic soil
amendments, organic landscape mulches and organic decorative ground cover
for landscape purposes.
The waste products are purchased by Mountain West and transported by
truck for processing to plants at two locations: Rexburg, Idaho and
Superior, Montana. The plants are located near the sources of supply to
reduce trucking costs. The principal customers are lawn and garden
retail yards, lawn and garden product distributors and discount retail
chain stores. The processing plants are owned by Mountain West and the
sources of waste bark supply are held under contracts.
Most of the annual sales take place in the first six months of the year
due to the seasonality of the market. The plants have operated in excess
of 13 years at Rexburg and five years at Superior. The plants are
maintained and upgraded continually and are in good working order.
The net book value of the associated plant and equipment was
approximately $4.6 million as of December 31, 1993. Utah Power and Light
and Montana Power Company provide electrical power utilized by the
operations at Rexburg and Superior, respectively.
Mountain West employed 68 employees as of December 31, 1993; none of whom
are represented by a bargaining agent.
Colorado Aggregate Company
CAC mines and sells volcanic rock (scoria) for use as briquettes in gas
barbecue grills, as landscaping mulch and decorative ground cover, and as
gravel bedding in aquariums. Volcanic scoria is a lightweight
clinker-like material produced during gaseous volcanic eruptions that
form cinder cones. These cones occur frequently in the geological
environment but are unique by density, texture and color.
The Company operates mines at Mesita, Colorado, and in northern New
Mexico as well as processing plants at San Acacio and Antonito, Colorado.
All mining is open pit with minimal requirements for the removal of
overburden.
The principal customers for scoria briquettes are manufacturers and
retailers of gas barbecue grills. Landscapers, distributors of
landscaping
-17-
<PAGE> 19
materials, lawn and garden retailers and discount chain stores are the
principal customers for scoria landscape stone.
The Mesita mine is owned by CAC. Due to the seasonal nature of CAC's
business, it is usually anticipated that most of its annual sales and
profits will be generated in the first two quarters of each calendar
year. The Company has over 20 years of mineral reserves at the Mesita,
Colorado, location and has developed in excess of 15 years of mineral
reserves at the Red Hill mine in northern New Mexico which is under lease
from the Bureau of Land Management.
CAC's plants and equipment have been operational in excess of 20 years.
The Company has upgraded and modernized these facilities over the years
and has a continuing maintenance program to maintain the plant and
equipment in good physical and operating condition. The net book value
of CAC's property and its associated plants and equipment was $4.0
million as of December 31, 1993. Public Service Company of Colorado and
San Luis Valley Electric Co-operative provide the electric power utilized
for operations at CAC.
CAC employed 68 employees as of December 31, 1993; none of whom are
represented by a bargaining agent.
SPECIALTY METALS SEGMENT
Apex Facility - Utah
Acquired in 1989 from Musto Exploration Ltd., of Vancouver, British
Columbia, the Apex facility is located in Washington County approximately
23 miles west of St. George, Utah, on the east flank of the Beaverdam
Mountains at an elevation of 5,600 feet. The mine property consists of
24 patented mining claims and nine unpatented lode mining claims accessed
by year-round all-weathered roads. Two of the unpatented lode mining
claims are leased. The total surface area covered by the mine properties
is approximately 700 acres.
The Apex facility was constructed in 1984 by St. George Mining
Corporation, a wholly owned subsidiary of Musto Exploration Ltd. The
plant and equipment are in good working condition and are maintained on
an ongoing basis. Improvements to the plant since the Company acquired
it in 1989 include redesigning the plant flow sheet, increasing metals
leaching capacity, the addition of copper and germanium solvent
extraction circuits, adding copper electrowinning facilities, upgrading
liners and leak detection systems in the tailings ponds, and constructing
a tailings neutralization plant. The net book value of the Apex facility
property and its associated plant and equipment was $3.0 million as of
December 31, 1993. The Apex facility is provided electrical power by
Utah Power and Light Company.
The Company suspended mining operations and processing activities at the
Apex mine in 1990 due to depressed germanium and gallium prices. Based
on its periodic review of the status of various mining properties, the
Company determined in the fourth quarter of 1992 that a write-down of
approximately $13.5 million was necessary to properly reflect the
estimated net
-18-
<PAGE> 20
realizable value of the Apex facility. There were 26 employees at the
Apex facility at December 31, 1993; none of whom are represented by a
bargaining agent.
Although the Company's strategy has primarily focused on expanding its
precious metal and industrial mineral operations, the Company continues
to investigate specialty mineral opportunities for its modern processing
facility located in southern Utah. During 1993, the Apex facility
continued production of cobalt chemicals and process trials of
metallurgical residues. The Company believes that it has achieved good
project performance during 1993 and plans to continue to develop the Apex
facility to produce cobalt chemicals and specialty metals assuming
satisfactory economics can be achieved.
PROPERTIES ON STANDBY
General
Various mining operations of the Company have been placed on a standby
basis. Placing a mining property on a standby basis during periods of
depressed metals prices, thereby preserving a depletable asset, is common
in the mining industry. The most important of these properties are
described below.
Greens Creek Mine - Admiralty Island, Alaska
At December 31, 1993, the Company held a 29.7% interest in the Greens
Creek mine, located on Admiralty Island, near Juneau, Alaska, through a
joint venture arrangement with Kennecott Greens Creek Mining Company, the
manager of the mine, a wholly owned subsidiary of Kennecott Corporation,
and CSX Alaska Mining Inc. Greens Creek is a polymetallic deposit
containing silver, zinc, gold, and lead. Effective January 1, 1993, the
Company increased its interest in the Greens Creek joint venture from
28.08% to 29.7% when the Company elected its right, under the joint
venture agreement, to acquire its allocable portion of Exalas Resources
Corporation's 5.54% joint venture interest offered to the other parties.
Greens Creek lies within the Admiralty Island National Monument, an
environmentally sensitive area. The Greens Creek property includes 17
patented lode claims, and one patented millsite claim in addition to
property leased from the U.S. Forest Service. The entire project is
accessed and served by 13 miles of road and consists of an ore
concentrating mill, tailings impoundment, a ship-loading facility and
ferry dock.
In February 1993, as a result of depressed metals prices, the decision
was made by the manager to suspend operations at the Greens Creek mine.
Commercial production ceased in April 1993, and the mine and mill were
placed on a standby basis. Limited mine development activities have
continued at the mine. All operating and environmental permits are being
maintained in anticipation of a resumption of operations once economic
conditions improve.
-19-
<PAGE> 21
During operations, ore from the Greens Creek mine, a trackless
underground operation, is milled at a 1,320-ton-per-day mill at the mine
site. The mill produces saleable lead, zinc and bulk lead/zinc
concentrates. The three concentrate products were predominantly sold to
a number of major European and Asian smelters. A lesser amount of the
concentrates was sold to metal merchants under short-term agreements.
The concentrates are shipped from a marine terminal located about nine
miles from the mine site.
The Greens Creek mill plant facility and surface and underground
equipment are in good working condition. The mill was originally
constructed about six years ago. The manager of the joint venture
maintains the plant and equipment on an ongoing basis. Improvements to
the mill during 1992 were directed to increasing mill processing rates
and improving metals separation capability. Specific improvements
included increasing flotation capacity by installing larger float cells
and column cells and increasing grinding capacity by installing two
vertical regrinding mills. The Greens Creek mine uses electrical power
provided by diesel-powered generators located on-site. The net book
value of the Company's interest in the Greens Creek mine property and its
associated plant and equipment was $49.2 million as of December 31, 1993.
The Greens Creek deposit consists of zinc, lead, and iron sulfides and
copper-silver sulfides and sulfosalts with substantial contained gold and
silver values, having a vein-like to blanket-like form of variable
thickness. The ore is thought to have been laid down by an "exhalative"
process (i.e., volcanic-related rifts or vents deposited base and
precious metals onto an ocean floor). Subsequently, the blanket-like
mineralization was severely folded by several generations of tectonic
events.
The estimated mineral reserves for the Greens Creek mine are calculated
by Greens Creek Mining Company's engineering department with support from
Kennecott Corporation's technical staff and are not independently
confirmed by the Company. Information with respect to the Company's
share of production, proven and probable mineral reserves, and average
cost per ounce of silver produced is set forth in the table below:
-20-
<PAGE> 22
<TABLE>
<CAPTION>
Years
--------------------------------------------------------------------------------------------------------
Production 19931(29.7%) 1992(28%) 1991(28%) 1990(28%) 19892(28%)
- ----------------- ------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Ore milled (tons) 33,638 123,526 120,187 107,445 74,108
Silver (ounces) 551,107 1,959,368 2,178,141 2,144,389 1,446,365
Gold (ounces) 2,826 9,094 10,505 10,705 6,588
Zinc (tons) 3,453 11,385 11,906 10,391 5,559
Lead (tons) 1,298 4,650 4,863 4,698 2,685
Proven and Probable
Mineral Reserves
- -------------------
Total tons 1,911,000 3,422,000 3,876,000 1,776,400 817,000
Silver (ounces per ton) 16.0 12.7 13.3 15.1 21.4
Gold (ounces per ton) 0.14 0.13 0.12 0.13 0.19
Zinc (percent) 14.4 13.2 12.8 12.4 8.4
Lead (percent) 4.7 4.0 4.0 4.2 3.4
Average Cost per
Ounce of Silver Produced
- ------------------------
Cash Production Costs $ 5.11 $ 4.82 $ 3.94 $ 2.52 $ 4.32
Full Production Cost $ 7.16 $ 6.54 $ 5.43 $ 4.69 $ 7.25
</TABLE>
- -------------------------------
1 Operations were suspended in April 1993 and placed on a standby
basis.
2 Production commenced in March 1989.
Ore reserve criteria and estimation techniques used for year-end 1993
reserves differed substantially from those used in prior years. Among
these changes were the adoption of block modeling techniques in place of
the sectional methods for a major section of the mine, a reevaluation of
cut-off criteria, and the development of refinements to in-situ net
smelter return estimates involving projected smelting terms and
distribution or recovery of metals in the three concentrate products and
metal price changes. In addition, more rigorous criteria for reserve
classification were applied to the probable reserves category. These
changes and the deduction for production in 1993 resulted in a reduction
in proven and probable mineral reserves from 3.4 million tons at December
31, 1992, to 1.9 million tons at December 31, 1993.
In 1993, drilling in the southwest area of the mine encountered an
additional mineralized zone containing higher than mine average gold and
silver content. The Company's interest in this mineral-bearing material
would amount to approximately 840,000 tons at 33.71 ounces of silver per
ton, 0.27 ounce of gold per ton, 13.36% zinc, and 5.84% lead. Sufficient
drilling in the southwest area has not yet been completed to classify the
mineralized zone as proven and probable mineral reserves. Drilling is
expected to continue in 1994 to define the nature and extent of this
resource.
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<PAGE> 23
In January 1994, the manager of the Greens Creek mine initiated a
feasibility study to determine the advisability of placing the mine,
including the mineral-bearing material of the southwest area, back into
production. The feasibility study is expected to be completed during the
fourth quarter of 1994 or the first quarter of 1995.
At December 31, 1993 there were 26 employees at the Greens Creek Joint
Venture. The employees at the Greens Creek Joint Venture are not
represented by a bargaining agent.
Yellow Pine - Idaho
The Yellow Pine gold mine is located in Valley County, Idaho, about 50
miles east of McCall in central Idaho, and is accessed by secondary roads
and air. The property consists of 26 patented claims which are held by
the Company under lease from the Bradley Mining Company of San Francisco,
California, and 57 unpatented claims. The lease provides for production
royalties equal to 6% of net smelter returns plus 10% of cumulative cash
flow, and also provides for a minimum royalty payment of $3,500 per month
reduced by current production royalties. Production from the oxide
mineralization ceased in 1992; the operation has been undergoing
reclamation since that time. Mineralized sulfide material, estimated at
between 15 and 20 million tons containing approximately 0.09 ounce of
gold per ton, is also located on the property. The Company continues to
evaluate the economic feasibility of developing this extensive
gold-bearing deposit.
Hog Heaven - Montana
The Company controls all of the mineral rights and necessary surface
rights to approximately 6,720 acres known as Hog Heaven, located 25 miles
south of Kalispell in northwestern Montana. The property has mineralized
material totaling approximately 3,886,000 tons containing 0.019 ounce of
gold per ton and 6.16 ounces of silver per ton. At present metals
prices, the Company believes it is uneconomical to bring the property
into production.
The Company owns fee simple mineral interests on 6.5 of the 10.5 sections
it controls. Approximately 95% of the project's presently known
mineralization is believed to be contained on those 6.5 sections. The
Company leases the remaining 4 sections which are subject to a 5% royalty
rate. Three of these sections are also subject to annual advance royalty
payments of $12,500 for 1991 through 2007 and the remaining section is
subject to annual rentals of $1,920 per year for 1993-1996.
The property is subject to two noninterest-bearing production payments.
The obligation to Canadian Superior Mining Company (U.S.) (Superior) of
$2,650,000 is payable out of 10% of Hog Heaven net profits after the
return to the Company, with interest, of all funds invested by it
subsequent to May 15, 1982. The second obligation of $1,315,000 payable
to former partners of a predecessor partnership is also payable out of
10% of net profits of Hog Heaven and begins after payment in full to
Superior.
Based on its periodic review of the status of various mining properties,
the Company determined in the fourth quarter of 1992 that a write-down of
-22-
<PAGE> 24
approximately $7.0 million was necessary to properly reflect the
estimated net realizable value of the Hog Heaven property.
Escalante Mine - Utah
The Escalante mine is located in Iron County approximately 40 miles west
of Cedar City in southwest Utah. The total surface area covered by the
mine properties is presently about 800 acres. The Company ceased mining
operations at the Escalante mine on December 30, 1988, and the milling of
stockpiled ore was completed in August 1990. The currently known ore
body at the Escalante mine has been mined out and exploration efforts to
discover more ore have not been successful. The mill has been placed on
care-and-maintenance status.
Lisbon Valley Project - Utah
The Company leases a block of property comprising approximately 1,100
acres of private, state and county lands in the Lisbon Valley district
about 30 miles south of Moab in San Juan County, Utah. In 1976, the
Company entered into a joint venture with Union Carbide Corporation (now
succeeded in interest by Umetco Minerals Corporation, a wholly owned
subsidiary of Union Carbide) whereby Union Carbide became the operator of
the property. The joint venture agreement provides for equal sharing of
all costs and production. A second agreement provides for the milling of
the Company's share of production at Union Carbide's mill. In December
1982, the property was placed on a maintenance and standby basis because
of the depressed markets for uranium and vanadium. It is fully developed
and ready for production mining. However, at current metals prices, the
Company believes it is uneconomical to place the property into
production.
Based on its periodic review of the status of various mining properties,
the Company determined in the fourth quarter of 1992 that a write-down of
approximately $3.5 million was necessary to properly reflect the
estimated net realizable value of the Lisbon Valley Project.
OTHER INTERESTS
Uranium Royalties
The Company receives minimum royalties from certain of its uranium
properties located in the Ambrosia District near Grants, New Mexico,
leased by the Company to Rio Algom Corporation, successor to Kerr-McGee
Corporation. The leases covering the properties continue in effect so
long as these royalties are paid, but terminate if defined mining
operations are not conducted on such properties during a continuous
period of 36 months. Although uranium mining operations have been
suspended on the properties, Rio Algom continues to recover uranium from
the underground leach solutions from which the Company will continue to
receive royalties.
The Company also holds a 2% royalty interest from uranium ores mined from
certain other properties in the Ambrosia Lake District, which are owned
by others.
-23-
<PAGE> 25
The Company does not have current independent or verified mineral reserve
estimates for any of such properties. In addition, in view of the
severely depressed market price for uranium which now exists, uranium
royalties are immaterial to the operating results of the Company.
Uranium Mill Tailings
The Company has been involved in a number of remediation issues related
to uranium mill tailings located at properties in Colorado and New
Mexico. The Company will reclaim a site located near Naturita, Colorado,
where it processed uranium tailings under a uranium tailings processing
license originally issued to the Company by the State of Colorado. The
Company is currently working with the State of Colorado Department of
Health to develop a reclamation plan for this site. During 1993, the
Nuclear Regulatory Commission terminated the Company's license for a site
in New Mexico (Johnny M) after successfully completing the required
reclamation.
Exploration
The Company conducts exploration activities from its headquarters in
Coeur d'Alene, Idaho. The Company owns or controls patented and
unpatented mining claims, fee land, mineral concessions, and state and
private leases in ten states in the U.S. and two Mexican states. The
Company's strategy regarding reserve replacement is to concentrate its
efforts on (1) existing operations where an infrastructure already
exists, (2) other properties presently being developed and advanced-stage
exploration properties that have been identified as having potential for
additional discoveries, and (3) advanced-stage exploration acquisition
opportunities. The Company is currently concentrating its exploration
activities of existing operations at the Republic and La Choya gold mines
and the Lucky Friday and Greens Creek silver mines. The Company is also
continuing exploration activities at the Grouse Creek gold project. The
Company remains active in other exploration areas and is seeking
advanced-stage acquisition opportunities in the United States, Canada and
Mexico.
As part of its strategy to increase its development and expansion of
currently producing gold properties, the Company continues to focus its
efforts on the exploration (and development) of the Republic mine. With
the completion of the underground decline into the Golden Promise area of
the mine, the Company has secondary access to that area as well as a base
for further exploration. The Company has already identified numerous
gold targets through a surface and underground drilling program and is
currently working to access these targets from the underground decline.
For other activities at the mine see "Metals Segment - Republic Mine -
Republic, Washington."
In February 1992, the Company discovered several mineralized structures
located about 5,000 feet northwest of the existing Lucky Friday mine
workings in an area referred to as the Gold Hunter. An exploration and
development program to determine the size, content and economic
feasibility of mining the mineralization continued during 1992 and was
completed in 1993. The Company's decision regarding development of the
Gold Hunter is pending (See "Metals Segment - Lucky Friday Mine - Coeur
d'Alene Mining District - Idaho" for additional discussion regarding the
Gold Hunter).
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<PAGE> 26
Assuming the consummation of the planned acquisition of Equinox in March
1994, the Company believes there are significant exploration and
development opportunities at the Rosebud gold property located in
Pershing County, Nevada. Additionally, the Equinox acquisition will also
bring the American Girl gold mine, located in Imperial County,
California, and a host of other exploration properties.
Properties are continually being added to or dropped from this inventory
as a result of exploration and acquisition activities. Exploration
expenditures for the three years ending December 31, 1993, 1992 and 1991
were approximately $4.4 million, $7.7 million and $5.7 million,
respectively.
INDUSTRY SEGMENTS
Financial information with respect to industry segments is set forth in
Note 11 of Notes to the Consolidated Financial Statements.
COMPETITION
The Company is engaged in the mining and processing of gold, silver and
other nonferrous metals and industrial minerals in the United States.
The Company encounters strong competition from other mining companies in
connection with the acquisition of properties producing, or capable of
producing, gold, silver and industrial minerals. The Company also
competes with other mining companies in connection with the recruiting
and retention of qualified employees knowledgeable in mining operations.
Silver and gold are worldwide commodities and, accordingly, the Company
sells its production at world market prices. The table below reflects
the volatility of silver and gold prices:
<TABLE>
<CAPTION>
Average Metal Prices
--------------------------------------------------------------
Silver Gold
Year (per oz.-Handy & Harman) (per oz.-London Final)
---- ------------------------------ ----------------------
<S> <C> <C>
1993 $ 4.30 $ 360
1992 $ 3.94 $ 344
1991 $ 4.04 $ 362
1990 $ 4.82 $ 383
1989 $ 5.50 $ 381
</TABLE>
The Company cannot compare sales from its ball clay mining operations with
sales of other ball clay producers because the principal competitors are
either family-owned or divisions of larger, diversified companies, but the
Company believes that K-T Clay is the largest producer of ball clay in the
United States. With the acquisition of kaolin assets from Cyprus Minerals
Company in 1989, the Company has also become an important producer in the
United States of ceramic-grade kaolin. The principal competitors of the
Company in the ball clay industry are H. C. Spinks Clay Company, Watts
Blake Bearne & Company, and Old Hickory Clay Company. The principal
competitors of the Company in the kaolin industry, are Albion Kaolin
Company, Evans Clay Company, JM Huber Corporation, English China Clay
Company and Dry Branch Kaolin Company. The Company, with the acquisition
-25-
<PAGE> 27
of Indusmin Incorporated's feldspar assets, is also a major producer and
supplier of sodium feldspar products. The principal competitors of the
Company in the feldspar industry are Feldspar Corporation and Unimin
Corporation.
The Company competes with other producers of scoria and with manufacturers
of ceramic briquettes in the production and sale of briquettes. The
Company has limited information as to the size of the barbecue briquette
industry, but believes that it supplies a major portion of the scoria
briquettes used in gas barbecue grills. Price and natural product
characteristics, such as color, uniformity of size, lack of contained
moisture and density, are important competitive considerations. The
Company believes that it has a significant portion of the landscape scoria
market east of the Continental Divide.
Mountain West competes with other producers of lawn and garden and soil
products, decorative bark products and landscape mulches. The principal
competitors are either privately owned companies or divisions of larger
diversified companies that operate in numerous regional markets. The
Company has limited information about the sales of competing products in
its overall markets but believes it supplies a significant portion of the
market for its product in the intermountain region.
With respect to the acquisition of mineral interests and exploration
activities, which in terms of continuing growth and success may be the
most important area of the Company's activities, the Company competes with
numerous persons and with companies, many of which are substantially
larger than the Company and have considerably greater resources.
SAFETY AND ENVIRONMENTAL REGULATION
The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the Department
of Labor (MSHA) under provisions of the Federal Mine Safety and Health Act
of 1977. It is the Company's policy to comply with the directives and
regulations of MSHA. In addition, the Company takes such necessary
actions as, in its judgment, are required to provide for the safety and
health of its employees. MSHA directives have had no material adverse
impact on the Company's results of operations or financial condition, and
the Company believes that it is substantially in compliance with the
regulations promulgated by MSHA.
The Company's operations are also subject to regulation under various
federal and state environmental laws and regulations. The most
significant of these laws deal with mined land reclamation, waste water
discharges and solid wastes from mines, mills, and further processing
operations (see Note 8 of Notes to Consolidated Financial Statements).
The Company does not believe that these laws and regulations have a
material adverse effect on its results of operations or financial
condition at this time. However, charges by smelters to which the Company
sells its metallic concentrates and products have substantially increased
over a period of years because of requirements that smelters meet revised
environmental quality standards. Smelters are also subject to
environmental protection laws and regulations. The Company has no control
over the smelters' operations or their
-26-
<PAGE> 28
compliance with environmental laws and regulations. If the smelting
capacity of the United States was significantly further reduced because of
environmental requirements, it is possible that the Company's operations
could be adversely affected.
While the Company believes that it is in substantial compliance with
current applicable environmental regulations, changes in federal and state
regulatory policies may, at some future date, impose additional costs and
operating requirements upon the Company. In addition, the future
development of other Company holdings may require the acquisition of
permits from various governmental agencies. Such future changes in
federal and state regulatory policies on the Company's exploration and
development activities could adversely affect the Company.
EMPLOYEES
As of December 31, 1993, the Company and its subsidiaries employed 919
people.
GLOSSARY OF CERTAIN MINING TERMS
BALL CLAY -- A fine-grained, plastic, white firing clay used principally
for bonding in ceramic ware.
CASH PRODUCTION COSTS -- Includes all direct and indirect operating cash
costs incurred at each operating mine.
CASH PRODUCTION COSTS PER OUNCE - Calculated based upon total cash
production costs, as defined herein, net of by-product revenues earned
from all metals other than the primary metal produced at each mine,
divided by the total ounces of the primary metal produced.
DECLINE -- An underground passageway connecting one or more levels in a
mine, providing adequate traction for heavy, self- propelled equipment.
Such underground openings are often driven in an upward or downward
spiral, much the same as a spiral staircase.
DEVELOPMENT -- Work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
DORE -- Unparted gold and silver poured into molds when molten to form
buttons or bars. Further refining is necessary to separate the gold and
silver.
EXPLORATION -- Work involved in searching for ore, usually by drilling or
driving a drift.
FELDSPARS -- Aluminosilicates that contain potassium, sodium and calcium.
Feldspar products are primarily used in the ceramic whiteware, glass and
paint industries.
FULL PRODUCTION COSTS -- Includes all cash production costs, as defined,
plus depreciation, depletion and amortization relating to each operating
mine.
-27-
<PAGE> 29
FULL PRODUCTION COSTS PER OUNCE - Calculated based upon total full
production costs, as defined, divided by the total ounces of the primary
metal produced.
GRADE -- The average assay of a ton of ore, reflecting metal content.
HEAP LEACHING -- A process involving the percolation of a cyanide solution
through crushed ore heaped on an impervious pad or base to dissolve
minerals or metals out of the ore.
KAOLIN -- A fine, white clay used as a filler or extender in ceramics and
refractories.
MILL -- A processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be
treated in some other type of plant, such as a smelter, to affect recovery
of the pure metal.
MINERAL-BEARING MATERIAL -- Material for which quantitative estimates are
based on inferences from known mineralization, or on drill-hole samples
too few in number to allow for classification as probable reserves.
ORE -- Material that can be mined and processed at a positive cash flow.
PATENTED MINING CLAIM -- A parcel of land originally located on federal
lands as an unpatented mining claim under the General Mining Law, the
title of which has been conveyed from the federal government to a private
party pursuant to the patenting requirements of the General Mining Law.
PROVEN AND PROBABLE MINERAL RESERVES -- Reserves that reflect estimates of
the quantities and grades of mineralized material at the Company's mines
which the Company believes can be recovered and sold at prices in excess
of the cash cost of production. The estimates are based largely on
current costs and on projected prices and demand for the Company's
products. Mineral reserves are stated separately for each of the
Company's mines based upon factors relevant to each mine. Proven and
probable mineral reserves for the Greens Creek mine (in which the Company
owns a 29.7% interest) are based on calculations of reserves provided to
the Company by the operator of such property that have been reviewed but
not independently confirmed by the Company. Greens Creek Mining Company's
estimates of proven reserves and probable reserves at December 31, 1993
and 1992 are based on silver prices of $4.75 and $4.50 per ounce, gold
prices of $350 and $340 per ounce, zinc prices of $0.57 and $0.60 per
pound, and lead prices of $0.28 and $0.33 per pound, respectively.
Changes in reserves represent general indicators of the results of efforts
to develop additional reserves as existing reserves are depleted through
production. Grades of ore fed to process may be different from stated
reserve grades because of variation in grades in areas mined from time to
time, mining dilution and other factors. Reserves should not be
interpreted as assurances of mine life or of the profitability of current
or future operations. The Company's estimates of proven reserves and
probable reserves at December 31, 1993 and 1992 are based on gold prices
of $375 and $350 per ounce, silver prices of $4.50 and $4.00 per ounce,
lead
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<PAGE> 30
prices of $0.23 and $0.30 per pound, and zinc prices of $0.44 and $0.55
per pound, respectively.
PROBABLE RESERVES -- Resources for which tonnage and grade and/or quality
are computed primarily from information similar to that used for proven
reserves, but the sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation.
PROVEN RESERVES -- Resources for which tonnage is computed from dimensions
revealed in outcrops, trenches, workings or drill holes and for which the
grade and/or quality is computed from the results of detailed sampling.
The sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well established. The computed tonnage
and grade are judged to be accurate, within limits which are stated, and
no such limit is judged to be different from the computed tonnage or grade
by more than 20%.
RESERVES -- That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "Ore" when dealing with
metalliferous minerals.
ROCKBURST -- Explosive rock failures caused by the pressure exerted by
rock adjacent to mine openings far below the surface.
SAND FILL -- The coarser fraction of concentrator tailings, which is
conveyed as a slurry in underground pipes to support cavities left by
extraction of ore.
SHAFT -- A vertical or steeply inclined excavation for the purpose of
opening and servicing a mine. It is usually equipped with a hoist at the
top which lowers and raises a conveyance for handling personnel and
materials.
STOPE -- An underground excavation from which ore has been extracted
either above or below mine level.
TROY OUNCE -- Unit of weight measurement used for all precious metals.
The familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
UNDERHAND MINING -- The primary mining method employed in the Lucky Friday
mine utilizing mechanized equipment, a ramp system and cemented sand fill.
The method has proven effective in reducing mining cost and rockburst
activity.
UNPATENTED MINING CLAIM -- A parcel of property located on federal lands
pursuant to the General Mining Law and the requirements of the state in
which the unpatented claim is located, the paramount title of which
remains with the federal government. The holder of a valid, unpatented
lode mining claim is granted certain rights including the right to explore
and mine such claim under the General Mining Law.
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<PAGE> 31
VEIN -- A mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
WASTE -- Barren rock in a mine, or mineralized material that is too low in
grade to be mined and milled at a profit.
Item 2. Properties
The Company's principal mineral properties are described in Item 1 above.
The Company also has interests in other mineral properties in the United
States and Mexico. Although some of such properties are known to contain
significant quantities of mineralization, they are not considered material
to the Company's operations at the present time. Encouraging results from
further exploration or increases in the market prices of certain metals
could, in the future, make such properties considerably more important to
the business of the Company taken as a whole.
The general corporate office of the Company is located in Coeur d'Alene,
Idaho, on a tract of land containing approximately 13 acres. The Company
also owns and plans to subdivide and sell approximately 70 adjacent acres.
The administrative offices of the Company's ball clay, kaolin and feldspar
operations are located five miles southwest of Mayfield, Kentucky.
Additionally, there are general offices and laboratory facilities at each
operating location. The Company also owns approximately 1,600 acres of
land principally for use in connection with milling and storage
operations.
The general offices of the scoria operations are located in Alamosa,
Colorado. The Company owns a parcel of land of approximately 20 acres in
the vicinity of Blanca, Colorado, on which are located building, storage
and shipping facilities utilized in its scoria business, and a bagging
plant for landscape scoria. An additional bagging facility, utilized for
scoria briquettes, is located at San Acacio, Colorado.
The general offices of Mountain West Bark Products, Inc. are located in
Rexburg, Idaho. Processing facilities are located in both Rexburg, Idaho
and Superior, Montana.
Item 3. Legal Proceedings
Reference is made to Note 8 of the Notes to Consolidated Financial
Statements included in this report for information regarding legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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<PAGE> 32
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) (i) Shares of the Common Stock, par value $.25 per share of the
Company (the Common Stock), are traded on the New York Stock
Exchange, Inc., New York, New York.
(ii) The price range of the Common Stock on the New York Stock
Exchange for the past two years was as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1993 - High $ 10.38 $ 14.50 $ 15.25 $ 11.88
- Low 7.38 9.88 9.13 9.63
1992 - High $ 12.00 $ 10.75 $ 10.38 $ 8.88
- Low 10.00 9.13 8.88 7.38
</TABLE>
(b) As of December 31, 1993, there were 13,549 holders of record of the
Common Stock.
(c) There were no Common Stock cash dividends paid in 1993 or 1992. The
amount and frequency of cash dividends are significantly influenced
by metals prices, operating results and the Company's cash
requirements.
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<PAGE> 33
Item 6. Selected Financial Data
(dollars in thousands except for per-share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue $ 84,812 $ 113,079 $ 119,787 $ 162,669 $ 122,216
========= ========= ========= ========= =========
Income (loss) before cumulative effect of
changes in accounting principles $ (11,735) $ (49,186) $ (15,430) $ 6,711 $ (20,449)
Cumulative effect of changes in accounting
principles - - (103) - - - - - -
--------- --------- --------- --------- ---------
Net income (loss) (11,735) (49,289) (15,430) 6,711 (20,449)
Preferred stock dividends (4,070) - - - - - - - -
--------- --------- --------- --------- ---------
Net income (loss) applicable to
common shareholders $ (15,805) $ (49,289) $ (15,430) $ 6,711 $ (20,449)
========= ========= ========= ========= =========
Income (loss) per common share before
cumulative effect of changes in
accounting principles and after
preferred stock dividends $ (0.48) $ (1.59) $ (0.51) $ 0.22 $ (0.68)
========= ========= ========= ========= =========
Net income (loss) per common share $ (0.48) $ (1.60) $ (0.51) $ 0.22 $ (0.68)
========= ========= ========= ========= =========
Total assets $ 332,878 $ 222,443 $ 258,121 $ 270,085 $ 261,624
========= ========= ========= ========= =========
Long-term debt - Notes and contracts
payable1 $ 49,489 $ 70,382 $ 76,866 $ 71,062 $ 67,009
========= ========= ========= ========= =========
Cash dividends per common share $ - - $ - - $ - - $ 0.05 $ 0.05
========= ========= ========= ========= =========
Cash dividends per preferred share $ 1.77 $ - - $ - - $ - - $ - -
========= ========= ========= ========= =========
Common shares issued 34,644,734 31,651,192 30,308,680 30,118,729 30,093,642
Shareholders of record 13,549 14,859 17,127 18,032 18,863
Employees 919 826 911 981 999
</TABLE>
- ---------------------------------
1 Includes $94,000, $181,000 and $260,000, for 1991, 1990 and 1989,
respectively, of long-term debt which is recorded in other
noncurrent liabilities.
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<PAGE> 34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations1
INTRODUCTION
The Company is primarily involved in the exploration, development, mining, and
processing of gold, silver, lead, zinc, and industrial minerals. As such, the
Company's revenues and profitability are strongly influenced by world prices of
gold, silver, lead, and zinc, which fluctuate widely and are affected by
numerous factors beyond the Company's control, including inflation and
worldwide forces of supply and demand. The aggregate effect of these factors
is not possible to accurately predict.
The Company recorded net losses applicable to common shareholders for each of
the past three years ended December 31, 1993, primarily as a result of: (1) a
reduction in carrying values of certain mining properties, losses on
investments and provisions for closed operations and environmental matters
totaling $2.7 million in 1993, $42.7 million in 1992 and $3.6 million in 1991;
(2) depressed gold, silver, lead, and zinc prices; and (3) decreased gold
production due to the depletion of oxide ore reserves at the Cactus and Yellow
Pine mines and the decline in ore grade at the Republic mine.
The volatility of metals prices requires that the Company, in assessing the
impact of prices on recoverability of its assets, exercise judgment as to
whether price changes are temporary or are likely to persist (See "Competition
- - Average Metal Prices"). The Company performs a comprehensive evaluation of
the recoverability of its assets on a periodic basis. The evaluation includes
a review of future cash flows against the carrying value of the asset. Asset
write-downs may occur if the Company determines that the carrying values
attributed to project assets are not recoverable given reasonable expectations
for future market conditions.
In 1994, the Company expects to produce approximately 106,000 ounces of gold,
including 63,000 ounces from the La Choya gold mine, 38,000 ounces of gold from
the Republic mine and an additional 5,000 ounces of gold from other sources.
Assuming the timely commencement of production at the Grouse Creek gold project
in the fourth quarter of 1994, the Company's planned 1994 total gold production
could increase by up to 53,000 ounces to 159,000 ounces, based upon its 80%
interest in the project. Assuming the consummation of the planned acquisition
of Equinox Resources Limited (Equinox) in March 1994, the Company's planned
1994 gold production is expected to increase 25,000 ounces to 184,000 ounces,
principally resulting from Equinox's interest in the American Girl mine (See
Note 2 of Notes to Consolidated Financial Statements). The Company's gold
production increase in 1994 is based upon assuming a full year of production at
the La Choya mine and the start-up of production at the Grouse Creek gold
project in the fourth quarter of 1994, which offsets the expected decrease in
gold production at the Republic mine. The Company's level of gold production
for 1994 will depend, in part, upon the timely commencement of production at
the Grouse Creek property.
- ------------------------
1For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the end of
Item 1, page 27.
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<PAGE> 35
The Company's share of silver production for the year ended December 31, 1993,
was 3.0 million ounces. Estimated silver production for 1994 is 2.7 million
ounces. The decrease in estimated silver production in 1994 compared to 1993
is principally due to the suspension of operations at Greens Creek which
commenced in April 1993.
During the year ended December 31, 1993, the Company shipped 888,000 tons of
industrial minerals including ball clay, kaolin, feldspar, and specialty
aggregates. The Company currently estimates that it will ship 945,000 tons of
industrial minerals during 1994. Additionally, the Company expects to ship
591,000 cubic yards of landscape material in 1994 from its newly acquired
subsidiary, Mountain West.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's historical
Consolidated Financial Statements set forth elsewhere herein.
Results of Operations
1993 vs 1992
A net loss of approximately $11.7 million, or $0.36 per common share, was
incurred in 1993 compared to a net loss of $49.3 million, or $1.60 per common
share, in 1992. After $4.1 million in dividends to holders of the Company's
Series B Cumulative Convertible Preferred Stock (Series B Preferred Stock), the
Company's net loss applicable to common shareholders for 1993 was $15.8
million, or $0.48 per common share. The 1993 loss was due to a variety of
factors, the most significant of which are discussed below.
Sales of products decreased by $18.8 million, or 19%, in 1993 as compared to
1992, principally the result of (1) decreased gold production due to the
winding down of operations at the Cactus mine, lower-grade ore being mined and
processed at the Republic mine, and the completion of operations at the Yellow
Pine mine during the third quarter of 1992; (2) decreased silver, lead, and
zinc production due to suspension of operations at the Greens Creek mine in
April 1993, and the sale of the Company's 25% interest in the Galena mine in
May 1992; (3) decreases in the average prices of lead and zinc in 1993 compared
to 1992; (4) decreased production of lead at the Lucky Friday mine resulting
from lower lead contained in the ore processed; and (5) decreased sales of ball
clay from Kentucky-Tennessee Clay Company; all of which were partially offset
by (1) increased revenue from the Company's Apex facility; (2) increased sales
of feldspar from K-T Feldspar Corporation, clay slurry products from the
recently completed slurry plant in Monterrey, Mexico, landscape products from
the newly acquired Mountain West, and specialty aggregate products from
Colorado Aggregate Company; and (3) increases in the average prices of gold and
silver in 1993 compared to 1992.
Cost of sales and other direct production costs decreased by $12.2 million, or
15%, in 1993 as compared to 1992, primarily a result of (1) decreased operating
costs at the Greens Creek mine due to suspension of operations in April 1993;
(2) decreased operating costs at the Cactus mine due to the completion of
mining operations in February 1992; (3) decreased operating costs resulting
from the sale of the Company's 25% interest in the Galena mine in May 1992; (4)
decreased operating costs at the Yellow Pine mine resulting from the completion
of operations during the third quarter of 1992; and (5) decreased cost of
production
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<PAGE> 36
at the Republic mine; all of which were partially offset by (1) increased
operating costs during 1993 at the Apex facility, K-T Feldspar Corporation,
Kentucky-Tennessee Clay Company's Ball Clay Division, and Colorado Aggregate
Company; and (2) operating costs in 1993 associated with the newly acquired
Mountain West.
Depreciation, depletion and amortization expense decreased by approximately
$3.2 million, or 24%, in 1993 as compared to 1992, primarily a result of (1)
the suspension of operations at the Greens Creek mine in April 1993, as well as
the completion of mining operations at the Cactus mine in February 1992 and the
Yellow Pine mine during the third quarter of 1992, where depreciable assets
were depreciated primarily on a unit-of-production basis, and (2) significant
assets at Kentucky-Tennessee Clay Company's Ball Clay Division reaching the end
of their depreciable lives. Both were partially offset by increased
depreciation expense due to increased ore tons mined during 1993 at the Lucky
Friday and Republic mines where significant depreciable assets are depreciated
on a unit-of-production basis.
Other operating expenses decreased by $44.4 million, or 75%, in 1993 as
compared to 1992, primarily the result of (1) the 1992 reduction in carrying
value of mining properties totaling $27.9 million, nonrecurring in 1993,
including (a) a $13.5 million write-down to reflect the estimated net
realizable value of the Company's interest in the Apex facility; (b) a $9.0
million write-down of the Consolidated Silver property in northern Idaho and
the Hog Heaven property in northwest Montana due to depressed silver prices;
(c) a $3.5 million write-down to reflect the estimated net realizable value of
the Company's interest in the Lisbon Valley project in Utah; and (d) a $1.9
million write-down of the Creede and Hardscrabble gold and silver properties
located in Colorado due to depressed precious metals prices; (2) the 1992
provision for closed operations and environmental matters totaling $12.7
million, nonrecurring in 1993, which consisted principally of an $8.5 million
increase in the allowance for the Bunker Hill Superfund Site remediation costs
and additional idle property reclamation and closure costs accruals of $3.3
million as further described in Note 8 of Notes to Consolidated Financial
Statements; (3) decreased domestic exploration expenditures mainly at the
Republic mine in 1993; (4) foreign exploration expenditures in Chile during
1992, nonrecurring in 1993; (5) reduced general and administrative costs in
1993 principally due to staff reductions and other cost-cutting measures at
corporate headquarters; and (6) research expenditures incurred at the Apex
facility during 1992, nonrecurring in 1993.
Other income (expense) netted to income of approximately $1.4 million in 1993
compared to income of $5.5 million in 1992. The decrease is primarily due to
(1) the sale of surface and timber rights on various nonoperating Company-owned
properties in 1992 resulting in a gain of approximately $9.0 million,
nonrecurring in 1993, and (2) the sale of the Company's 25% interest in the
Galena Unit and adjacent properties in May 1992 resulting in a gain of
approximately $1.2 million, nonrecurring in 1993. Both of these items were
partially offset by (1) decreased interest expense in 1993 resulting from (a)
the April 29, 1993, issuance of 2.2 million shares of the Company's Common
Stock for 60,400 of its outstanding Liquid Yield Option Notes as described in
Note 7 of Notes to Consolidated Financial Statements, and (b) increased
capitalized interest related to the Grouse Creek and La Choya projects; (2) the
$2.1 million write-down in 1992 of the Company's Common Stock investment in
Granduc Mines Limited to reflect the apparent other- than-temporary decline in
market value of
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<PAGE> 37
the investment, nonrecurring in 1993; and (3) increased interest income earned
in 1993 on the investment of the proceeds from the Company's public offering of
2.3 million shares of Series B Preferred Stock as described in Note 10 of Notes
to Consolidated Financial Statements.
Income taxes reflect a benefit of $0.9 million in 1993 compared to a $0.3
million benefit in 1992. The benefit in both periods reflects the carryback of
1993 and 1992 net operating losses to reduce income taxes previously provided.
Results of Operations
1992 vs 1991
The net loss for 1992 was $49.3 million, or $1.60 per share, compared to a net
loss of $15.4 million, or $0.51 per share, for 1991.
Sales of products decreased by $16.9 million, or 14%, from 1991 to 1992,
principally as a result of (1) decreased gold production at the Republic and
Cactus mines due to lower-grade ore mined and processed, and the completion of
operations at the Yellow Pine mine in August 1992; (2) decreases in the average
prices of gold, silver, and lead in 1992 compared to 1991; (3) decreased silver
production resulting from the 1992 sale of the Company's 25% interest in the
Galena mine; and (4) decreased silver, zinc, lead and gold production at the
Greens Creek mine due to lower-grade ore mined and processed; all of which were
partially offset by (1) increased silver, lead and zinc production at the Lucky
Friday mine; (2) increased sales of specialty aggregates from Colorado
Aggregate Company during 1992; (3) increases in the average price of zinc; (4)
increased sales of feldspar from K-T Feldspar Corporation during 1992; and (5)
increased sales from the Kaolin Division of Kentucky-Tennessee Clay Company
during 1992.
Cost of sales and other direct production costs decreased $1.6 million, or 2%,
from 1991 to 1992 primarily due to (1) decreased operating costs resulting from
the completion of operations at the Yellow Pine mine in August 1992; (2)
decreased operating costs at the Cactus mine due to the completion of mining
operations in February 1992; (3) decreased operating costs incurred resulting
from the sale of the Company's 25% interest in the Galena mine; and (4)
decreased operating costs at the Republic and Lucky Friday mines; all of which
were partially offset by (1) increased operating costs at the Greens Creek mine
and (2) increased operating costs at Colorado Aggregate Company,
Kentucky-Tennessee Clay Company, and K-T Feldspar Corporation.
Depreciation, depletion and amortization decreased by approximately $7.7
million, or 36%, primarily as a result of the completion of mining operations
at the Cactus mine in February 1992 where depreciation was based on ore tons
mined, and to a lesser extent by (1) the completion of mining operations at the
Yellow Pine mine in August 1992 and (2) the sale of the Company's 25% interest
in the Galena mine; all of which were partially offset by increased ore tons
mined at the Lucky Friday mine where significant depreciable assets are being
depreciated based on ore tons mined.
Other operating expenses increased by $33.3 million, or 130%, due principally
to (1) the reduction in carrying value of mining properties totaling $27.9
million including (a) a $13.5 million write-down to reflect the estimated net
realizable value of the Company's interest in the Apex facility, a
hydrometallurgical
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<PAGE> 38
processing plant near St. George, Utah; (b) a $9.0 million write-down of the
Consolidated Silver property in northern Idaho and the Hog Heaven property in
northwest Montana due to depressed silver prices; (c) a $3.5 million write-down
to reflect the estimated net realizable value of the Company's interest in the
Lisbon Valley project in Utah, a joint venture project fully developed for
uranium and vanadium production; and (d) a $1.9 million write-down of the
Creede and Hardscrabble gold and silver properties located in Colorado due to
depressed precious metals prices; (2) the provision for closed operations and
environmental matters totaling $12.7 million which consisted principally of an
$8.5 million 1992 increase in the allowance for the Bunker Hill Superfund Site
remediation costs and additional idle property reclamation and closure costs
accruals of $3.3 million, as further described in Note 8 of Notes to
Consolidated Financial Statements; and (3) increased exploration expenditures
at the Republic and Lucky Friday mines during 1992; all of which were partially
offset by decreased general and administrative costs principally due to (1)
1991 expenses incurred in connection with the June 26, 1991, merger of CoCa,
nonrecurring in 1992; (2) decreased other general and administrative costs
resulting from closing the CoCa office; and (3) other general and
administrative cost reduction efforts.
Other income (expense) changed from expense of $3.9 million in 1991 to income
of $5.5 million in 1992, primarily a result of (1) the sale of surface and
timber rights on various nonoperating Company-owned properties in 1992
resulting in a gain of approximately $9.0 million; (2) the 1992 sale of the
Company's 25% interest in the Galena mine and adjacent properties located in
northern Idaho, resulting in a gain of about $1.2 million; (3) the exchange of
1,120,125 shares of the Company's Common Stock for 30,900 of the Company's
outstanding Liquid Yield Option Notes resulting in a gain of approximately $0.5
million and a reduction of interest expense in 1992; and (4) increased
capitalized interest related to the Grouse Creek and La Choya projects in 1992;
all of which were partially offset by the $2.1 million write-down of the
Company's Common Stock investment in Granduc Mines Limited to reflect the
apparent other-than-temporary decline in the market value of the investment.
Income taxes reflect a benefit of $0.3 million in 1992 compared to a $2.6
million benefit in 1991. The benefit in both periods reflects the carryback of
1992 and 1991 net operating losses to reduce income taxes previously provided.
In 1992, the Company changed its method of accounting for income taxes and
postretirement benefits other than pensions. The adoption of SFAS No. 109,
"Accounting for Income Taxes," resulted in a $1.5 million benefit as of January
1, 1992. The effect of adopting SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," resulted in an additional expense
of $1.6 million as of January 1, 1992. The net cumulative effect of both of
these accounting changes was to increase the 1992 loss by $0.1 million.
Financial Condition and Liquidity
A substantial portion of the Company's revenue is derived from the sale of
products, the prices of which are affected by numerous factors beyond the
Company's control. Prices may change dramatically in short periods of time and
such changes have a significant effect on revenues, profits and liquidity of
the Company. The Company is subject to many of the same inflationary pressures
as the U.S. economy in general. To date, the Company has been successful in
implementing cost-cutting measures which have reduced per unit production
costs.
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<PAGE> 39
Management believes, however, that the Company may not be able to continue to
offset the impact of inflation over the long term through cost reductions
alone. However, the market prices for products produced by the Company have a
much greater impact than inflation on the Company's revenues and profitability.
Moreover, the discovery, development and acquisition of mineral properties are,
in many instances, unpredictable events. Future metals prices, the success of
exploration programs and other property transactions can have a significant
impact on the Company's need for capital.
At December 31, 1993, assets totaled approximately $332.9 million and
shareholders' equity totaled approximately $240.1 million. Cash, cash
equivalents and short-term investments increased by $62.1 million to $65.4
million at December 31, 1993, from $3.3 million at the end of 1992. The major
sources of cash and short-term investments were the $110.3 million net proceeds
received from the June 29, 1993, issuance of 2.3 million shares of Series B
Preferred Stock as described further in Note 10 of Notes to Consolidated
Financial Statements and proceeds of approximately $1.1 million from the
issuance of Common Stock under stock option plans. Other major sources of cash
were from operations at the Republic and Cactus mines, Kentucky-Tennessee Clay
Company's Ball Clay and Kaolin Divisions, K-T Feldspar Corporation, and
Colorado Aggregate Company. The major uses of cash were for (1) the
development costs incurred in connection with the Grouse Creek and La Choya
projects; (2) property, plant and equipment expenditures at the clay slurry
plant in Mexico, Kentucky-Tennessee Clay Company's Kaolin Division and Colorado
Aggregate Company; (3) general and administrative expenses; (4) exploration
costs; (5) idle property expenditures including environmental costs; and (6)
operations at the Lucky Friday mine, the Apex facility, and Mountain West.
The Company estimates that capital expenditures to be incurred in 1994 will be
approximately $62.2 million. The estimated capital expenditures for 1994
reflect the sale of a 20% ownership interest in the Company's Grouse Creek
project as described in Note 5 of Notes to Consolidated Financial Statements.
The Company's 1994 capital expenditures are expected to consist primarily of
(1) development expenditures at the Grouse Creek project totaling approximately
$50.0 million; (2) further development expenditures at the Greens Creek mine
totaling approximately $3.4 million; and (3) assuming completion of the
acquisition of Equinox as described below, development expenditures at
Equinox's Rosebud and Oro Cruz projects totaling approximately $3.7 million and
$1.3 million, respectively. The Company intends to finance these capital
expenditures through a combination of (1) existing cash, cash equivalents and
short-term investments; (2) proceeds from the sale of a minority joint venture
interest in the Grouse Creek project as described in Note 5 of Notes to
Consolidated Financial Statements; and (3) cash flow from operating activities.
In addition, the Company may borrow additional funds under its revolving credit
facility which, subject to certain conditions, provides for borrowings up to a
maximum of $30.0 million, as described further in Note 7 of Notes to
Consolidated Financial Statements. Moreover, to the extent the Company is able
to complete a securities offering, as described below, excess proceeds, if any,
may be used for these capital expenditures.
As further described in Note 2 of Notes to Consolidated Financial Statements,
the Company has entered into an Acquisition Agreement to acquire Equinox. The
Company's 1994 expenditures on the Rosebud and Oro Cruz projects are contingent
upon the Company's successful consummation of the acquisition of Equinox.
-38-
<PAGE> 40
The Company's planned environmental and reclamation expenditures for 1994 are
expected to be approximately $6.6 million, principally for environmental and
reclamation activities at the Bunker Hill and California Gulch Superfund Sites
and at the Yellow Pine, Escalante and Durita properties.
Exploration expenditures for 1994 are estimated to be approximately $6.2
million. The Company's exploration strategy is to focus further exploration at
or in the vicinity of its currently owned properties. Accordingly, 1994
exploration expenditures will be incurred principally at the Republic, Grouse
Creek and La Choya properties.
As described in Note 7 of Notes to Consolidated Financial Statements, the
Company has a secured reducing revolving credit facility which provides for
credit advances of up to $30.0 million. The availability of advances under
this facility reduces commencing December 31, 1995, and is subject to certain
other limitations, with the balance due at maturity on December 31, 1996.
Borrowings under the facility are secured by the accounts receivable,
inventories, and specified marketable securities. As of December 31, 1993, the
Company had no outstanding borrowings under the revolving credit facility.
As further described in Note 7 of Notes to Consolidated Financial Statements,
on April 23, 1993, the Company exchanged 2.2 million shares of its common stock
for 60,400 outstanding Liquid Yield Option Notes in a noncash transaction.
The Company currently has outstanding $109,950,000 aggregate principal amount
of Liquid Yield Option Notes (LYONs) due 2004, which are currently convertible
into 20.824 shares of common stock per $1,000 principal amount of LYONs.
Pursuant to the terms of the indenture governing the LYONs, on June 14, 1994,
holders of LYONs may require the Company to purchase LYONs held by them (the
Put Feature) at a purchase price of $456.39 per $1,000 principal amount of
LYONs. The purchase price may be paid, at the option of the Company, in cash,
in shares of common stock (valued at the market price of the common stock) or
in the Company's Subordinated Extension Notes due 2004; but because of the
Company's need to utilize cash for planned capital expenditures, it is probable
that, absent any action by the Company, it will pay for any LYONs delivered to
it pursuant to the Put Feature by issuing common stock. The Company is unable
to predict how many LYONs it may be required to purchase pursuant to the Put
Feature, and the Company cannot predict what effect the Put Feature will have
on the market price of its common stock.
The Company is currently considering several alternatives with respect to the
Put Feature. One of the alternatives being examined by the Company is the sale
of additional shares of common stock (or other Company securities) with the
proceeds of such an offering being used to pay cash for LYONs delivered to the
Company pursuant to the Put Feature (and any remaining proceeds would be used
for capital expenditures). The Company is also considering amending certain
terms of the LYONs in order to make it less likely that the Put Feature will be
exercised on June 14, 1994, including changing the conversion ratio to increase
the number of shares of common stock that would be issuable for each LYON. If
either of these alternatives is pursued, then additional shares of common stock
could be issued, although the Company's intent with respect to these
alternatives is to issue less shares of common stock (other than any securities
sold to raise additional funds for capital expenditures) than would be the case
if the Company was required to repurchase all of the outstanding LYONs pursuant
to the Put Feature on June 14,
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<PAGE> 41
1994. If the Company takes no action with respect to the Put Feature and is
required to purchase all of the outstanding LYONs on June 14, 1994, based upon
year end market prices ($11.63 on December 31, 1993), the Company would have to
issue approximately 4,300,000 shares of common stock. There can be no
assurance that the Company will determine to pursue, or be successful in
pursuing, any alternative (including and in addition to the alternatives
discussed above) to reduce the likelihood that the Put Feature will result in
the issuance of a significant amount of the Company's common stock.
In December 1993, the Company acquired all of the issued and outstanding common
stock of Mountain West through the issuance of 655,000 shares of the Company's
common stock with an estimated value of $6,305,000. Mountain West is engaged
primarily in the mining and processing of scoria, specialty aggregates and
landscaping products. The transaction has been accounted for as a purchase.
As further described in Note 8 of Notes to Consolidated Financial Statements,
the Company has been notified by the United States Environmental Protection
Agency (EPA) that it has been designated by the EPA as a potentially
responsible party with respect to several Superfund sites. At December 31,
1993, the Company's allowance for Superfund site remedial action costs was
approximately $10.7 million, which the Company believes is adequate based on
current estimates of aggregate costs. Although the ultimate disposition of
these and various other pending legal actions and claims is not presently
determinable, it is the opinion of the Company's management, based upon the
information available at this time, that the outcome of these suits and
proceedings will not have a material adverse effect on the consolidated results
of operations and financial condition of the Company.
Other
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS No. 112). This statement requires companies to
recognize the obligation to provide postemployment benefits if the obligation
is attributable to employees' services already rendered, employees' rights to
those benefits have accumulated or vested, payment of the benefits is probable
and the amount of the benefits can be reasonably estimated. The statement
requires the Company to make the necessary changes in accounting for these
postemployment benefits effective January 1, 1994. It is the opinion of the
Company's management that the adoption of SFAS No. 112 will not have a material
effect on the consolidated results of operations or financial condition of the
Company.
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<PAGE> 42
Item 8. Financial Statements and Supplementary Data
See Item 14 of this Report for information with respect to the financial
statements filed as a part hereof, including financial statements filed
pursuant to the requirements of this Item 8.
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA
-----------------------
(dollars in thousands except for per-share amounts)
First Second Third Fourth
1993: Quarter Quarter Quarter Quarter Total
---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales of products $ 20,869 $ 23,085 $ 19,542 $ 18,351 $ 81,847
Gross profit (loss) $ (1,068) $ 1,003 $ 956 $ (445) $ 446
Net loss $ (4,771) $ (2,012) $ (1,134) $ (3,818) (11,735)
Preferred stock dividends - - - - $ (2,057) $ (2,013) (4,070)
Net loss applicable to common
shareholders $ (4,771) $ (2,012) $ (3,191) $ (5,831) $ (15,805)
Net loss per common share $ (0.15) $ (0.06) $ (0.09) $ (0.17) $ (0.48)
1992:
----
Sales of products $ 29,171 $ 26,926 $ 26,136 $ 18,418 $ 100,651
Gross profit (loss) $ 2,484 $ 1,706 $ 2,380 $ (2,700) $ 3,870
Income (loss) before cumulative
effect of changes in accounting
principles $ 6,073 $ (1,103) $ (3,025) $(51,131) $(49,186)
Cumulative effect of changes in
accounting principles (103) - - - - - - (103)
-------- -------- -------- -------- --------
Net income (loss) $ 5,970 $ (1,103) $ (3,025) $(51,131) $(49,289)
======== ======== ======== ======== ========
Net income (loss) per
common share:
Income (loss) before
cumulative effect of
changes in accounting
principles $ 0.20 $ (0.04) $ (0.10) $ (1.65) $ (1.59)
Cumulative effect of changes
in accounting principles (0.01) - - - - - - (0.01)
-------- -------- -------- -------- --------
Net income (loss) per common share $ 0.19 $ (0.04) $ (0.10) $ (1.65) $ (1.60)
======== ======== ======== ======== ========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
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<PAGE> 43
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information with respect to the directors of the
Company set forth under the caption "Election of Directors" in the
Company's proxy statement to be filed pursuant to Regulation 14A for the
annual meeting scheduled to be held on May 6, 1994 (the Proxy Statement),
which information is incorporated herein by reference. Information with
respect to executive officers of the Company is set forth as follows:
<TABLE>
<CAPTION>
Age at
May 6,
Name 1994 Position and Term Served
------------------- ------ --------------------------------------------
<S> <C> <C>
Arthur Brown 53 Chairman since June 1987; Chief Executive Officer since May 1987;
President since May 1986; Chief Operating Officer from May 1986 to May
1987; Executive Vice President from May 1985 to May 1986; held various
positions as an officer since 1980; employed by the Company since 1967.
Joseph T. Heatherly 63 Vice President - Controller since May 1989; Controller from May 1987 to
May 1989; various administrative functions with the Company since May
1983.
J. Gary Childress 46 Vice President - Industrial Minerals since February 1994; President and
General Manager of Kentucky-Tennessee Clay Company from 1987 to 1994;
Senior Vice President of Kentucky-Tennessee Clay Company from 1986 to
1987.
Ralph R. Noyes 46 Vice President - Metal Mining since May 1988; Manager Metal Mining from
June 1987 to May 1988; prior thereto, since 1976, held various
administrative positions with the Company and Day Mines, Inc.
John P. Stilwell 41 Treasurer since June 1991; held various administrative positions with
the Company since May 1985.
Michael B. White 43 Vice President - General Counsel and Secretary since May 1992;
Secretary since November 1991; Assistant Secretary from March 1981 to
November 1991; General Counsel since June 1986; various administrative
positions since 1980.
</TABLE>
There are no family relationships between any of the executive officers.
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<PAGE> 44
Item 11. Executive Compensation
Reference is made to the information set forth under the caption
"Compensation of Executive Officers" in the Proxy Statement (except the
Report on the Compensation Committee on Executive Compensation set forth
herein) to be filed pursuant to Regulation 14A, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement to be filed pursuant to Regulation 14A, which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information set forth under the caption "Other
Transactions" in the Proxy Statement to be filed pursuant to Regulation
14A, which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
See Index to Financial Statements on Page F-1
(a)(2) Financial Statement Schedules
See Index to Financial Statements on Page F-1
(a)(3) Exhibits
See Exhibit Index following the financial statements
(b) Reports on Form 8-K
Report on Form 8-K dated December 1, 1993, related to the
acquisition of all the outstanding capital stock of Mountain
West Bark Products, Inc.
Report on Form 8-K dated December 29, 1993, related to the
Acquisition Agreement with Equinox Resources Ltd.
Report on Form 8-K dated January 24, 1994, related to the sale
of the Company's holdings in Granduc Mines Limited.
Report on Form 8-K dated February 3, 1994, related to fourth
quarter report to shareholders
Report on Form 8-K dated February 8, 1994, related to
Acquisition Agreement with Great Lakes Minerals Inc.
Report on Form 8-K dated February 16, 1994, related to
information provided to Equinox Resources Ltd.
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<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
March 2, 1994.
HECLA MINING COMPANY
By /s/ Arthur Brown
---------------------------
Arthur Brown, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Arthur Brown 3/2/94 /s/ Leland O. Erdahl 3/2/94
- --------------------------------- --------------------------------
Arthur Brown Date Leland O. Erdahl Date
Chairman and Director Director
(principal executive officer)
/s/ J. T. Heatherly 3/2/94 /s/ William A. Griffith 3/2/94
- --------------------------------- --------------------------------
J. T. Heatherly Date William A. Griffith Date
Vice President - Controller Director
(principal accounting officer)
/s/ John P. Stilwell 3/2/94 /s/ Charles L. McAlpine 3/2/94
- --------------------------------- --------------------------------
John P. Stilwell Date Charles L. McAlpine Date
Treasurer Director
(principal financial officer)
/s/ John E. Clute 3/2/94 /s/ Paul A. Redmond 3/2/94
- --------------------------------- --------------------------------
John E. Clute Date Paul A. Redmond Date
Director Director
/s/ Joe Coors, Jr. 3/2/94 /s/ Richard J. Stoehr 3/2/94
- --------------------------------- --------------------------------
Joe Coors, Jr. Date Richard J. Stoehr Date
Director Director
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<PAGE> 46
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
- --------------------
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31, 1993 and 1992 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1993, 1992 and 1991 F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1993, 1992 and 1991 F-5
Consolidated Statement of Changes in Shareholders' Equity
for the Years Ended December 31, 1993, 1992 and 1991 F-6
Notes to Consolidated Financial Statements F-7-F-30
Financial Statement Schedules*
- -----------------------------
Report of Independent Accountants on
Financial Statement Schedules F-31
V. Property, Plant and Equipment F-32
VI. Accumulated Depreciation, Depletion, and
Amortization of Property, Plant and Equipment F-33
X. Supplementary Income Statement Information F-34
*Other financial statement schedules
have been omitted as not applicable
F-1
<PAGE> 47
Letterhead of Coopers & Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Hecla Mining Company
We have audited the accompanying consolidated balance sheets of Hecla Mining
Company and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hecla
Mining Company and subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
As discussed in Notes 6 and 9 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions in 1992.
/s/Coopers & Lybrand
COOPERS & LYBRAND
Spokane, Washington
February 3, 1994, except for
Note 5, as to which the
date is February 8, 1994
F-2
<PAGE> 48
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
December 31,
-----------------------------
1993 1992
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,891 $ 3,287
Short-term investments 27,540 - -
Accounts and notes receivable 16,859 15,290
Income tax refund receivable - - 390
Inventories 13,022 12,652
Other current assets 1,915 1,349
--------- ---------
Total current assets 97,227 32,968
--------- ---------
Investments 6,211 4,822
Properties, plants and equipment, net 222,870 179,827
Other noncurrent assets 6,570 4,826
--------- ---------
Total assets $ 332,878 $ 222,443
========= =========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 14,610 $ 9,003
Accrued payroll and related benefits 2,056 2,139
Preferred stock dividends payable 2,012 - -
Accrued taxes 928 1,271
Current portion of deferred income taxes - - 285
--------- ---------
Total current liabilities 19,606 12,698
--------- ---------
Deferred income taxes 359 1,038
Long-term debt 49,489 70,382
Accrued reclamation costs 19,503 20,108
Other noncurrent liabilities 3,858 3,723
--------- ---------
Total liabilities 92,815 107,949
--------- ---------
Minority interest in consolidated subsidiary - - 775
--------- ---------
Commitments and contingencies (Notes 2, 3 and 8)
SHAREHOLDERS' EQUITY
Preferred stock, 25 cents par value,
authorized 5,000,000 shares,
issued and outstanding 1993 - 2,300,000,
liquidation preference $117,012 575 - -
Common stock, 25 cents par value, authorized 100,000,000 shares;
issued 1993 - 34,644,734, issued 1992 - 31,651,192 8,661 7,912
Capital surplus 238,601 97,806
Retained earnings (deficit) (6,878) 8,927
Net unrealized loss on marketable
equity securities (8) (16)
Less common stock reacquired, at cost;
1993 - 62,226 shares, 1992 - 63,753 shares (888) (910)
--------- ---------
Total shareholders' equity 240,063 113,719
--------- ---------
Total liabilities and shareholders' equity $ 332,878 $ 222,443
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 49
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Sales of products $ 81,847 $ 100,651 $ 117,568
--------- --------- ---------
Cost of sales and other direct production costs 71,109 83,288 84,853
Depreciation, depletion and amortization 10,292 13,493 21,161
--------- --------- ---------
81,401 96,781 106,014
--------- --------- ---------
Gross profit 446 3,870 11,554
--------- --------- ---------
Other operating expenses:
General and administrative 6,961 8,520 14,054
Exploration 4,353 7,659 5,693
Research - - 1,317 1,538
Depreciation and amortization 669 819 692
Provision for closed operations and environmental matters 2,307 12,670 3,638
Reduction in carrying value of mining properties 200 27,928 - -
--------- --------- ---------
14,490 58,913 25,615
--------- --------- ---------
Loss from operations (14,044) (55,043) (14,061)
--------- --------- ---------
Other income (expense):
Interest and other income 2,965 12,428 2,219
Other expense (3) (61) (17)
Gain (loss) on investments (144) (2,115) 229
Minority interest in net loss of consolidated subsidiary 43 95 484
Interest expense:
Total interest cost (5,023) (6,905) (6,985)
Less amount capitalized 3,533 2,070 145
--------- --------- ---------
1,371 5,512 (3,925)
--------- --------- ---------
Loss before income taxes and cumulative effect of changes
in accounting principles (12,673) (49,531) (17,986)
Income tax benefit 938 345 2,556
--------- --------- ---------
Loss before cumulative effect of changes in
accounting principles (11,735) (49,186) (15,430)
Cumulative effect of changes in accounting principles - - (103) - -
--------- --------- ---------
Net loss (11,735) (49,289) (15,430)
Preferred stock dividends (4,070) - - - -
--------- --------- ---------
Net loss applicable to common shareholders
$ (15,805) $ (49,289) $ (15,430)
========= ========= =========
Net loss per common share:
Loss before cumulative effect of changes in
accounting principles and after preferred stock dividends $(0.48) $(1.59) $(0.51)
Cumulative effect of changes in accounting principles - - (0.01) - -
------ ------ ------
$(0.48) $(1.60) $(0.51)
====== ====== ======
Cash dividends per common share $ - - $ - - $ - -
====== ====== ======
Weighted average number of common shares outstanding 32,915 30,866 30,094
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 50
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss $ (11,735) $ (49,289) $ (15,430)
Noncash elements included in net loss:
Depreciation, depletion and amortization 10,961 14,312 21,853
Deferred income tax benefit (964) (120) (1,429)
Loss (gain) on disposition of properties, plants and equipment 1,300 (9,628) (1,865)
(Gain) loss on investments 144 2,115 (229)
Accretion of interest on long-term debt 4,349 5,602 5,891
Provision for reclamation and closure costs 1,635 12,305 2,898
Reduction in carrying value of mining properties 200 27,928 - -
Gain on retirement of long-term debt (323) (510) - -
Minority interest in net loss of consolidated subsidiary 43 95 484
Change in:
Accounts and notes receivable (1,569) 5,869 (844)
Income tax refund receivable 390 - - - -
Inventories (370) 4,162 (3,047)
Other current assets (566) 849 (920)
Accounts payable and accrued expenses 5,607 188 (2,808)
Accrued payroll and related benefits (83) (443)
Preferred stock dividends payable 2,012 - - - -
Accrued taxes (343) (1,770) 359
Noncurrent liabilities (2,105) (2,184) (160)
--------- --------- ---------
Net cash provided by operating activities 8,583 9,481 4,753
--------- --------- ---------
Investing activities:
Purchase of investments and increase in cash surrender value
of life insurance (554) (117) (219)
Purchase of short-term investments, net (27,540) - - - -
Proceeds from sale of investments and subsidiary 273 - - 738
Additions to properties, plants and equipment (52,671) (23,176) (18,885)
Proceeds from disposition of properties, plants and equipment 1,282 11,493 1,036
Other, net (2,105) (272) 1,012
--------- --------- ---------
Net cash applied to investing activities (81,315) (12,072) (16,318)
--------- --------- ---------
Financing activities:
Repayment on gold loan - - - - (1,387)
Common stock issued under stock option plans 1,060 296 1,500
Preferred stock issuance, net of issuance costs 110,346 - - - -
Acquisition of treasury stock - - - - (4)
Preferred stock dividends (4,070) - - - -
--------- --------- ---------
Net cash provided by financing activities 107,336 296 109
--------- --------- ---------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 34,604 (2,295) (11,456)
Cash and cash equivalents at beginning of year 3,287 5,582 17,038
--------- --------- ---------
Cash and cash equivalents at end of year $ 37,891 $ 3,287 $ 5,582
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest (net of amount capitalized) $ 318 $ 159 $ 182
========= ========= =========
Income tax payments, net $ 49 $ 222 $ 171
========= ========= =========
</TABLE>
See Notes 2, 5, and 7 for noncash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 51
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1993, 1992 and 1991
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Retained Net Unrealized Loss
----------------- ---------------- Capital Earnings Treasury on Marketable
Shares Amount Shares Amount Surplus (Deficit) Stock Equity Securities
------ ------ ------ ------- --------- ---------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1990 $ 30,119 $ 7,530 $ 83,397 $ 73,646 $ (906) $ (13)
Net loss (15,430)
Net change in unrealized loss
on marketable equity
securities (3)
Stock issued under stock option
plans
Hecla 26 6 141
CoCa 130 32 1,147
Stock issued under CoCa employee
stock ownership plan 34 9 165
Acquisition of treasury stock (4)
------ ------- ------ ------ --------- -------- -------- ---------
Balances, December 31, 1991 30,309 7,577 84,850 58,216 (910) (16)
Net loss (49,289)
Stock issued under stock option
plans
Hecla 17 4 117
CoCa 20 5 170
Stock issued for Mexican mineral
concessions 185 46 1,748
Stock issued to retire long-term
debt 1,120 280 10,921
------ ------- ------ ------ --------- -------- -------- ---------
Balances, December 31, 1992 31,651 7,912 97,806 8,927 (910) (16)
Net loss (11,735)
Preferred stock dividends
($1.77 per share) (4,070)
Stock issued under stock option
plans
Hecla 87 22 590
CoCa 52 13 435
Net change in unrealized loss
on marketable equity securities 8
Treasury stock issued net of
purchase (12) 22
Stock issued for Mountain West
Products 655 164 6,141
Preferred stock issuance, net of
issuance costs 2,300 575 109,771
Stock issued to retire long-term
debt 2,200 550 23,870
------ ------- ------ ------ --------- -------- -------- ---------
Balances, December 31, 1993 2,300 $ 575 34,645 $8,661 $ 238,601 $ (6,878) $ (888) $ (8)
====== ======= ====== ====== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 52
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note l: Summary of Significant Accounting Policies
A. COMPANY'S BUSINESS AND CONCENTRATIONS OF CREDIT RISK - Hecla
Mining Company and its subsidiaries (the Company) are engaged in mining
and mineral processing. Sales of metals products are made principally to
domestic and foreign custom smelters and metal traders. Industrial
minerals are sold principally to domestic manufacturers and wholesalers.
Sales to significant metals customers, as a percentage of total sales of
metals products, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Custom smelters 27.3% 37.5% 26.9%
Custom metal traders:
Customer A 17.1% 21.3% 15.2%
Customer B 16.8% 16.5% 21.8%
Customer C 15.5% 14.0% 11.8%
Customer D 13.3% 7.7% 13.7%
</TABLE>
During 1993, 1992 and 1991, the Company sold 19%, 26%, and 17% of its
products to companies in foreign countries, respectively.
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company places its cash
and temporary cash investments with high credit worthy institutions. At
times such investments may be in excess of the FDIC insurance limit. The
Company routinely assesses the financial strength of its customers and, as
a consequence, believes that its trade accounts receivable credit risk
exposure is limited.
B. BASIS OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company, its majority-owned subsidiaries and
its proportionate share of the accounts of the joint ventures in which it
participates. All significant intercompany transactions and accounts are
eliminated.
C. INVENTORIES - Inventories are stated at the lower of average cost
or estimated net realizable value.
D. INVESTMENTS - The Company follows the equity method of accounting
for investments in common stock of operating companies 20% to 50% owned.
Investments in nonoperating companies that are not intended for resale or
are not readily marketable are valued at the lower of cost or net
realizable value. The carrying value of marketable equity securities is
based on the lower of aggregate cost or quoted market value. The cost of
investments sold is determined by specific identification.
F-7
<PAGE> 53
Short-term investments represent investments in certificates of
deposits, commercial paper and U.S. Treasury Notes recorded at amortized
cost, plus accrued interest, which approximates market value.
E. PROPERTIES, PLANTS AND EQUIPMENT - Properties, plants and
equipment are stated at the lower of cost or estimated net realizable
value. Maintenance, repairs and renewals are charged to operations.
Betterments of a major nature are capitalized. When assets are retired or
sold, the costs and related allowances for depreciation and amortization
are eliminated from the accounts and any resulting gain or loss is
reflected in operations. Idle facilities, placed on a standby basis, are
carried at the lower of net book value or estimated net realizable value.
Management of the Company reviews the net carrying value of all
facilities, including idle facilities, on a regular, periodic basis.
These reviews consider, among other factors, (1) the net realizable value
of each major type of asset, on a property-by-property basis, to reach a
judgment concerning possible permanent impairment of value and any need
for a write-down in asset value, (2) the ability of the Company to fund
all care, maintenance and standby costs, (3) the status and usage of the
assets, while in a standby mode, to thereby determine whether some form of
amortization is appropriate, and (4) current projections of metal prices
that affect the decision to reopen or make a disposition of the assets.
Depreciation is based on the estimated useful lives of the assets and
is computed using straight-line, declining-balance, and unit-of-production
methods. Depletion is computed using the unit-of-production method.
F. MINE EXPLORATION AND DEVELOPMENT - Exploration costs are charged
to operations as incurred, as are normal development costs at operating
mines. Major mine development expenditures at operating properties and at
new mining properties not yet producing are capitalized.
G. RECLAMATION OF MINING AREAS - Minimum standards for mine
reclama-tion have been established by various governmental agencies which
affect certain operations of the Company. A reserve for mine reclamation
costs has been established for restoring certain abandoned and currently
disturbed mining areas based upon estimates of cost to comply with
existing reclamation standards. Mine reclamation costs for operating
properties are accrued using the unit-of-production method.
H. INCOME TAXES - In the fourth quarter of 1992, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109), retroactive to January 1,
1992. SFAS No. 109 requires a company to recognize deferred tax
liabilities and assets for the expected future income tax consequences of
events that have been recognized in a company's financial statements.
Under this method, deferred tax liabilities and assets are determined
based on the temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the temporary differences are
expected to reverse. In 1991, the Company utilized the liability method
of accounting for income taxes as required by Statement of Financial
Accounting Standards No. 96.
I. NET LOSS PER COMMON SHARE - Net loss per common share is computed
by adding preferred stock dividends to net loss and dividing the result by
the weighted average number of shares of common stock and common stock
F-8
<PAGE> 54
equivalents (stock options) outstanding during each reporting period
unless the common stock equivalents are anti-dilutive. Due to the net
losses in 1993, 1992 and 1991, common stock equivalents are anti-dilutive
and therefore have been excluded from the computation.
J. REVENUE RECOGNITION - Sales of metal products sold directly to
smelters are recorded when they are received by the smelter, at estimated
metal prices. Recorded values are adjusted periodically and upon final
settlement. Metal in products tolled (rather than sold to smelters) is
sold under contracts for future delivery; such sales are recorded at
contractual amounts when products are available to be processed by the
smelter or refinery. Sales of industrial minerals are recognized as the
minerals are delivered.
K. INTEREST EXPENSE - Interest costs incurred during the
construction of qualifying assets are capitalized as part of the asset
cost.
L. CASH EQUIVALENTS - The Company considers cash equivalents to
consist of highly liquid investments with a remaining maturity of three
months or less when purchased. For investments characterized as cash
equivalents, the carrying value is a reasonable estimate of fair value.
M. FOREIGN CURRENCY TRANSLATION - All assets and liabilities of the
Company's Canadian and Mexican operations are translated to U. S. dollars
using the exchange rate at the balance sheet date. Income and expense
items are translated using average exchange rates. Gains and losses from
foreign currency transactions are included in operations.
Note 2: Business Combinations
Equinox Resources Limited
On December 29, 1993, the Company, two wholly owned Canadian
subsidiaries of the Company, and Equinox Resources Ltd. (Equinox), a
mining, exploration and development company, incorporated under the laws
of the Province of British Columbia and headquartered in Vancouver,
Canada, executed an Acquisition Agreement providing for the Company's
acquisition of Equinox. Pursuant to the Acquisition Agreement and related
Plan of Arrangement, upon consummation of the transactions contemplated
thereby, (i) Equinox common shareholders will receive 0.3 common share of
the Company (Company common shares), for each outstanding Equinox common
share, (ii) holders of Equinox's Series "A" production participating
preferred shares will receive newly issued production notes of the Company
with the same material terms and conditions, and (iii) outstanding Equinox
options and warrants will become exercisable for Company common shares.
In connection with the acquisition of Equinox, the Company expects to
issue approximately 6.3 million Company common shares, including shares
issuable upon exercise of outstanding options and warrants.
The Board of Directors of the Company and Equinox have each approved
the Acquisition Agreement. However, the transactions contemplated by the
Acquisition Agreement are subject to a number of conditions including,
without limitation, approval by Equinox shareholders, and approval by a
Canadian court of the Plan of Arrangement.
Assuming the transaction is consummated as planned, the acquisition
will be treated as a pooling-of-interests, and accordingly, the
F-9
<PAGE> 55
consolidated financial statements will be restated to reflect the accounts
of Equinox.
Pro forma unaudited results of operations assuming the merger had
occurred on January 1, 1991, are as follows (in thousands except per-share
data):
<TABLE>
<CAPTION>
1993 1992 1991
--------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 93,760 $ 101,621 $ 117,568
Net loss applicable to
common shareholders (18,180) (55,276) (15,521)
Net loss per common share (0.60) (1.59) (0.46)
</TABLE>
The pro forma information above includes adjustments related to
conforming Equinox's accounting policies for income taxes, reclamation,
asset recoverability, and exploration costs to those of the Company.
Mountain West Bark Products, Inc.
In December 1993, the Company acquired all of the issued and
outstanding common stock of Mountain West Bark Products, Inc. (Mountain
West) through the issuance of 655,000 shares of the Company's common
stock. Mountain West is engaged primarily in the purchasing, processing
and marketing of certain waste products from lumber milling operations in
the western intermountain region. These products are sold as soil
amendments, landscape mulches and decorative ground cover for landscape
purposes. The transaction has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities have been recorded at
their estimated fair value at December 1, 1993, the date of the
acquisition. Mountain West's operating results have been included in the
consolidated financial statements since that date and were immaterial to
the Company. Results of operations of Mountain West prior to December 1,
1993, were not material and, therefore, are not presented. The value of
the Company's common shares issued in this transaction was approximately
$6,305,000. Goodwill of $1,733,000 was recorded in the transaction and is
being amortized straight-line over 15 years.
F-10
<PAGE> 56
Note 3: Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
Concentrates and metals in transit
and other products $ 1,189 $ 1,779
Industrial minerals products 5,260 4,192
Materials and supplies 6,573 6,681
-------- --------
$ 13,022 $ 12,652
======== ========
</TABLE>
At December 31, 1993, the Company had forward sales commitments for
4,500 ounces of gold at an average price of $363 per ounce. The
commitments are for delivery in February 1994. There is no silver
committed to forward sales at December 31, 1993. The Company purchased
options to put 41,880 ounces of gold to the counterparties at an average
price of $385 per ounce. Concurrently, the Company sold options to allow
the counterparties to call 41,880 ounces of gold from the Company at an
average price of $453 per ounce. There was no net cost associated with
the purchase and sale of these options.
Note 4: Investments
Investments consist of the following components (in thousands):
<TABLE>
<CAPTION>
Carrying Market
Value Cost Value
------ -------- --------
<S> <C> <C> <C>
December 31, 1993
-----------------
Marketable equity securities $ 23 $ 31 $ 23
Other investments 6,188 6,188
-------- --------
$ 6,211 $ 6,219
======== ========
December 31, 1992
-----------------
Marketable equity securities $ 16 $ 32 $ 16
Other investments 4,806 4,806
-------- --------
$ 4,822 $ 4,838
======== ========
</TABLE>
At December 31, 1993, the portfolio of noncurrent marketable equity
securities includes gross unrealized gains of approximately $9,000 and
gross unrealized losses of approximately $17,000. The other investments
are principally large blocks of common and preferred stock in several
mining companies, investments in various ventures, and cash surrender
value of life insurance policies. The securities are generally
restricted as to trading or marketability, although some are traded on
various exchanges.
At December 31, 1993, other investments with a carrying value of
$5,430,632 had an estimated fair value of $7,689,811 based on the quoted
market price for such securities and cash values of life insurance
policies. For the remaining other investments, for which there are no
reliable quoted market prices, a reasonable estimate of fair value could
not be made without incurring excessive costs.
F-11
<PAGE> 57
During the fourth quarter of 1992, the Company wrote down its common
stock investment in Granduc Mines Limited (Granduc) to current estimated
market value. The $2.1 million write-down of this investment was
recorded to reflect the apparent other- than-temporary decline in market
value of the common stock investment due to continued depressed metal
prices. At December 31, 1993, the Company's carrying value of its
Granduc common stock investment was approximately $1,488,000.
On January 24, 1994, the Company sold its entire investment in
Granduc by selling 2,000,000 Granduc common shares to Conwest Exploration
Company Limited and 815,330 Granduc common shares to Jascan Resources
Inc., both of which are Toronto, Ontario, Canada based companies. The
Company recognized a gain on the sale of approximately $1,327,000 in the
first quarter of 1994.
On June 30, 1993, the Company sold substantially all of its interest
in Acadia Mineral Ventures Limited, a previously consolidated subsidiary,
to Kingswood Resources, Inc., a Canadian exploration and development
company, for (C)$350,000 cash, plus 5,000,000 Kingswood Resources, Inc.
common shares. The Company recognized a loss on the sale of
approximately $120,000 in the second quarter of 1993.
Note 5: Properties, Plants and Equipment
The major components of properties, plants and equipment are (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1993 1992
--------- ---------
<S> <C> <C>
Mining properties $ 54,984 $ 39,811
Deferred development costs 154,005 127,529
Plants and equipment 178,640 167,873
Land 6,163 6,176
--------- ---------
393,792 341,389
Less accumulated depreciation,
depletion and amortization 170,922 161,562
--------- ---------
Net carrying value $ 222,870 $ 179,827
========= =========
</TABLE>
Based on its periodic reviews of the status of various mining
properties and investments, the Company determined in the fourth quarter
of 1992 that certain adjustments were appropriate to properly reflect
estimated net realizable values. These adjustments consisted primarily
of the write-downs of various properties, plants and equipment totaling
approximately $28.0 million. The major portion of the adjustments
related to the $13.5 million write-down of the Company's interest in the
Apex Unit, a hydrometallurgical processing plant near St. George, Utah.
The Company continues to evaluate the feasibility of custom recoveries of
specialty metals and chemical products. Also in 1992, due to depressed
silver prices, the Company recorded write-downs of approximately $9.0
million related to the Consolidated Silver and Hog Heaven silver
properties, located in North Idaho and northwest Montana, respectively.
The Lisbon Valley Project in Utah, a joint venture which is fully
developed for uranium and vanadium production, was also written down in
1992 by approximately $3.5 million to its estimated net realizable value.
Included in the 1992 write-downs were approximately $1.5 million and $0.4
million
F-12
<PAGE> 58
related to the Company's interests in the Creede and Hardscrabble gold
and silver properties, respectively, both located in Colorado.
On May 19, 1992, the Company acquired interests in a number of
Mexican mineral concessions for approximately $2.9 million. The purchase
consideration included the issuance of 184,862 shares of the Company's
common stock valued at $1.8 million.
The net carrying values of the major mining properties of the
Company that were on a standby or idle basis at December 31, 1993 and
1992 were approximately $55.3 million and $5.3 million, respectively.
Operations at the Greens Creek mine, with a net carrying value of $49.2
million at December 31, 1993, were suspended in April 1993 pending
improvement in lead, zinc and silver prices.
On February 8, 1994, the Company sold a 20 percent interest in its
Grouse Creek gold project to Great Lakes Minerals Inc. of Toronto,
Ontario. The purchase price of $6.8 million represents 20 percent of the
amount spent by the Company on acquisition, exploration and development
of the project through June 30, 1993, including a fixed premium of $1.25
million. In addition, Great Lakes will fund its pro-rata share of the
total construction cost for Grouse Creek from July 1, 1993 to the
completion of the project which is currently estimated at $90.0 million,
and has the option to increase its ownership to a maximum of 30 percent
by contributing additional funds on a proportional basis.
Note 6: Income Taxes
Major components of the Company's income tax provision (benefit) are
as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ (200) $ (390) $(1,375)
State 226 165 248
------- ------- -------
Total current 26 (225) (1,127)
------- ------- -------
Deferred:
Federal (728) (17) (1,390)
State (236) (103) (39)
------- ------- -------
Total deferred (964) (120) (1,429)
------- ------- -------
Income tax benefit $ (938) $ (345) $(2,556)
======= ======= =======
</TABLE>
F-13
<PAGE> 59
Effective January 1, 1992, the Company adopted the provisions of
SFAS No. 109. As of January 1, 1992, the Company recorded a tax benefit
of approximately $1.5 million ($0.049 per common share), which represents
the net decrease in the deferred tax liability as of that date. This has
been reflected in the consolidated statement of operations as a component
of the cumulative effect of changes in accounting principles.
In 1992 and 1991, for income tax purposes, the Company carried back
current operating losses to offset income recorded in prior years and
recorded income tax refunds of approximately $390,000 and $2.2 million,
respectively.
The sources of significant temporary differences which gave rise to
the deferred tax provision (benefit) and their effects were as follows
(in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Depreciation, depletion, deferred
development and exploration costs $ 5,739 $ 196 $ 311
Utilization of capital losses (941) 2,428 (1,740)
Reclamation costs 476 (3,457) (87)
Reduction in carrying values of
mining properties, plants and
equipment - - (8,826) - -
Gain on sale of mineral property - - - - (466)
Unrealized losses on marketable
equity securities (84) (1,491) 580
Increase of investment tax credits
available to reduce deferred taxes - - - - (109)
Change in valuation allowance
associated with the ability to
use net operating losses (6,361) 11,168 - -
Postretirement benefits (3) (543) - -
Alternative minimum tax credit
carryforward
156 390 - -
Other, net 54 15 82
------- ------- -------
$ (964) $ (120) $(1,429)
======= ======= =======
</TABLE>
F-14
<PAGE> 60
The components of the net deferred tax liability as of December 31,
1993 and 1992, were as follows (in thousands):
<TABLE>
<CAPTION>
1993
-----------------------------------------
Deferred Tax
--------------------------
Assets Liabilities Total
-------- ----------- --------
<S> <C> <C> <C>
Accrued reclamation costs $ 5,739 $ 5,739
Investment valuation differences 1,754 1,754
Miscellaneous 2,039 2,039
Postretirement benefits
other than pensions 742 742
Other liabilities 188 188
Deferred compensation 406 406
Accounts receivable 456 456
Properties, plants and equipment $(19,309) (19,309)
Deferred income (440) (440)
Pension costs (477) (477)
Deferred state income taxes, net (2,271) (2,271)
-------- -------- --------
Total temporary difference 11,324 (22,497) (11,173)
-------- -------- --------
Mexican net operating losses 1,280 1,280
Federal net operating losses 55,598 55,598
State net operating losses 4,359 4,359
Tax credit carryforwards 1,626 1,626
-------- --------
Total net operating losses
and tax credits 62,863 62,863
-------- --------
Valuation allowance (52,049) (52,049)
-------- -------- --------
Net deferred tax assets
and liabilities $ 22,138 $(22,497) $ (359)
======== ======== ========
</TABLE>
F-15
<PAGE> 61
<TABLE>
<CAPTION>
1992
---------------------------------------
Deferred Tax
-----------------------
Assets Liabilities Total
------- ----------- --------
<S> <C> <C> <C>
Accrued reclamation costs $ 5,833 $ 5,833
Investment valuation differences 1,670 1,670
Miscellaneous 1,236 1,236
Postretirement benefits
other than pensions 738 738
Other liabilities 698 698
Deferred compensation 532 532
Accounts receivable 456 456
Properties, plants and equipment $(13,570) (13,570)
Deferred income (516) (516)
Pension costs (315) (315)
Deferred state income taxes, net (1,153) (1,153)
-------- -------- --------
Total temporary difference 11,163 (15,554) (4,391)
-------- -------- --------
Federal net operating losses 46,645 46,645
State net operating losses 3,248 3,248
Tax credit carryforwards 1,630 1,630
Alternative minimum tax
credit carryforwards 156 156
-------- --------
Total net operating losses
and tax credits 51,679 51,679
-------- --------
Valuation allowance (48,611) (48,611)
-------- -------- --------
Net deferred tax assets
and liabilities $ 14,231 $(15,554) $ (1,323)
======== ======== ========
</TABLE>
The Company has recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized
principally due to expiration of net operating losses and tax credit
carryforwards. The change in the valuation allowance is as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Balance at beginning of year $(48,611) $(26,148)
Net increase in allowance related
to uncertainty of recovery of
net operating loss carryforwards (3,438) (24,891)
Utilization of capital loss
carryforwards - - 2,428
-------- -------
Balance at end of year $(52,049) $(48,611)
======== ========
</TABLE>
F-16
<PAGE> 62
The annual tax benefit is different from the amount which would be
provided by applying the statutory federal income tax rate to the
Company's pretax loss. The reasons for the difference are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 % 1992 % 1991 %
-------- --- ------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Computed "statutory"
benefit $(4,309) (34) $(16,841) (34) $(6,115) (34)
Effect of adjustments
associated with the
alternative minimum tax - - - - - - - - 3,594 20
Investment and foreign tax credits - - - - - - - - (202) (1)
Nonutilization of net
operating losses 3,508 28 16,455 33 - - - -
State income taxes, net of
federal tax benefit (137) (1) 41 - - 167 1
------- --- ------- ---- ------- ---
Income tax benefit $ (938) (7) $ (345) (1) $(2,556) (14)
======= === ======= ==== ======= ===
</TABLE>
Certain of the Company's net operating loss carryovers are
attributed to preference related items, and therefore are not available
to offset alternative minimum taxable income. However, they are
available to offset future regular taxable income. At December 31, 1993,
the Company had tax basis net operating loss carryovers available to
offset future regular and alternative minimum taxable income. These
carryovers expire as follows (in thousands):
<TABLE>
<CAPTION>
Regular Tax Net Alternative Minimum Tax
Operating Losses Net Operating Losses
---------------- -----------------------
<S> <C> <C>
1994 $ 11,009
1995 12,590 $ 5
1996 268 268
1997 2,020 695
1998 11,005 308
1999 6,235 1,199
2000 3,089 789
2001 4,538 1,683
2002 1,359 346
2003 1,150 623
2004 13,131 532
2005 17,201 878
2006 25,000 3,105
2007 27,088 17,414
2008 27,840 22,731
-------- -------
$163,523 $50,576
======== =======
</TABLE>
In addition to the above, the Company had Mexican tax net operating
loss carryovers totaling $1,280,000, which expire in 1998.
During 1992, the Company used prior year capital loss carryovers of
approximately $7.4 million to offset 1992 capital gains. At December 31,
1993, for income tax purposes, the Company had approximately $6.0 million
of alternative minimum tax net operating losses generated by CoCa Mines
Inc. prior to its merger with the Company in 1991. Due to the merger,
F-17
<PAGE> 63
there are limitations on the amount of these net operating losses that
can be utilized in any given year to reduce certain future taxable
income.
Note 7: Long-Term Debt and Credit Agreement
Long-term debt at December 31, 1993 and 1992, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Zero coupon convertible notes $ 48,433 $ 69,376
Notes payable 962 917
Other long-term debt 94 89
-------- --------
$ 49,489 $ 70,382
======== ========
</TABLE>
Zero Coupon Convertible Notes
During 1989, the Company issued subordinated zero coupon convertible
notes, due June 14, 2004, with a face value at maturity of $201,250,000.
These Liquid Yield Option Notes (LYONs) were issued at 30.832% of their
face value at maturity which results in an 8% yield compounded
semiannually to maturity. These notes are carried net of original issue
discount, which is being amortized by the interest method over the life
of the issue. The outstanding balances at December 31, 1993 and 1992,
include the accrued original issue discount. The noteholder, at his
option, may convert each note with a face value of $1,000 into 20.824
shares of the Company's common stock. The notes are redeemable in cash
at any time at the option of the Company, in whole or in part, at
redemption prices equal to the issue price plus original issue discount
to the date of redemption. The Company will purchase any note with a
face value of $1,000 at the option of the holder on June 14, 1994 (Put
Feature), at a purchase price of $456.39 (issue price plus original issue
discount to such date). The Company, at its option, may pay such
purchase price in cash, shares of common stock or extension notes, but
not in any combination thereof. However, because of the Company's need
to utilize cash for planned capital expenditures, absent any action by
the Company, it will pay for any LYONs delivered to it pursuant to the
Put Feature by issuing Company common stock. The Company is unable to
predict how many LYONs it may be required to purchase pursuant to the Put
Feature and cannot predict what effect the Put Feature will have on the
market price of Company common stock.
The Company is currently considering several alternatives with
respect to the Put Feature. Among the alternatives being examined by the
Company is the sale of additional shares of the Company's common stock
(or other Company securities) with the proceeds of such an offering being
used to pay cash for LYONs delivered to the Company pursuant to the Put
Feature (and any remaining proceeds would be used for the Company's
capital expenditures). The Company is also considering amending certain
terms of the LYONs in order to make it less likely that the Put Feature
will be exercised on June 14, 1994, including changing the conversion
ratio to increase the number of shares of the Company's common stock that
would be issuable for each LYON. If either of these alternatives is
pursued, then additional shares of Company common stock could be issued,
although the Company's intent with respect to these alternatives is to
issue less shares of Company common stock (other than any securities sold
to raise additional funds for capital expenditures) than would be the
case if the Company was
F-18
<PAGE> 64
required to repurchase all of the outstanding LYONs pursuant to the Put
Feature on June 14, 1994. However, if the Company takes no action with
respect to the Put Feature and is required to purchase all of the
outstanding LYONs on June 14, 1994, based upon year end market prices
($11.63 on December 31, 1993), the Company would have to issue
approximately 4,300,000 shares of Company common stock. There can be no
assurance that the Company will determine to pursue, or be successful in
pursuing, any alternative (including and in addition to the alternatives
discussed above) to reduce the likelihood that the Put Feature will
result in the issuance of a significant amount of the Company's common
stock.
At December 31, 1993, remaining deferred debt issuance costs of
approximately $1.4 million incurred in connection with the issuance of
this debt is being amortized using the interest method over the life of
the issue.
On May 19, 1992, the Company exchanged 1,120,125 shares of its
common stock for 30,900 outstanding LYONs. In the noncash transaction,
the Company recorded the issuance of common stock totaling approximately
$11.2 million and the reduction of long- term debt and deferred issuance
costs totaling approximately $12.0 million and $0.3 million,
respectively, recognizing a gain totaling approximately $0.5 million.
On April 29, 1993, the Company exchanged 2.2 million shares of its
common stock for 60,400 outstanding LYONs. The Company recorded the
issuance of common stock totaling approximately $24.4 million and the
reduction of long-term debt and deferred issuance costs totaling
approximately $25.2 million and $0.5 million, respectively, recognizing a
gain from this transaction of approximately $0.3 million. The market
value of the outstanding LYONs at December 31, 1993, is $48.4 million
based on quoted market prices for the debt.
Notes Payable
The notes are noninterest-bearing, discounted at 15% and payable in
three annual equal amounts from the date of commercial production of the
Grouse Creek property which is currently estimated to be October 1994.
The fair value of these notes payable approximates the carrying value at
December 31, 1993.
Revolving Credit Agreement
On January 25, 1993, the Company entered into a secured reducing
revolving credit facility. The agreement provided for reducing revolving
credit advances of up to $24.0 million. On November 11, 1993, the
Company amended this agreement to provide for reducing revolving credit
advances of up to $30.0 million. There were no outstanding borrowings
under this agreement at December 31, 1993. Pursuant to the amended
agreement, the availability under the facility reduces as follows:
<TABLE>
<CAPTION>
Scheduled Base Commitment Base Commitment
Reduction Date Reduction Available
----------------- --------------- ----------------
<S> <C> <C>
December 31, 1995 $ 3,750,000 $26,250,000
March 31, 1996 3,750,000 22,500,000
June 30, 1996 3,750,000 18,750,000
September 30, 1996 3,750,000 15,000,000
December 31, 1996 15,000,000 - -
</TABLE>
F-19
<PAGE> 65
Commitment fees are 1/2 of 1 percent on the average daily unused
portion of the base commitment. The interest rate options are a
specified bank's reference rate plus 1/2 percent, a CD Rate plus 1 5/8
percent or the Offshore Rate plus 1 1/2 percent. No compensating
balances are required. Borrowings under the agreement are collateralized
by the Company's accounts receivable, inventories, and specified
marketable securities. The agreement contains restrictive covenants,
among others, concerning the maintenance of a minimum net worth, current
ratio, leverage ratio, and fixed charge coverage ratio.
Note 8: Contingencies
The Company has received notices from the United States
Environmental Protection Agency (EPA) that it and numerous other parties
are potentially responsible to remediate alleged hazardous substance
releases at several sites under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 (CERCLA or Superfund). In
addition, in January of 1985, the Company was named, along with a number
of other parties, as a third-party defendant in a suit initially brought
by the State of Colorado against ASARCO Inc. in December 1983 in Colorado
Federal District Court under CERCLA to recover natural resource damages
allegedly caused by releases of hazardous substances into the environment
from the Yak Tunnel, located near Leadville, Colorado (Leadville Site).
The third-party complaint seeks contribution from the third-party
defendants for damages which ASARCO may be held liable for in the primary
action. In August 1986, the Company was named a defendant in a lawsuit
brought in Colorado Federal District Court by the United States of
America against the Company and a number of other parties seeking to
recover the United States' response costs under CERCLA incurred or to be
incurred at the Leadville Site covered by the State of Colorado lawsuit
filed previously. The state and federal government CERCLA litigation
related to the Leadville Site was consolidated into a single lawsuit on
February 2, 1987. In September 1991, the Company entered into an Order
on Consent with the EPA and the Department of Justice pursuant to which
the Company and the federal government agreed to a three-step process for
settling the Company's liability to the federal government at the
Leadville Site. As a step in the three-step settlement process, on
January 6, 1993, the Colorado Federal District Court entered a Partial
Consent Decree between the United States and the Company which resolves
all issues concerning the Company's alleged liability to the United
States for response costs at the site, except for response costs related
to certain mill tailings impoundments located at the Leadville Site. The
Company paid the United States $450,000 under the decree. The other two
steps in the settlement process at the site relate to the Company
finalizing a study of any environmental impacts associated with the
tailings impoundments and implementing the appropriate response activity
to address these impacts. In July 1993, the Company completed and
delivered to EPA the study report analyzing the environmental impacts
associated with the tailings impoundments. Based on that study report,
EPA has selected a response action for the tailings impoundments which
requires capping and providing of vegetation cover for the tailings
impoundments. The Company has recently finalized the terms of a consent
decree with the federal government providing for the payment by the
Company of $516,000 to cover a portion of EPA's past costs at the site
and a portion of the costs of the selected response action for the
tailings impoundments. The consent decree is in the process of being
signed by all parties and must also be approved by the Colorado Federal
District Court. Upon final approval of the consent decree, the Company
will be released from liability for response costs for
F-20
<PAGE> 66
the entire Leadville Site. In November 1991, the Company finalized a
settlement with two primary liability insurers concerning insurance
coverage for the Company's environmental liability at the Leadville Site.
The monies received in the insurance settlement in November 1991 are
sufficient to cover the Company's CERCLA liability at the site.
In October 1989, and again in February 1990, the Company was
notified by the EPA that the EPA considered the Company a Potentially
Responsible Party (PRP) at the Bunker Hill Superfund Site located at
Kellogg, Idaho (Bunker Hill Site). The EPA has also notified a number of
other companies involved in mining or smelting activities in the site
area that the EPA has determined they are also PRPs at the site. The EPA
has asserted that all PRPs, including the Company, are responsible for
the EPA's response costs and for remediating the Bunker Hill Site as a
result of the parties' release of hazardous substances at or into the
site. In August 1991, the EPA issued a Record of Decision regarding the
remedial action plan for the populated areas of the site. During the
summers of 1990, 1991, 1992, and 1993, the Company participated, along
with a number of other PRPs at the site, in a number of Orders on Consent
pursuant to which the participating PRPs agreed to undertake certain
limited remedial activities related to the populated areas of the site.
The Company has also participated with Gulf USA Corporation, one of the
PRPs at the site, in an Order on Consent with the EPA pursuant to which
the Company and Gulf USA agreed to undertake certain remedial activity
with regard to the hillsides located within the site. The EPA's Record
of Decision covering the nonpopulated areas of the site was issued on
September 22, 1992. On November 4, 1992, the EPA issued special notice
letters under CERCLA to the Company and a number of other PRPs at the
site demanding reimbursement of the federal government's past response
costs and implementation of the remedial activity covered by the two
previous Records of Decision issued for the site. In November 1992, the
major PRPs at the site, including the Company, agreed to an allocation of
most of the future remedial activity at the site under the Records of
Decision. The allocation is between two PRP groups. One PRP group is
principally made up of mining companies who operated upstream from the
site, and the second PRP group is made up of Gulf USA and other companies
who had mining, smelting, or related operations within the site. The
allocation for remedial activity among the two PRP groups is based upon a
number of factors, including each PRP's level of activity affecting the
site and an estimate of the costs to implement the various portions of
the site remediation. On January 11, 1993, the Company and certain other
PRPs who had received the special notice letters submitted to the EPA an
offer which the PRPs deemed should satisfy the government's requirements
under CERCLA for a good-faith offer. Under the terms of the offer, the
Company and a subset of the participating PRPs would assume
responsibility for most residential and commercial soils remediation and
other incidental and related activities. A different PRP sub-group, of
which the Company is not a member but which includes Gulf USA, would be
responsible for implementing most of the remaining site's remedial
activities. The responsibility of each PRP group would be several from
the responsibilities of the other group, but would be joint and several
among the PRPs within each group. The Company estimates most of the
proposed remedial activity at the site will be undertaken over a period
of five to seven years. The PRPs' good-
F-21
<PAGE> 67
faith offer did not include payment of any of the government's past
response costs. In October 1993, Gulf USA filed voluntary bankruptcy
under Chapter 11 of the United States Bankruptcy Code. Notwithstanding
Gulf's bankruptcy filing, the PRP group including the Company has
recently finalized the terms of a consent decree with the federal
government generally along the allocation of liability set forth in the
PRP's good-faith offer. The Company and the other PRPs participating in
the consent decree have also agreed to an allocation of costs to
implement the work at the Bunker Hill Site under the terms of the consent
decree. The consent decree at the Bunker Hill Site is in the process of
being executed by all parties and will also be subject to Idaho Federal
District Court approval.
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit,
under CERCLA, in Idaho Federal District Court against the Company and a
number of other mining companies asserting claims for damages to natural
resources located downstream from the Bunker Hill Site over which the
Tribe alleges some ownership or control. The Company has answered the
Tribe's complaint denying liability for natural resource damages and
asserted a number of defenses to the Tribe's claims, including a defense
that the Tribe has no ownership or control over the natural resources
they assert have been damaged. In July 1992, the Idaho Federal District
Court, in a separate action, determined that the Coeur d'Alene Indian
Tribe does not own the beds, banks and waters of Lake Coeur d'Alene and
the lower portion of its tributaries, the ownership of which is the
primary basis for the natural resource damage claims asserted by the
Coeur d'Alene Indian Tribe against the Company. Based upon the Tribe's
appeal of the July 1992 district court ownership decision to the 9th
Circuit U.S. Court of Appeals, the court in the natural resource damage
litigation issued an order on October 30, 1992, staying the court
proceedings in the natural resource damage litigation until a final
decision is handed down on the question of the Tribe's title.
In 1991, the Company initiated litigation in the Idaho State
District Court in Kootenai County, Idaho, against a number of insurance
carriers which provided comprehensive general liability insurance
coverage to the Company and its predecessors. The Company believes that
the insurance companies have a duty to defend and indemnify the Company
under their policies of insurance relating to claims asserted against the
Company by the EPA and by the Coeur d'Alene Indian Tribe. In two
separate decisions issued in August 1992 and in March 1993, the court
ruled that the named primary insurance companies had a duty to defend the
Company in the Tribe's lawsuit, but that no carrier had a duty to defend
the Company in the EPA proceeding. The Company has not reduced its
environmental accrual to reflect any anticipated insurance proceeds.
The Records of Decision with respect to both the populated and
nonpopulated areas for the Bunker Hill Site indicate that future
remediation costs total approximately $93.0 million. Additionally, the
federal government has asserted that they have incurred approximately
$17.0 million in past costs at the site. Because CERCLA assigns joint
and several liability among the PRPs, any one of the PRPs, including the
Company, could be assessed the entire cost of remediation. However,
based upon the terms of the consent decrees and related agreements for
the Bunker Hill and Leadville Sites, as described above, the Company has
accrued an amount for the Company's share of such remediation and other
costs that management presently believes is the most likely amount that
the Company will be required to fund. Based upon this analysis, in the
fourth quarter of 1993, the Company increased its allowance for CERCLA
Superfund Site remedial action costs at the Bunker Hill and Leadville
Sites by approximately $0.2 million and $0.3 million, respectively. The
total allowance for liability for remedial activity costs at the Bunker
Hill and Leadville Sites is $10.2 million and $0.5 million, respectively,
as of December 31, 1993. Other than consulting work necessary for the
implementation of the Company's allocated portion of the remedial
activity at these sites, the Company's accruals do not include any future
legal or
F-22
<PAGE> 68
consulting costs. The Company does not believe that these costs will be
material. In addition, the Company has not included any amounts for
unasserted claims at these or any other sites because the Company's
potential liability has not been asserted or established and amounts, if
any, of potential liability are impossible to determine. During 1993,
1992 and 1991, the Company expensed approximately $0.8 million, $8.6
million and $2.8 million, respectively, in connection with the Superfund
Sites.
In December 1993, Industrial Contractors Corp. (ICC) served the
Company with a complaint in Federal District Court for the District of
Idaho alleging that the Company failed to comply with the terms of the
contract between the Company and ICC relating to the earth moving work
contracted to ICC at the Company's Grouse Creek gold project. ICC has
alleged that the Company owes ICC in excess of $5.0 million not
previously paid, including an approximate $1.0 million retention
currently held by the Company under the terms of the contract. The
Company terminated ICC's work at the Grouse Creek gold project effective
November 26, 1993, pursuant to its rights in the contract and is
proceeding to rebid the second season of work originally contracted to
ICC. The Company has answered the complaint denying the allegations of
ICC and has filed a counterclaim against ICC in excess of $2.0 million
for damages incurred by the Company as a result of ICC's failure to
comply with the terms of the contract. The litigation is in the early
stages of discovery; however, the Company hopes to be able to mediate the
dispute with ICC prior to proceeding to trial.
A jury trial is scheduled to commence in March 1994 in Idaho State
District Court with respect to a lawsuit previously filed against the
Company by Star Phoenix Mining Company (Star Phoenix), a former lessee of
the Star-Morning Mine, over a dispute between the Company and Star
Phoenix with respect to the Company's November 1990 termination of Star
Phoenix's lease of the Star-Morning Mine property. Star Phoenix, which
is in bankruptcy, alleges the Company wrongfully terminated the lease
agreement and interfered the Star Phoenix's contractual relationship with
a major vendor and the purchase of concentrates for the Star Phoenix
operations. In addition, certain principals of Star Phoenix who
guaranteed a portion of the Star Phoenix obligations have made similar
claims against the Company. In each case the plaintiffs have asserted
that they have incurred damages amounting to millions of dollars as a
result of the Company's actions. It is the Company's position that the
plaintiffs' claims are without merit and that the Company terminated the
lease agreement in accordance with the terms of the agreement. The
Company believes it has sufficient defenses to all the plaintiffs'
claims, and that the Company will ultimately prevail in this litigation.
The Company is subject to other legal proceedings and claims which
have arisen in the ordinary course of its business and have not been
finally adjudicated. These actions when ultimately concluded and
determined and any remaining unaccrued potential liability at the
Superfund sites addressed above, will not, in the opinion of management,
have a material effect on results of operations or the financial
condition of the Company and its subsidiaries.
Note 9: Employee Benefit Plans
The Company and certain subsidiaries have pension plans covering
substantially all employees. One plan covering eligible salaried and
hourly employees provides retirement benefits and is based on the
employee's compensation during the highest 36 months of the last 120
months
F-23
<PAGE> 69
before retirement. Three other pension plans covering eligible hourly
employees provide benefits of stated amounts for each year of service.
It is the Company's policy to make contributions to these plans
sufficient to meet the minimum funding requirements of applicable laws
and regulations, plus such additional amounts, if any, as the Company and
its actuarial consultants consider appropriate. Contributions are
intended to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future. Plan assets for
these plans consist principally of equity securities, insurance contracts
and corporate and U.S. government obligations.
Net periodic pension cost (income) for the plans consisted of the
following in 1993, 1992 and 1991 (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Service cost $ 961 $ 872 $ 665
Interest cost 1,899 1,732 1,735
Return on plan assets (2,924) (2,849) (2,265)
Amortization of transition asset (434) (434) (443)
Amortization of unrecognized
prior service cost 45 45 45
Amortization of unrecognized net
(gain) loss from earlier periods 6 (305) - -
------- ------- -------
Net pension income $ (447) $ (939) $ (263)
======= ======= =======
</TABLE>
F-24
<PAGE> 70
The following table sets forth the funded status of the plans and
amounts recognized in the Company's consolidated balance sheets at
December 31, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits $ 27,771 $ 26,171
Nonvested benefits 764 395
-------- --------
Accumulated benefit obligations 28,535 26,566
Effect of projected future salary
and wage increases 2,205 1,701
-------- --------
Projected benefit obligations $ 30,740 $ 28,267
======== ========
Plan assets $ 35,135 $ 35,299
Projected benefit obligations (30,740) (28,267)
-------- --------
Plan assets in excess of projected
benefit obligations 4,395 7,032
Unrecognized net gain (253) (2,643)
Unrecognized prior service cost 778 519
Unrecognized net asset
at January 1 (3,515) (3,950)
-------- --------
Pension asset recognized in
consolidated balance sheets $ 1,405 $ 958
======== ========
</TABLE>
The projected benefit obligation was calculated applying the
following average rates:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Discount rate 6.50% 7.00%
Long-term compensation increase 5.00% 6.00%
Long-term rate of return on
plan assets 8.50% 8.50%
</TABLE>
In 1988, 1991 and again in 1992, the Company offered a special early
retirement option to participants in the Hecla retirement plan with no
actuarial reduction in their accrued benefit for early retirement. The
costs associated with the 1988 special early retirement program were
accrued in 1988 and are being funded out of general corporate funds until
the participant reaches normal retirement age or age 60 with 30 years of
service, at which time payments will be made by the related pension
trust. The 1991 and 1992 special early retirement programs are being
funded out of the related pension trust.
The Company provides certain postretirement benefits, principally
health care and life insurance benefits for qualifying retired employees.
The costs of these benefits are being funded out of general corporate
funds. Prior to 1992, the cost of some of these benefits was expensed
when payments were made. Other health care and life insurance benefits
had been previously accrued. Effective January 1, 1992, the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No.
106), which
F-25
<PAGE> 71
requires that these postretirement benefits be accrued over the period in
which active employees provide services to the Company. At January 1,
1992, the cumulative effect of recording these postretirement benefits
was to increase the 1992 net loss by $1.6 million or $0.051 per share.
Net periodic postretirement benefit cost for 1993 and 1992 included
the following components (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Service cost $ 28 $ 22
Interest cost 164 179
---- ----
Net postretirement benefit cost $192 $201
==== ====
</TABLE>
Postretirement benefit costs under the previous method were $40,000
in 1991.
The following table sets forth the status of the postretirement
benefits programs (other than pensions) and amounts recognized in the
Company's consolidated balance sheets at December 31, 1993 and 1992 (in
thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(1,569) $(2,011)
Fully eligible, active plan participants (355) (113)
Other active plan participants (242) (220)
------- -------
(2,166) (2,344)
Unrecognized net (gain) loss (191) 50
------- -------
Accumulated postretirement benefit obligation
recognized in consolidated balance sheet $(2,357) $(2,294)
======= =======
</TABLE>
The actuarial assumptions used in determining the Company's
accumulated postretirement benefit obligation are provided in the table
below. Due to the short period which the Company provides medical
benefits to its retirees, the increases in medical costs are assumed to
be 6% in each year. A 1% change in the assumed health care cost trend
rate would not have a significant impact on the accumulated
postretirement benefit obligation or the aggregate of service and
interest cost for 1993 or 1992.
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Discount rate 6.50% 7.00%
Trend rate for medical benefits 6.00% 6.00%
</TABLE>
The Company has a Deferred Compensation Plan which permits eligible
officers and directors to defer a portion of their compensation. The
deferred compensation, which together with Company matching amounts and
accumulated interest is accrued but unfunded, is distributable in cash
after retirement or termination of employment, and at December 31, 1993
and 1992, amounted to approximately $1.2 million. The Company has
insured the lives of certain officers, who participate in the deferred
compensation program, to assist in the funding of the deferred
compensation liability. The Company is the owner and beneficiary of the
insurance policies. At
F-26
<PAGE> 72
December 31, 1993, the cash surrender value of these policies was $2.4
million, which is net of $2.2 million of policy loans.
The Company has an employees' Capital Accumulation Plan (Plan) which
is available to all salaried and certain hourly employees after
completion of one year of service. Employees may contribute from 2% to
10% of their compensation to the Plan. Effective January 1, 1993,
nonhighly compensated employees may contribute up to 15%. The Company
makes a matching contribution of 25% of an employee's contribution up to,
but not exceeding, 5% of the employee's earnings. The Company's
contributions for both 1993 and 1992 were approximately $158,000 and
$149,000 for 1991.
Note 10: Shareholders' Equity
Preferred Stock
In June 1993, the Company completed a public offering of 2.3 million
shares of Series B Cumulative Convertible Preferred Stock, par value
$0.25 per share (the Preferred Shares). The shares were sold for $50
each and the Company received net proceeds of $110,346,000 from the
offering. Holders of the Preferred Shares are entitled to receive
cumulative cash dividends at the annual rate of $3.50 per share payable
quarterly, when and if declared by the Board of Directors.
The Preferred Shares are convertible in whole or in part at the
option of the holders thereof, into shares of common stock at an initial
conversion price of $15.55 per share of common stock. The Preferred
Shares are not redeemable by the Company prior to July 1, 1996. After
such date, the shares will be redeemable at the option of the Company at
any time, in whole or in part, initially at $52.45 per share and
thereafter at prices declining ratably on each July 1 to $50 per share on
or after July 1, 2003.
Holders of the Preferred Shares have no voting rights except if the
Company fails to pay the equivalent of six quarterly dividends. If these
dividends are not paid, the holders of Preferred Shares, voting as a
class, shall be entitled to elect two additional directors. The holders
of Preferred Shares also have voting rights related to certain amendments
to the Company's Articles of Incorporation.
The Preferred Shares rank senior to the common stock and any
outstanding shares of Series A Preferred Shares. The Preferred Shares
have a liquidation preference of $50 per share plus all accrued and
unpaid dividends.
Shareholder Rights Plan
In 1986, the Company adopted a Shareholder Rights Plan. Pursuant to
this plan, holders of common stock received one preferred share purchase
right for each common share held. The plan was amended effective
November 9, 1990. The rights will be triggered once an Acquiring Person,
as defined, acquires 15% or more of the Company's outstanding common
shares. The 15% triggering threshold may be reduced by the Board of
Directors to not less than 10%. When exercisable, the right would,
subject to certain adjustments and alternatives, entitle rightholders,
other than the Acquiring Person or group, to purchase common stock of the
Company or the acquiring company having a market value of twice the
$47.50 exercise price of the right. The rights are nonvoting, may be
redeemed at any time
F-27
<PAGE> 73
at a price of 5 cents per right prior to the tenth day after an Acquiring
Person acquires 15% of the Company's common stock, and expire in 1996.
Additional details are set forth in the Rights Agreement filed with the
Securities and Exchange Commission on May 19, 1986, and in the amendments
dated November 29, 1990 and September 30, 1991.
Stock Option Plans
In connection with the Company's 1991 acquisition of CoCa Mines Inc.
(CoCa), the Company assumed three preexisting CoCa employee stock option
plans (CoCa Plans), and converted all options then outstanding under the
CoCa Plans into options to acquire shares of the Company's common stock.
No further options will be granted under these CoCa Plans.
The Company adopted a nonstatutory stock option plan in 1987. The
plan provides that options may be granted to certain officers and key
employees to purchase common stock at a price of not less than 50% of the
fair market value at the date of grant. The plan also provides that
options may be granted with a corresponding number of stock appreciation
rights and/or tax offset bonuses to assist the optionee in paying the
income tax liability that may exist upon exercise of the options. All of
the outstanding stock options under the 1987 plan were granted at an
exercise price equal to the fair market value at the date of grant and
with an associated tax offset bonus. Outstanding options under the 1987
plan are immediately exercisable for periods up to ten years. At
December 31, 1993 and 1992, there were 129,148 and 101,748 shares,
respectively, available for grant in the future under the plan. The plan
expires in 1997.
The Company had an incentive stock option plan under which options
were granted to purchase common stock at a price not less than the fair
market value at date of grant. This plan expired in 1992.
The aggregate amounts charged (credited) to operations in connection
with the plans were $309,000, $(165,000) and $170,000 in 1993, 1992 and
1991, respectively.
F-28
<PAGE> 74
Transactions concerning stock options are summarized as follows:
<TABLE>
<CAPTION>
Incentive Nonstatutory Stock
Stock Option Plan Option Plan
---------------------- --------------------- Total
Shares Price Shares Price Shares
-------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Outstanding, December 31, 1990 151,606 $8.54-10.87 424,281 $ 7.12-18.26 575,887
Year ended December 31, 1991:
Exercised (104,980) 8.54-10.87 (38,653) 7.12- 8.54 (143,633)
-------- -------- --------
Outstanding, December 31, 1991 46,626 8.54-10.87 385,628 7.12-18.26 432,254
Year ended December 31, 1992:
Granted - - - - 66,000 10.50 66,000
Exercised - - - - (37,525) 7.12- 8.54 (37,525)
Expired (46,626) 8.54-10.87 (7,500) 10.37 (54,126)
-------- -------- --------
Outstanding, December 31, 1992 - - - - 406,603 7.12-18.26 406,603
Year ended December 31, 1993:
Granted - - - - - -
Exercised - - (86,443) 7.12-12.25 (86,443)
Expired - - (18,500) 10.38-12.25 (18,500)
-------- -------- --------
Outstanding, December 31, 1993 - - 301,660 $ 7.12-18.26 301,660
======== ======== ========
</TABLE>
At December 31, 1993, the Company has outstanding 459,433 warrants
to acquire the Company's common stock at an exercise price of $17.81 and
12,859 warrants to acquire the Company's common stock at an exercise
price of $12.42. The warrants outstanding are exercisable until May 5,
1994. However, such warrants will expire if, at any time after May 15,
1990, upon 60 calendar days prior notice, the Company's common stock has
had an average per share closing public market price of not less than
$22.24 for at least 60 consecutive trading days prior to such expiration
notice.
F-29
<PAGE> 75
Note 11: Business Segments (in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Metals $ 34,851 $ 57,420 $ 77,044
Industrial minerals 44,953 43,231 40,524
Specialty metals 2,043 - - - -
-------- -------- --------
$ 81,847 $100,651 $117,568
======== ======== ========
Gross profit (loss):
Metals $ (4,088) $ (1,142) $ 5,339
Industrial minerals 5,038 5,012 6,215
Specialty metals (504) - - - -
-------- -------- --------
$ 446 $ 3,870 $ 11,554
======== ======== ========
Capital expenditures:
Metals (including $12,826 in
Mexico in 1993) $ 44,821 $ 19,815 $ 14,527
Industrial minerals (including
$5,800 in Mexico in 1993) 11,938 3,203 3,401
Specialty metals - - - - - -
General corporate assets 548 158 957
-------- -------- --------
$ 57,307 $ 23,176 $ 18,885
======== ======== ========
Depreciation, depletion and amortization:
Metals $ 6,818 $ 9,305 $ 16,847
Industrial minerals 3,718 4,188 4,314
Specialty metals 33 - - - -
General corporate assets 392 819 692
-------- -------- --------
$ 10,961 $ 14,312 $ 21,853
======== ======== ========
Identifiable assets:
Metals (including $21,028 in
Mexico in 1993) $126,912 $127,833 $167,794
Industrial minerals (including
$7,054 in Mexico in 1993) 68,068 46,488 47,452
Specialty metals 4,197 - - - -
General corporate assets 78,431 42,850 32,996
Idle facilities 55,270 5,272 9,879
-------- -------- --------
$332,878 $222,443 $258,121
======== ======== ========
</TABLE>
Net sales, costs and identifiable assets of each segment are those
that are directly identified with those operations. General corporate
assets consist primarily of cash, receivables, investments and corporate
property, plant and equipment. As a result of depressed metals prices,
operations were suspended at the Greens Creek mine in April 1993 and the
property was placed on a care-and-maintenance basis pending resumptions
of operations. At December 31, 1993, the Company's recorded net book
value of identifiable assets of the Greens Creek mine was approximately
$50.3 million. This amount has been classified in the Idle Facilities
category at December 31, 1993.
F-30
<PAGE> 76
Letterhead of Coopers & Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
Hecla Mining Company
Our report on the consolidated financial statements of Hecla Mining Company
and subsidiaries is included in this Form 10-K and covers the financial
statements listed under Item 14(a) of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedules listed under Item 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/Coopers & Lybrand
COOPERS & LYBRAND
Spokane, Washington
February 3, 1994, except for
Note 5, as to which the
date is February 8, 1994
F-31
<PAGE> 77
SCHEDULE V
HECLA MINING COMPANY and SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT - For the Years Ended December 31, 1993, 1992 and
1991
(dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ---------------------------------------- ---------- ---------- ----------- ---------------- --------------
Balance at
Beginning Additions Other Change Balance at End
Classification of Period at Cost(1) Retirements Add (Deduct)(2) of Period
- ---------------------------------------- ---------- ---------- ----------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Mining properties $ 39,811 $ 2,067 $ 20 $ 13,126 $ 54,984
Deferred development costs 127,529 40,336 317 (13,543) 154,005
Plants and equipment 167,873 15,615 5,421 573 178,640
Land 6,176 721 800 66 6,163
--------- --------- --------- --------- ---------
$ 341,389 $ 58,739(3) $ 6,558 $ 222 $ 393,792
========= ========= ========= ========= =========
Year ended December 31, 1992:
Mining properties(5) $ 36,105 $ 3,057 $ 7 $ 656 $ 39,811
Deferred development costs 128,858 12,326 1,644 (12,011) 127,529
Plants and equipment 182,468 7,620 5,083 (17,132) 167,873
Land 5,667 173 - - 336 6,176
--------- --------- --------- --------- ---------
$ 353,098 $ 23,176(3) $ 6,734 $ (28,151)(4) $ 341,389
========= ========= ========= ========= =========
Year ended December 31, 1991:
Mining properties(5) $ 35,455 $ 650 $ - - $ - - $ 36,105
Deferred development costs 117,701 11,442 436 151 128,858
Plants and equipment 177,887 7,265 2,533 (151) 182,468
Land 5,550 117 - - - - 5,667
--------- --------- --------- --------- ---------
$ 336,593 $ 19,474(3) $ 2,969 $ - - $ 353,098
========= ========= ========= ========= =========
</TABLE>
Notes:
(1) See Note 1 of Notes to Consolidated Financial Statements
for a description of the Company's depreciation,
depletion and amortization policies. The amounts in 1993
include the acquisition of Mountain West Bark Products,
Inc. for the issuance of 655,000 shares of the Company's
common stock valued at $6.3 million, of which $4.6
million was allocated to property, plant and equipment.
The amounts in 1992 include the acquisition of mineral
concessions for the issuance of 184,862 shares of the
Company's common stock valued at $1.8 million.
(2) Reclassifications primarily to other asset accounts and
transfers between plants and equipment and deferred
development costs.
(3) See "Management's Discussions and Analysis" for major
capital expenditures.
(4) Represents the write-down of the Company's interest in
several mining properties. See Note 5 of Notes to
Consolidated Financial Statements for discussion.
(5) Reflects reclassification made in 1992 of the Company's
investment in the mining properties of Consolidated
Silver Corporation from other investments to mining
properties.
F-32
<PAGE> 78
SCHEDULE VI
HECLA MINING COMPANY and SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION and AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
For the Years Ended December 31, 1993, 1992 and 1991
(dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- --------------------------------------- ---------- --------- ----------- --------------- --------------
Balance at
Beginning Additions Other Change Balance at End
Description of Period At Cost Retirements Add (Deduct)(1) of Period
- --------------------------------------- ---------- --------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Mining properties $ 8,406 $ 2,004 $ 20 $ (910) $ 9,480
Deferred development costs 52,909 2,919 2,028 (217) 53,583
Plants and equipment 100,247 7,246 757 1,123 107,859
--------- --------- --------- --------- ---------
$ 161,562 $ 12,169 $ 2,805 $ (4) $ 170,922
========= ========= ========= ========= =========
Year ended December 31, 1992:
Mining properties $ 6,268 $ 691 $ - - $ 1,447 $ 8,406
Deferred development costs 50,439 6,617 2,076 (2,071) 52,909
Plants and equipment 97,375 6,565 4,147 454 100,247
--------- --------- --------- --------- ---------
$ 154,082 $ 13,873 $ 6,223 $ (170) $ 161,562
========= ========= ========= ========= =========
Year ended December 31, 1991:
Mining properties $ 6,214 $ 54 $ - - $ - - $ 6,268
Deferred development costs 43,197 7,242 - - - - 50,439
Plants and equipment 85,704 13,210 1,539 - - 97,375
--------- --------- --------- --------- ---------
$ 135,115 $ 20,506 $ 1,539 $ - - $ 154,082
========= ========= ========= ========= =========
</TABLE>
(1) Other change due to reclassification between categories
of accumulated depreciation, depletion and amortization
of property, plant and equipment.
F-33
<PAGE> 79
SCHEDULE X
HECLA MINING COMPANY and SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31, 1993, 1992 and 1991
(dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B
- ----------------------------------------------- -----------------------------
Item Note (2) Charged to Costs and Expenses
- ----------------------------------------------- -----------------------------
<S> <C>
Year ended December 31-1993:
1. Maintenance and repairs Note (1)
3. Taxes, other than payroll and income $ 1,132
taxes (principally property taxes)
4. Royalties paid $ 685
Year ended December 31-1992:
1. Maintenance and repairs Note (1)
3. Taxes, other than payroll and income $ 2,457
taxes (principally property taxes)
4. Royalties paid $ 628
Year ended December 31-1991:
1. Maintenance and repairs Note (1)
3. Taxes, other than payroll and income $ 2,523
4. Royalties paid $ 1,055
</TABLE>
Notes:
(1) The accounts of the Company do not segregate the amounts of
maintenance and repairs, and it is not practicable to obtain
the information.
(2) Items where no information is provided were less than 1% of
total sales and revenues.
F-34
<PAGE> 80
HECLA MINING COMPANY and WHOLLY OWNED SUBSIDIARIES
FORM 10-K - December 31, 1993
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Page
Number and Description of Exhibits Number1
---------------------------------- -----------
<S> <C>
3.1(a) Certificate of Incorporation of the
Registrant as amended to date.3
3.1(b) Certificate of Amendment of Certificate
of Incorporation of the Registrant,
dated as of May 16, 1991.
3.1(c) Certificate of Designations, Preferences
and Rights of Series A Junior
Participating Preferred Stock of the
Registrant.3
3.1(d) Certificate of Designations, Preferences
and Rights of Series B Cumulative Convertible
Preferred Stock of the Registrant.3
3.2 By-Laws of the Registrant as amended
to date.3
4.1(a) Rights Agreement dated as of May 9, 1986
between Hecla Mining Company and Manufac-
turers Hanover Trust Company, which
includes the form of Certificate of
Designation setting forth the terms of the
Series A Junior Participating Preferred
Stock of Hecla Mining Company as Exhibit A,
the form of Right Certificate as Exhibit B
and the summary of Rights to Purchase
Preferred Shares as Exhibit C.3
4.1(b) Amendment, dated as of November 9, 1990
to the Rights Agreement dated as of May 9,
1986 between Hecla Mining Company and
Manufacturers Hanover Trust Company.3
4.1(c) Second Amendment to Rights Agreement dated
September 30, 1991, between Hecla Mining
Company and Manufacturers Hanover Trust
Company.
</TABLE>
<PAGE> 81
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Sequential
Page
Number and Description of Exhibits Number1
---------------------------------- -----------
<S> <C> <C>
4.1(d) Hecla Mining Company Notice Letter to
Shareholders, being holders of Rights
Certificates, appointing American Stock
Transfer & Trust Company as Rights Agent,
successor to Manufacturers Hanover Trust
Company, effective September 30, 1991,
pursuant to Section 21 of the Rights
Agreement.
4.2 Form of Certificate for Liquid Yield
Option(TM) Note3
4.3 Form of Indenture dated as of June 1, 1989,
between Hecla Mining Company and Manufacturers
Hanover Trust Company, as Trustee, related to
Liquid Yield Option(TM) Notes due 2004 (Zero
Coupon - Subordinated)3
4.4 Form of Extension Indenture between Hecla
Mining Company and Manufacturers Hanover
Trust Company, as Trustee, related to
Subordinated Extension Notes due 20043
10.1(a) Credit Agreement dated as of January 25, 1993,
among the Registrant and certain of Registrant's
subsidiaries, and Mase Westpac Limited, New York
Branch, Nations Bank of Texas, Bank of America
National Trust and Savings Association, West One
Bank, Idaho, N.A., and Seattle-First
National Bank.3
10.1(b) First Amendment to Credit Agreement dated as of
April 12, 1993, among the Registrant and certain
of Registrant's subsidiaries, and Mase Westpac
Limited, as Agent for the Banks participating
therein.
10.1(c) Second Amendment to Credit Agreement dated as of 97-106
August 11, 1993, among the Registrant and certain
of Registrant's subsidiaries, and Mase Westpac
Limited, as Agent for the Banks participating
therein.
10.1(d) Third Amendment to Credit Agreement dated as of 107-114
November 9, 1993, among the Registrant and
certain of Registrant's subsidiaries, and Mase
Westpac Limited, as Agent for the Banks
participating therein.
</TABLE>
<PAGE> 82
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Sequential
Page
Number and Description of Exhibits Number1
---------------------------------- -----------
<S> <C> <C>
10.2 Employment agreement dated November 10, 1989
between Hecla Mining Company and Arthur Brown.
(Registrant has substantially identical agree-
ments with each of Messrs. Joseph T. Heatherly,
Roger A. Kauffman, Ralph R. Noyes, John P.
Stilwell, and Michael B. White. Such
substantially identical agreements are not
included as separate Exhibits.)2,3
10.3(a) Form of Deferred Compensation Plan Agreement
for Officers of the Registrant, as amended
February 12, 1988.2,3
10.3(b) Form of Deferred Compensation Plan Agreement
for Directors of the Registrant, as amended
November 8, 1985.2,3
10.4 1987 Nonstatutory Stock Option Plan of the
Registrant.2,3
10.5(a) Hecla Mining Company Retirement Plan for
Employees and Supplemental Retirement and
Death Benefit Plan.2,3
10.5(b) Supplemental Retirement Benefit Plan.2,3
10.6 Form of Indemnification Agreement dated
May 27, 1987 between Hecla Mining Company
and each of its Directors and Officers.2,3
10.7(a) Purchase and Sale Agreement between Registrant
as "Purchaser" and Amselco Minerals Inc. as
"Seller" and Greens Creek Mining Company and
Hawk Inlet Company, dated March 17, 1987,
together with Assignment of Interest in Joint
Venture Agreement dated May 29, 1987.3
10.7(b) Joint Venture Agreement between the Registrant,
Greens Creek Mining Company, Hawk Inlet
Company, Amselco Minerals Inc., Exalas Resources
Corporation and CSX Oil & Gas Corporation, as
last amended June 2, 1987 by Fifth Amendment.3
10.8 Purchase Agreement dated October 26, 1993, 115-186
among Registrant as Purchaser and Gerald and Gae
Taylor, Frank J. and Sharon D. Daniels, Dee R.
and Donna Thueson, Clair O. and Ann B. Thueson
and Neil H. and Linda J. Knudsen as Sellers.
</TABLE>
<PAGE> 83
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Sequential
Page
Number and Description of Exhibits Number1
---------------------------------- -----------
<S> <C> <C>
10.9 Acquisition Agreement dated as of December 29,
1993, by and among Registrant and B.P.Y.A.
1193 Holdings Ltd., 1057451 Ontario Limited
and Equinox Resources Ltd.3
10.10(a) Acquisition Agreement - Grouse Creek Project,
dated January 21, 1994, among Registrant,
Great Lakes Idaho Inc. and Great Lakes
Minerals Inc.3
10.10(b) Mining Venture Agreement dated as of February 8,
1994, between Registrant and Great Lakes Idaho
Inc.3
11. Computation of weighted average number of 187
common shares outstanding.
22. List of subsidiaries of the registrant. 189
24. Consent of Coopers & Lybrand to incorpor- 191
ation by reference of their report dated
February 3, 1994, on the Consolidated
Financial Statements of the Registrant
in the Registrant's Registration Statements
on Form S-3, No. 33-72834, Form S-8,
No. 33-7833, No. 33-41833, No. 33-14758
and No. 33-40691.
</TABLE>
- ------------------------
1. This information appears only in the manually signed, original,
sequentially numbered copy of this report.
2. Indicates a management contract or compensatory plan or arrangement.
3. These exhibits were filed as indicated on the following page and are
incorporated herein by this reference thereto:
<PAGE> 84
<TABLE>
<CAPTION>
Corresponding Exhibit in Annual Report on
Form 10-K, Quarterly Report on Form 10-Q,
Exhibit in Current Report on Form 8-K, Proxy Statement
this Report or Registration Statement, as Indicated
- ----------- ---------------------------------------
<S> <C>
3.1(a) & (b) 3.1 (10-K for 1987 - File No. 1-8491)
3.1(c) & (d) 4.1(d)(c) and 4.5 (Quarterly Report on
Form 10-Q dated June 30, 1993)
3.2 2 (Current Report on Form 8-K dated
November 9, 1990 - File No. 1-8491)
4.1(a) 1 (Current Report on Form 8-K dated
May 23, 1986 - File No. 1-8491)
4.1(b) 1 (Current Report on Form 8-K dated
November 9, 1990 - File No. 1-8491)
4.1(c) 4.1(c)(10-K for 1991 - File No. 1-8491)
4.1(d) 4.1(d)(10-K for 1991 - File No. 1-8491)
4.2 4.1 (Registration Statement No. 33-28648)
4.3 4.2 (Registration Statement No. 33-28648)
4.4 4.4 (Registration Statement No. 33-28648)
10.1(a) 10.1(10-K for 1992 - File No. 1-8491)
10.1(b) 10.1(b)(Quarterly Report on Form 10-Q
dated June 30, 1993)
10.2 10.2(b) (10-K for 1989 - File No. 1-8491)
10.3(a) 10.7(a) (10-K for 1988 - File No. 1-8491)
10.3(b) 10.9(b) (10-K for 1985 - File No. 1-8491)
10.4 B (Proxy Statement dated March 20, 1987 -
File No. 1-8491)
10.5(a) 10.11(a) (10-K for 1985 - File No. 1-8491)
10.5(b) 10.11(b) (10-K for 1985 - File No. 1-8491)
10.6 10.15 (10-K for 1987 - File No. 1-8491)
10.7(a) 10.16(a) (10-K for 1987 - File No. 1-8491)
10.7(b) 10.16(b) (10-K for 1987 -File No. 1-8491)
10.9 Exhibit 2 (Schedule 13D dated January 7,
1993 - filed by Registrant with respect
to Equinox Resources Ltd.
10.10(a) (c)1(Current Report on Form 8-K dated
February 10, 1994 - File No. 1-8491)
10.10(b) (c)2(Current Report on Form 8-K dated
February 10, 1994 - File No. 1-8491)
</TABLE>
<PAGE> 1
EXHIBIT 10.1(c)
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"),
dated as of August 11, 1993, is made and entered into by and among HECLA MINING
COMPANY, a Delaware corporation ("Hecla"), for itself and on behalf of its
wholly-owned subsidiaries, COLORADO AGGREGATE COMPANY OF NEW MEXICO INC., a New
Mexico corporation ("CAC"), KENTUCKY-TENNESSEE CLAY COMPANY, a Delaware
corporation ("K-T Clay"), K-T FELDSPAR CORPORATION, a North Carolina
corporation ("K-T Feldspar") (Hecla, CAC, K-T Clay and K-T Feldspar are
referred to herein collectively as the "Borrowers" and individually as a
"Borrower"), the banks named on the signature pages hereto (collectively, the
"Banks" and each individually, a "Bank"), and MASE WESTPAC LIMITED, NEW YORK
BRANCH, a New York State licensed branch of Mase Westpac Limited, an authorized
institution under the Banking Act of 1987 in England, as agent for the Banks
(in such capacity, together with its successors in such capacity, the "Agent").
RECITALS
WHEREAS, the Borrowers, the Banks and the Agent entered into a Credit
Agreement, dated as of January 25, 1993, as amended April 12, 1993 (such Credit
Agreement as so amended, the "Credit Agreement"), pursuant to which the Banks
agreed, subject to the terms and conditions of the Credit Agreement, to provide
financing to the Borrowers in an aggregate amount not to exceed at any time the
lesser of Twenty-Four Million Dollars ($24,000,000), as such amount is reduced
from time to time pursuant to the terms of the Credit Agreement, or the
Borrowing Base (as defined in the Credit Agreement); and
WHEREAS, the parties hereto desire to make certain amendments to the
Credit Agreement as provided herein;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, and for other good and valuable consideration
(including without limitation the consideration recited in the Credit
Agreement), the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed thereto in the Credit
Agreement.
2. Amendments to Credit Agreement.
(a) Amendment Regarding Date of Providing Annual Updated
Five-Year Mining Projections. Section 9.6(g) of the Credit Agreement is hereby
amended by replacing the date "AUGUST 15" with the date "NOVEMBER 15".
<PAGE> 2
(b) Amendment Regarding Investments in Dreyfus Cash
Management Fund. Section 10.5 of the Credit Agreement is hereby amended by
deleting the word "AND" immediately following subparagraph (c), inserting the
word "AND" immediately following subparagraph (d), and adding a new
subparagraph (e), which shall read as follows:
"(E) SHARES OF THE DREYFUS CASH MANAGEMENT FUND OR ANY
OTHER CASH MANAGEMENT FUND ACCEPTABLE TO MAJORITY BANKS AND WITH A COMPARABLE
OR BETTER CREDIT RATING AND CREDIT QUALITY;"
3. Amendment to Other Loan Documents. The parties hereby agree that
the other Loan Documents shall be amended to the extent necessary to conform to
and be consistent with the amendments herein contained.
4. Conditions to Effectiveness of Second Amendment. This Second
Amendment shall be effective immediately upon the due execution and delivery
hereof.
5. Counterparts. This Second Amendment may be executed in one or more
counterparts, each of which when so executed, irrespective of the date of its
execution and delivery, shall be deemed an original, and all such counterparts
together shall constitute one and the same instrument.
6. Governing Law; Descriptive Headings. THIS SECOND AMENDMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
7. Succession; Assignment. This Second Amendment shall inure to the
benefit of and be binding upon the successors and assigns of the parties
hereto. The rights and obligations hereunder may be assigned only in
accordance with the assignment provisions of the Credit Agreement.
8. References to Credit Agreement. Except as expressly provided
in this Second Amendment and the amendments to the other Loan Documents
contemplated hereby, the terms, provisions, conditions and agreements of the
Credit Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed in all respects. On and after the
effectiveness of the amendments to the Credit Agreement and the other Loan
Documents contemplated hereby, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import, and each
reference to the Credit Agreement in any Note or other Loan Document, or other
agreement, document or instrument executed and delivered pursuant to the Credit
Agreement, shall be deemed a reference to the Credit Agreement as so amended.
9. No Other Modifications; Same Indebtedness. The modifications
effected by this Second Amendment shall not be deemed to provide for or effect
a repayment to and re-advance of any of
- 2 -
<PAGE> 3
the Advances by any Bank now outstanding, it being the intention of the parties
that the Advances outstanding under the Credit Agreement, as amended by this
Second Amendment, be and are the same Advances outstanding under the Credit
Agreement immediately prior to the effectiveness hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Second
Amendment to be executed and delivered by its duly authorized officers and
representatives as of the date first above written.
THE BORROWERS:
HECLA MINING COMPANY, for itself and
on behalf of Colorado Aggregate Company
of New Mexico Inc., Kentucky-Tennessee
Clay Company and K-T Feldspar
Corporation
By: /s/ John P. Stilwell
Name: John P. Stilwell
Title: Treasurer
ATTEST:
By: /s/ J.T. Heatherly
Name: J.T. Heatherly
Title: Vice President
THE AGENT:
- ---------
MASE WESTPAC LIMITED, NEW YORK
BRANCH, as Agent
By: /s/ Lucy W. Huebner
Name: Lucy W. Heubner
Title: Vice President
By: /s/ William S. Edge III
Name: William S. Edge
Title: Senior Vice President
- 3 -
<PAGE> 4
THE BANKS:
MASE WESTPAC LIMITED, NEW YORK
BRANCH, as a Bank
By: /s/ Lucy W. Huebner
Name: Lucy W. Huebner
Title: Vice President
By: /s/ William S. Edge III
Name: William S. Edge III
Title: Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ Roger S. Manny
Name: Roger S. Manny
Title: Senior Vice President
SEATTLE-FIRST NATIONAL BANK
By: /s/ Joe Poole
Name: Joe Poole
Title: VP
WEST ONE BANK, IDAHO
By: /s/ Kathleen C. Lewis
Name: Kathleen C. Lewis
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Jim C. Deichen
Name: Jim C. Deichen
Title: SVP
BANK OF AMERICA IDAHO, N.A.
By: /s/ John A. MacPhee
Name: John A. MacPhee
Title: Vice President
- 4 -
<PAGE> 1
EXHIBIT 10.1(d)
THIRD AMENDMENT TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment"),
dated as of November 9, 1993, is made and entered into by and among HECLA
MINING COMPANY, a Delaware corporation ("Hecla"), together with its
wholly-owned subsidiaries, COLORADO AGGREGATE COMPANY OF NEW MEXICO INC., a New
Mexico corporation ("CAC"), KENTUCKY-TENNESSEE CLAY COMPANY, a Delaware
corporation ("K-T Clay"), K-T FELDSPAR CORPORATION, a North Carolina
corporation ("K-T Feldspar") (Hecla, CAC, K-T Clay and K-T Feldspar are
referred to herein collectively as the "Borrowers" and individually as a
"Borrower"), the banks named on the signature pages hereto (collectively, the
"Banks" and each individually, a "Bank"), and MASE WESTPAC LIMITED, NEW YORK
BRANCH, a New York State licensed branch of Mase Westpac Limited, an authorized
institution under the Banking Act of 1987 in England, as agent for the Banks
(in such capacity, together with its successors in such capacity, the "Agent").
RECITALS
WHEREAS, the Borrowers, certain banks and the Agent entered into a
Credit Agreement, dated as of January 25, 1993, as amended April 12, 1993 and
August 11, 1993 (such Credit Agreement as so amended, the "Credit Agreement"),
pursuant to which the banks party thereto agreed, subject to the terms and
conditions of the Credit Agreement, to provide financing to the Borrowers in an
aggregate amount not to exceed at any time the lesser of Twenty-Four Million
Dollars ($24,000,000), as such amount is reduced from time to time pursuant to
the terms of the Credit Agreement, or the Borrowing Base (as defined in the
Credit Agreement); and
WHEREAS, the parties hereto desire to amend the Credit Agreement to
increase the maximum limit for borrowing and to make certain other amendments
to the Credit Agreement and other Loan Documents as provided herein;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, and for other good and valuable consideration
(including without limitation the consideration recited in the Credit
Agreement), the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed thereto in the Credit
Agreement.
2. Addition of New Bank; Reallocation of Banks' Interests in Credit.
Each Bank shall be deemed a Bank (as defined in the Credit Agreement) for all
purposes under the Credit Agreement and the other Loan Documents, each as
amended hereby, to the extent of such Bank's interest as set forth opposite
such Bank's name on the
<PAGE> 2
signature pages hereto. Each Bank shall have the same rights and benefits as
against the Borrowers and the same obligations to the Borrowers as it would
have had as if it were a Bank (as defined in the Credit Agreement) to the
extent of its interest as set forth opposite such Bank's name on the signature
pages hereto, or if such Bank was an original Bank under the Credit Agreement,
as if its interest under the Credit Agreement were the same as that set forth
opposite such Bank's name on the signature pages hereto. All references in the
Credit Agreement and the other Loan Documents, each as amended hereby, to the
Banks shall as of the effective date hereof and thereafter be construed as a
reference to the Banks named on the signature pages hereto, each to the extent
of its interest as set forth opposite such Bank's name on the signature pages
hereto. All references in the Credit Agreement and the other Loan Documents to
any Bank's pro rata share of the Commitment or of any Advances and all
references of similar import shall be deemed to be a reference to such Bank's
pro rata share as set forth opposite such Bank's name on the signature pages
hereto.
3. Amendments to Credit Agreement.
(a) The Second Recital on page 1 of the Credit Agreement
is hereby amended by replacing the phrase "TWENTY-FOUR MILLION DOLLARS
($24,000,000)" with the phrase "THIRTY MILLION DOLLARS ($30,000,000)".
(b) The definition of "AVAILABILITY PERIOD" in Section
1.1 of the Credit Agreement is hereby amended by replacing the date "DECEMBER
31, 1994" with the date "DECEMBER 31, 1996".
(c) The definition of "BASE COMMITMENT" in Section 1.1 of
the Credit Agreement is hereby amended by replacing the amount "$24,000,000"
with the amount "$30,000,000".
(d) Clause (e) of the definition of "BORROWING BASE" in
Section 1.1 of the Credit Agreement is hereby amended by replacing the phrase
"ONE HUNDRED PERCENT (100%) OF THE VALUE OF EACH BORROWER'S ELIGIBLE CASH
EQUIVALENTS" with the phrase "ONE HUNDRED PERCENT (100%) OF THE VALUE OF EACH
BORROWER'S ELIGIBLE CASH EQUIVALENTS THAT ARE SUBJECT TO A VALID AND
ENFORCEABLE PERFECTED FIRST PRIORITY SECURITY INTEREST OR LIEN IN FAVOR OF THE
AGENT".
(e) The definition of "ELIGIBLE INVESTMENTS" in Section
1.1 of the Credit Agreement is hereby amended by replacing the phrase
"[MAJORITY BANKS]" with the phrase "MAJORITY BANKS".
(f) Clause (e)(ii) of the definition of "ELIGIBLE
RECEIVABLES" in Section 1.1 of the Credit Agreement is hereby amended by
replacing the phrase "SUBPARAGRAPH (C)(I)" with the phrase "SUBPARAGRAPH
(E)(I)".
(g) The definition of "INITIAL REDUCTION DATE" in Section
1.1 of the Credit Agreement is hereby amended in its entirety to read as
follows:
- 2 -
<PAGE> 3
"INITIAL REDUCTION DATE" MEANS DECEMBER 31, 1995.
(h) Section 2.7 of the Credit Agreement is hereby amended
in its entirety to read as follows:
SECTION 2.7 REPAYMENT OF ADVANCES DUE TO SCHEDULED REDUCTIONS
OF BASE COMMITMENT. ON EACH OF THE DATES (A "REDUCTION DATE") SET
FORTH IN THE SCHEDULE SET FORTH BELOW (THE "COMMITMENT REDUCTION
SCHEDULE"), THE BASE COMMITMENT SHALL BE REDUCED TO THE AMOUNT SET OUT
OPPOSITE SUCH DATE IN THE THIRD COLUMN OF THE COMMITMENT REDUCTION
SCHEDULE AND, IF THE SUM OF THE OUTSTANDING PRINCIPAL BALANCE OF ALL
ADVANCES MADE UNDER THIS ARTICLE 2 EXCEEDS THE RESULTING COMMITMENT ON
SUCH DATE, THE BORROWERS SHALL REPAY AN AMOUNT OF DOLLARS EQUAL TO
SUCH EXCESS. THE COMMITMENT REDUCTION SCHEDULE SHALL BE AS FOLLOWS:
<TABLE>
<CAPTION>
SCHEDULED BASE BASE
REDUCTION COMMITMENT COMMITMENT
DATE REDUCTION OUTSTANDING
--------- ---------- -----------
<S> <C> <C>
12/31/95 $3,750,000 $26,250,000
03/31/96 3,750,000 22,500,000
06/30/96 3,750,000 18,750,000
09/30/96 3,750,000 15,000,000
12/31/96 15,000,000 -0-
</TABLE>
(i) Section 2.9(b) of the Credit Agreement is hereby
amended by replacing the phrase "THEN TO PRINCIPAL PRO RATA OVER THE AMOUNTS
OWING ON THE THEN-REMAINING SCHEDULED REDUCTION DATES AS SET FORTH IN SECTION
2.7 HEREOF" with the phrase "THEN TO PRINCIPAL".
(j) The proviso of Section 4.1 of the Credit Agreement is
hereby amended in its entirety to read as follows:
PROVIDED, HOWEVER, THAT WITH RESPECT TO THE SECURITY INTEREST IN CASH
EQUIVALENTS, THE BORROWERS SHALL BE OBLIGATED ONLY TO USE THEIR BEST
EFFORTS TO PERFECT SUCH SECURITY INTEREST.
(k) Section 12.11 of the Credit Agreement is hereby
amended by replacing the phrase "TANGIBLE NET WORK" with the phrase "TANGIBLE
NET WORTH".
4. Amendments to Security Agreement. The proviso of Section 4.1(a) of
the Security Agreement is hereby amended in its entirety to read as follows:
PROVIDED, HOWEVER, THAT WITH RESPECT TO THE SECURITY INTEREST IN CASH
EQUIVALENTS UNDER SECTION 2.1(E) HEREOF, THE PARTIES AGREE THAT THE
BORROWERS SHALL BE OBLIGATED ONLY TO USE THEIR BEST EFFORTS TO PERFECT
SUCH SECURITY INTEREST;
5. Amendment to Other Loan Documents. The parties hereby agree that
the other Loan Documents shall be amended to the extent
- 3 -
<PAGE> 4
necessary to conform to and be consistent with the amendments herein contained.
6. Amendment Fee. The Borrowers shall pay the Banks an amendment fee
equal to one-half of one percent (0.5%) of each Bank's pro rata share of the
Commitment as set forth opposite such Bank's name on the signature pages
hereto. Such fee shall be due and payable upon the execution and delivery of
this Third Amendment.
7. Representations and Warranties. Each Borrower hereby certifies as
of the date hereof that the representations and warranties contained in Article
8 of the Credit Agreement and any other Loan Document executed and delivered in
connection therewith to which it is a party are true and accurate in all
material respects as though made on and as of the date hereof, except that
Kingswood Resources Inc. should be added to and Acadia Mineral Ventures Limited
should be deleted from Schedule 1 to the Credit Agreement.
8. Conditions to Effectiveness of Third Amendment. This Third
Amendment shall become effective and binding on the parties hereto upon receipt
by the Agent of each of the following, in form and substance reasonably
satisfactory to Majority Banks:
(a) counterparts of this Third Amendment duly executed by
each of the Borrowers, the Agent and the Banks;
(b) a Note for each Bank duly executed by the Borrowers
evidencing such Bank's pro rata share of the Commitment as set forth opposite
such Bank's name on the signature pages hereto;
(c) an opinion or opinions of counsel for the Borrowers;
(d) a copy of a resolution or resolutions passed by the
Board of Directors of each Borrower, certified by the Secretary or an Assistant
Secretary of such Borrower as of a recent date as being in full force and
effect on such date, authorizing the increase of the maximum limit for
borrowing provided hereby and the execution, delivery and performance of this
Third Amendment and the other Loan Documents to which it is or will be a party
in connection herewith;
(e) evidence that the amendment fees provided for herein
have been paid in full; and
(f) such other evidence as Majority Banks may reasonably
request to establish the consummation of the transactions contemplated hereby,
the taking of all proceedings in connection herewith and compliance with the
conditions set forth in this Third Amendment.
9. Counterparts. This Third Amendment may be executed in one or more
counterparts, each of which when so executed, irrespective of the date of its
execution and delivery, shall be deemed an
- 4 -
<PAGE> 5
original, and all such counterparts together shall constitute one and the same
instrument.
10. Governing Law; Descriptive Headings. THIS THIRD AMENDMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
11. Succession; Assignment. This Third Amendment shall inure to the
benefit of and be binding upon the successors and assigns of the parties
hereto. The rights and obligations hereunder may be assigned only in
accordance with the assignment provisions of the Credit Agreement.
12. References to Credit Agreement. Except as expressly provided
in this Third Amendment and the amendments to the other Loan Documents
contemplated hereby, the terms, provisions, conditions and agreements of the
Credit Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed in all respects. On and after the
effectiveness of the amendments to the Credit Agreement and the other Loan
Documents contemplated hereby, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import, and each
reference to the Credit Agreement in any Note or other Loan Document, or other
agreement, document or instrument executed and delivered pursuant to the Credit
Agreement, shall be deemed a reference to the Credit Agreement as so amended.
13. No Other Modifications; Same Indebtedness. The modifications
effected by this Third Amendment shall not be deemed to provide for or effect a
repayment to and re-advance of any of the Advances by any Bank now outstanding,
it being the intention of the parties that the Advances outstanding under the
Credit Agreement, as amended by this Third Amendment, be and are the same
Advances outstanding under the Credit Agreement immediately prior to the
effectiveness hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Third
Amendment to be executed and delivered by its duly authorized officers and
representatives as of the date first above written.
THE BORROWERS:
HECLA MINING COMPANY
By: /s/ Joseph T. Heatherly
Name: J.T. Heatherly
Title: Vice President - Controller
ATTEST:
By: /s/ Michael B. White
Name: Michael B. White
Title: Secretary
- 5 -
<PAGE> 6
COLORADO AGGREGATE COMPANY OF
NEW MEXICO INC.
By: /s/ J.T. Heatherly
Name: Joseph T. Heatherly
Title: Vice President
ATTEST:
By: /s/ Michael B. White
Name: Michael B. White
Title: Secretary
KENTUCKY-TENNESSEE CLAY COMPANY
By: /s/ J.T. Heatherly
Name: Joseph T. Heatherly
Title: Vice President - Controller
ATTEST:
By: /s/ Nathaniel K. Adams
Name: Nathaniel K. Adams
Title: Assistant Secretary
K-T FELDSPAR CORPORATION
By: /s/ J.T. Heatherly
Name: Joseph T. Heatherly
Title: Vice President - Controller
ATTEST:
By: /s/ Michael B. White
Name: Michael B. White
Title: Secretary
- 6 -
<PAGE> 7
THE AGENT:
MASE WESTPAC LIMITED, NEW YORK
BRANCH, as Agent
By:--------------------------------
Name:------------------------------
Title:-----------------------------
By:--------------------------------
Name:------------------------------
Title:-----------------------------
THE BANKS:
- ---------
MASE WESTPAC LIMITED, NEW YORK Amount: $7,500,000
BRANCH, as a Bank Percentage: 25%
By:--------------------------------
Name:------------------------------
Title:-----------------------------
By:--------------------------------
Name:------------------------------
Title:-----------------------------
NATIONSBANK OF TEXAS, N.A. Amount: $7,500,000
Percentage: 25%
By:--------------------------------
Name:------------------------------
Title:-----------------------------
SEATTLE-FIRST NATIONAL BANK Amount: $6,000,000
Percentage: 20%
By:--------------------------------
Name:------------------------------
Title:-----------------------------
THE BANK OF NOVA SCOTIA Amount: $6,000,000
Percentage: 20%
Address for notices:
By:--------------------------------
Name:------------------------------ 101 California St., 48th Floor
Title:----------------------------- San Francisco, CA 94111
Attention:
Facsimile: 415-397-0791
Telephone: 415-986-1100
- 7 -
<PAGE> 8
BANK OF AMERICA IDAHO, N.A. Amount: $1,000,000
Percentage: 3-1/3%
By:--------------------------------
Name:------------------------------
Title:-----------------------------
WEST ONE BANK, IDAHO Amount: $2,000,000
Percentage: 6-2/3%
By:--------------------------------
Name:------------------------------
Title:-----------------------------
ACKNOWLEDGED AND AGREED:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:--------------------------------
Name:------------------------------
Title:-----------------------------
- 8 -
<PAGE> 1
EXHIBIT 10.8
PURCHASE AGREEMENT
among
HECLA MINING COMPANY
("Purchaser")
-and-
GERALD AND GAE TAYLOR,
FRANK J. AND SHARON D. DANIELS,
DEE R. and DONNA THUESON,
CLAIR O. and ANN B. THUESON,
NEIL H. AND LINDA J. KNUDSEN
("Sellers")
DATED: October 26, 1993
<PAGE> 2
SHARE PURCHASE AGREEMENT
INDEX
<TABLE>
<CAPTION>
Page
----
ARTICLES
- --------
<S> <C> <C>
1 Interpretation........................................ 2
1.1 Defined Terms.................................... 2
1.2 Best of Knowledge................................ 8
1.3 Schedules........................................ 9
1.4 Choice of Law.................................... 9
1.5 Interpretation Not Affected by Headings or Party
Drafting....................................... 9
1.6 Number and Gender................................ 10
1.7 Time of Essence.................................. 11
2 Purchase and Sale..................................... 11
2.1 Corporation's Shares............................. 11
2.2 Purchase Price................................... 11
2.3 Payment of Purchase Price........................ 11
2.4 Adjustment....................................... 12
3 Representations and Warranties........................ 14
3.1 Representations and Warranties by the Sellers.... 14
(1) Authority and Binding Obligation............ 14
(2) No Other Purchase Agreements................ 15
(3) Status...................................... 15
(4) No Violation................................ 16
(5) Corporate Records........................... 17
(6) Authorized and Issued Capital............... 17
(7) Shareholders Agreements, Etc................ 18
(8) Financial Condition......................... 18
(9) No Material Adverse Condition............... 19
(10) Environmental............................... 19
(11) Liabilities of the Corporation.............. 20
(12) Outstanding Debts........................... 20
(13) Dividends and Distributions................. 21
(14) Litigation.................................. 22
(15) Title to Assets............................. 22
(16) Properties.................................. 23
(17) Subsidiaries and Other Interests............ 23
(18) Restrictions on Doing Business of the
Corporation............................... 23
(19) Good Standing of Agreements................. 24
</TABLE>
(i)
<PAGE> 3
SHARE PURCHASE AGREEMENT
INDEX (Continued)
<TABLE>
<CAPTION>
Page
----
ARTICLES
- --------
<S> <C>
3.1 Representations and Warranties by the Sellers (Continued)
(20) Tax Liabilities.............................. 25
(21) Other Returns................................ 26
(22) Compliance with Laws......................... 26
(23) Copies of Documents.......................... 27
(24) Disclosure................................... 27
3.2 Representations and Warranties by the Purchaser.. 27
(1) Corporate Authority and Binding Obligation... 28
(2) Status....................................... 28
(3) No Violation................................. 29
(4) Purchaser's Shares........................... 29
(5) Compliance with Laws......................... 30
(6) Disclosure................................... 31
4 Survival Of Representations and Warranties............ 31
4.1 Survival of Representations and Warranties....... 31
5 Covenants............................................. 33
5.1 Covenants by the Sellers......................... 33
(1) Inspection of Records........................ 33
(2) Transfer of Corporation's Shares............. 34
(3) New Agreements............................... 34
(4) Business of Corporation During Interim
Period..................................... 34
(5) Verification of scoria and peat reserves..... 36
(6) Sale of Purchaser's Shares................... 36
5.2 Covenants by the Purchaser....................... 36
(1) Issue of Purchaser's Shares.................. 36
(2) Registration and Listing of Purchaser's
Shares..................................... 37
(3) Trading Limitation of Purchaser's Shares..... 41
(4) Release of Sellers Guarantee of
Corporation's Debt......................... 42
(5) Nontransferability & Nonassignability........ 42
5.3 Confidentiality.................................. 43
6 Conditions............................................ 44
6.1 Conditions to the Obligations of the Purchaser... 44
(1) Accuracy of Representations and Warranties
and Performance of Covenants............... 44
(2) No Restraining Proceedings................... 45
</TABLE>
(ii)
<PAGE> 4
SHARE PURCHASE AGREEMENT
INDEX (Continued)
<TABLE>
<CAPTION>
Page
----
ARTICLES
- --------
<S> <C> <C>
6.1 Conditions to the Obligations of the
Purchaser (Continued)
(3) No Material Adverse Change.................. 46
(4) Regulatory Approvals........................ 46
(5) Opinion of Sellers' Counsel................. 46
(6) Compliance with Terms, Covenants and
Conditions................................ 46
(7) Execution of Agreements..................... 47
(8) Non-Competition Agreement................... 47
(9) Directors Approval.......................... 47
(10) Amount of scoria and peat reserves.......... 47
(11) Amount of Adjustment........................ 47
6.2 Conditions to the Obligations of the Sellers.... 48
(1) Accuracy of Representations and Warranties
and Performance of Covenants.............. 48
(2) No Restraining Proceedings.................. 49
(3) No Material Adverse Change.................. 49
(4) Regulatory Approvals........................ 50
(5) Opinion of Purchaser's Counsel.............. 50
(6) Compliance with Terms, Covenants and
Conditions................................ 50
(7) Amount of Adjustment........................ 51
6.3 Waiver or Termination by Purchaser.............. 51
6.4 Waiver or Termination by Sellers................ 52
7 Acknowledgements..................................... 53
7.1 Unregistered Shares............................. 53
7.2 Nature of Purchase.............................. 53
8 Closing.............................................. 54
8.1 Location........................................ 54
8.2 Transfer........................................ 54
8.3 Payment......................................... 54
8.4 Termination..................................... 55
9 Indemnification and Set-Off.......................... 55
9.1 Indemnity by the Sellers........................ 55
9.2 Indemnity by the Purchaser...................... 57
9.3 Provisions Relating to Indemnity Claims......... 58
</TABLE>
(iii)
<PAGE> 5
SHARE PURCHASE AGREEMENT
INDEX (Continued)
<TABLE>
<CAPTION>
Page
----
ARTICLES
- --------
<S> <C>
10 General Provisions.................................... 60
10.1 Further Assurances............................... 60
10.2 Notices.......................................... 61
10.3 Counterparts..................................... 62
10.4 Expenses of Parties.............................. 62
10.5 Brokerage and Finder's Fees...................... 63
10.6 Disclosure....................................... 63
10.7 Assignment....................................... 63
10.8 Successors and Assigns........................... 64
10.9 Entire Agreement................................. 64
10.10 Waiver.......................................... 64
10.11 Amendments...................................... 65
Schedule A - Financial Statements
Schedule B - Litigation
Schedule C-1 - Real Properties of the Corporation
Schedule C-2 - Personal Properties of the Corporation
Schedule D - Tax Issues
Schedule E - New Agreements
Schedule F - Opinion of Sellers' Counsel
Schedule G - Non-Competition Agreement
Schedule H - Opinion of Purchaser's Counsel
</TABLE>
(iv)
<PAGE> 6
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 26th day of October, 1993.
A M O N G:
HECLA MINING COMPANY, a corporation incorporated under the laws of the
State of Delaware
(hereinafter referred to as the "Purchaser");
-and-
GERALD TAYLOR and GAE TAYLOR, husband and wife (hereinafter referred to
as "Taylor");
FRANK J. DANIELS and SHARON D. DANIELS, husband and wife (hereinafter
referred to as "Daniels");
DEE R. THUESON and DONNA THUESON, husband and wife, (hereinafter
referred to as "D. Thueson");
CLAIR O. THUESON and ANN B. THUESON, husband and wife, (hereinafter
referred to as "C. Thueson");
NEIL H. KNUDSEN and LINDA J. KNUDSEN, husband and wife (hereinafter
referred to as "Knudsen");
(hereinafter jointly referred to as the "Sellers")
WHEREAS, the Sellers are the registered and beneficial owners of one
hundred percent (100%) of the issued and outstanding common shares in the
capital of Mountain West Bark Products, Inc., a corporation incorporated under
the laws of the State of Idaho (the "Corporation");
AND WHEREAS, the Purchaser wishes to purchase, and the Sellers wish to
sell, one hundred percent (100%) of the issued and outstanding shares in the
capital of the Corporation (the "Corporation's Shares") on the terms and
conditions herein contained;
<PAGE> 7
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants herein contained, the parties hereto hereby covenant
and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Defined Terms
In this Agreement and in the Schedules hereto, unless there is
something in the subject matter or context inconsistent therewith, the
following terms and expressions shall have the following meanings:
(a) "Bank of Commerce Debt" means the indebtedness of the Corporation
to the Bank of Commerce with principal offices in the city of
Idaho Falls, State of Idaho, pursuant to those certain notes for
which Sellers may be liable by virtue of Sellers' personal
guaranty to The Bank of Commerce including: note number
4011900717 dated November 4, 1992, in the original principal
amount of $500,200.00, the outstanding balance of which on August
31, 1993, was $292,180.93, and note number 4011900081 dated
September 7, 1990, in the original principal sum of
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<PAGE> 8
$1,000,000.00, the outstanding balance of which on August 31,
1993, was $454,964.37.
(b) "Business" with respect to the Corporation means the business
carried on by the Corporation which primarily involves the
acquisition, exploration, mining development, processing and
marketing of scoria, bark products, soil and soil additives;
(c) "Business of the Purchaser" means the business carried on by the
Purchaser which primarily involves the acquisition, exploration,
development and management of resource properties;
(d) "Business Day" means any day other than a day which is a
Saturday, a Sunday or a statutory holiday;
(e) "Closing" means the closing of the purchase and sale of the
Corporation's Shares on the Closing Date;
(f) "Closing Date" means November 30, 1993, or such other date as may
be mutually agreed to by the Sellers and the Purchaser;
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<PAGE> 9
(g) "Closing Time" means 10:00 a.m. (Pacific Standard Time) on the
Closing Date or such other time on the Closing Date as the
parties hereto may agree upon;
(h) "Condition" of the Corporation means the condition of the assets,
liabilities, operations, activities, earnings, prospects, affairs
or financial position of the Corporation, as the case may be;
(i) "Corporation's Shares" means 74,506 common shares $1.00 par value
of the Corporation which represents 100% of the issued and
outstanding capital of the Corporation;
(j) "Encumbrances" means mortgages, charges, pledges, security
interests, liens, encumbrances, actions, claims, demands and
equities of any nature whatsoever or howsoever arising and any
rights or privileges capable of becoming any of the foregoing;
(k) "Financial Statements" of the Corporation means the unaudited
(unconsolidated or consolidated, as the case may be) financial
statements as at and for the fiscal year ended on August 31,
1993, including the balance sheet and income statement together
with the notes to such financial statements, all as telecopied to
Purchaser
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<PAGE> 10
on September 27, 1993, copies of which are attached hereto as
Schedule A;
(l) "Interim Period" means the period from and including the date of
this Agreement to and including the Closing Date;
(m) "Key Bank Debt" means any indebtedness of the Corporation to the
Key Bank of Idaho, Rexburg Branch, located in the city of
Rexburg, State of Idaho, for which Sellers may be liable by
virtue of Sellers' personal guaranty to Key Bank of Idaho,
pursuant to that certain note dated December 24, 1992, Note No.
000329 as in the original principal amount of $651,512.01 as
thereafter extended pursuant to agreements dated October 5, 1993,
and that certain Note and Security Agreement dated September 24,
1991, in the original principal sum of $13,305.00, the
outstanding balance of which on August 31, 1993, was $5,621.78
covering a 1990 Ford Truck, VIN #2FTEF14N3LCA08543;
(n) "Letter of Intent" means the letter of the Purchaser dated March
22, 1993, addressed to the Sellers and accepted by the Sellers
March 22, 1993;
(o) "person" means and includes any individual, corporation,
partnership, firm, joint venture, syndicate, association,
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<PAGE> 11
trust, government, governmental agency or board or commission or
authority, and any other form of entity or organization;
(p) "Properties" of the Corporation means (i) all interests in real
property including all fee interests, leases, letters of intent,
water rights, and any equitable or other interests which are more
fully described in Schedule C-1, attached hereto and incorporated
herein by this reference, and (ii) all personal property,
including all chattel, equipment, rolling stock, fixtures and
other movable property with a fair market value in excess of
$2500, and as recorded on the depreciation schedules of the
Corporation, which are more fully described in Schedule C-2,
attached hereto and incorporated herein by this reference;
(q) "Purchase Price" shall have the meaning set out in Section 2.2
hereof, which is the consideration payable by the Purchaser to
the Sellers for all of the Corporation's Shares issued and
outstanding, as provided herein;
(r) "Purchaser's Shares" means 655,000 common shares $.25 par value
in the capital of the Purchaser to be delivered to Sellers at
Closing. As to the Purchaser's Shares, once issued such
securities shall cease to be Purchaser's
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<PAGE> 12
Shares when (i) a registration statement with respect to the sale
of such securities shall have become effective under the
Securities Act (as hereinafter defined) and such securities shall
have been disposed of in accordance with such registration
statement, (ii) such securities shall have been sold pursuant to
Rule 144 (or any successor provision) under the Securities Act,
(iii) such securities shall have been otherwise transferred and
new certificates for such securities not bearing a legend
restricting further transfer shall have been delivered by
Purchaser or (iv) such securities shall have ceased to be
outstanding.
(s) "Registration Expenses" means any and all expenses incident to
performance of or compliance with this Agreement, including
without limitation, (i) all SEC (as hereinafter defined) and
stock exchange or National Association of Securities Dealers,
Inc. registration and filing fees, (ii) all fees and expenses of
complying with securities or blue sky laws (including reasonable
fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Purchaser's
Shares), (iii) all printing, messenger and delivery expenses,
(iv) the fees and disbursements of counsel for Purchaser and of
Purchaser's independent public accountants, including the
expenses of any special
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<PAGE> 13
audits and/or "cold comfort" letters required by or incident to
such performance and compliance; but excluding (x) the fees and
disbursements of counsel, if any, retained by any of the Sellers
(y) any fees and disbursements of underwriters, if any, or fees
and expenses of any special experts, if any, retained by or at
the request of Sellers in connection with the registration and
(z) underwriting discounts and commissions and transfer taxes, if
any.
(t) "SEC" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
(u) "Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference
to the comparable section, if any, of any such similar federal
statute.
(v) "Statement Date" means August 31, 1993.
1.2 Best of Knowledge
Any reference herein to "the best of the knowledge" of a party shall
be deemed to mean the actual knowledge of a party and the
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<PAGE> 14
knowledge which it would have had if it had conducted a diligent inquiry into
the relevant subject matter.
1.3 Schedules
The Schedules listed in the Table of Contents to this Agreement and
which are attached to this Agreement are incorporated into this Agreement by
reference and are deemed to be part hereof.
1.4 Choice of Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Idaho. The parties agree that the courts of the State
of Idaho shall have exclusive jurisdiction to determine all disputes and claims
arising between the parties.
1.5 Interpretation Not Affected by Headings or Party Drafting
The division of this Agreement into articles, sections, paragraphs,
subsections and clauses and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement. The terms "this Agreement," "hereof," "herein," "hereunder" and
similar expressions refer to this Agreement and the Schedules hereto and not to
any particular article, section, paragraph, clause or other portion
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<PAGE> 15
hereof and include any agreement or instrument supplementary or ancillary
hereto. Each party hereto acknowledges that it and its legal counsel have
reviewed and participated in settling the terms of this Agreement, and the
parties hereby agree that any rule of construction to the effect that any
ambiguity is to be resolved against the drafting party shall not be applicable
in the interpretation of this Agreement.
1.6 Number and Gender
In this Agreement, unless there is something in the subject matter or
context inconsistent therewith,
(a) words in the singular number include the plural and such words
shall be construed as if the plural had been used,
(b) words in the plural include the singular and such words shall be
construed as if the singular had been used, and
(c) words importing the use of any gender shall include all genders
where the context or party referred to so requires, and the rest
of the sentence shall be construed as if the necessary
grammatical and terminological changes had been made.
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<PAGE> 16
1.7 Time of Essence
Time shall be of the essence of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 Corporation's Shares
On the terms and subject to the fulfillment of the conditions hereof,
the Sellers hereby agree to sell, assign and transfer to the Purchaser, and the
Purchaser hereby agrees to purchase and accept from the Sellers the
Corporation's Shares.
2.2 Purchase Price
The price (the "Purchase Price") payable by the Purchaser to the
Sellers for the Corporation's Shares shall be the Purchaser's Shares.
2.3 Payment of Purchase Price
The Purchase Price shall be paid and satisfied in full at the Closing
by the issuance and delivery by the Purchaser to the Sellers of certificates of
the Purchaser's Shares as fully paid and non-assessable, distributed to the
Sellers as follows:
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<PAGE> 17
<TABLE>
<CAPTION>
SELLERS Distribution of Purchaser's Shares
- ------- ----------------------------------
<S> <C> <C>
TAYLOR 655,000 x 33.62145% = 220,220
DANIELS 655,000 x 27.15217% = 177,847
D. THUESON 655,000 x 16.81072% = 110,110
C. THUESON 655,000 x 16.81072% = 110,110
KNUDSEN 655,000 x 5.60494% = 36,713
--------- -------
Total 100% 655,000
====
</TABLE>
2.4 Adjustment
The parties agree that Purchaser shall conduct an audit of the
Financial Statements and, as soon as reasonably practicable and not later than
fourteen (14) days prior to the Closing Date, prepare and submit to Sellers an
audited balance sheet for the Corporation as of the Statement Date ("Final
Balance Sheet"). The Final Balance Sheet shall be prepared in accordance with
generally accepted accounting principles and shall be in a format consistent
with the balance sheet comprising a part of the Financial Statements.
The Final Balance Sheet shall be compared against the balance sheet
comprising the balance sheet in the Financial Statements for the period ending
on the Statement Date. The audit shall accept the values stated in the
Corporation's Financial Statements for the fixed assets and the volume and
value of fungible inventory actually in the Corporation's possession on the
Statement Date; in the event such fixed assets were not actually in the
Corporation's possession on the Statement Date, an adjustment shall be made as
a
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<PAGE> 18
portion of the following procedure. The aggregate difference between the
amount of any and all accounts on the Final Balance Sheet and the amount of any
and all accounts on the balance sheet in the Financial Statements at the
Statement Date (the "Aggregate Difference"), if less than one hundred
eighty-six thousand dollars ($186,000) shall be paid to the appropriate party,
as follows: if the Aggregate Difference results in net reduction of the
accounts on the Final Balance Sheet, then Sellers, jointly and severally, agree
to pay to Purchaser the entire amount of the Aggregate Difference. If the
Aggregate Difference results in net increase of accounts on the Final Balance
Sheet, Purchaser shall pay Sellers the entire amount of the Aggregate
Difference. If the Aggregate Difference exceeds one hundred eighty-six
thousand dollars ($186,000), neither party shall be obligated to make any
payment or to close the transaction contemplated in this Agreement, as
specified in Article 6 hereof. Any payment pursuant to this section shall be
made to Purchasers or Sellers, respectively, in cash or certified funds, at
December 31, 1993.
The Sellers shall have ten (10) days from their receipt of the Final
Balance Sheet to review the Final Balance Sheet and provide Purchaser with any
written objections to the balance sheet presentation. In the event the Sellers
do not object to the Final Balance Sheet within said period of time, the Final
Balance Sheet shall be deemed correct and shall be used for the purposes of the
adjustment. In the event that the Sellers object to the Final
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<PAGE> 19
Balance Sheet, the parties shall endeavor to resolve their differences within a
period of four (4) days; provided, however, if the parties are unable to
resolve their differences, Closing shall take place on the Closing Date, and
the Final Balance Sheet shall be prepared by Coopers & Lybrand. The Purchaser
and Sellers shall equally share the cost of the accounting firm's preparation
of the Final Balance Sheet. The balance sheet prepared by Coopers & Lybrand
shall be the Final Balance Sheet for the purposes of the adjustment, and the
Aggregate Difference, if any, shall be paid by the appropriate party within ten
(10) days of receipt thereof, if the Final Balance Sheet is provided after
December 21, 1993.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties by the Sellers
The Sellers hereby jointly and severally represent, warrant and
covenant to the Purchaser as follows, and acknowledge that the Purchaser is
relying upon such representations, warranties and covenants in connection with
the purchase of the Corporation's Shares as herein provided:
(1) Authority and Binding Obligation. The Sellers have taken all
necessary or desirable actions, steps, corporate action and other
proceedings to approve or authorize, validly and
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<PAGE> 20
effectively, the entering into of, and the execution, delivery and
performance of, this Agreement and the sale and conveyance of the
Corporation's Shares to the Purchaser. This Agreement is a legal,
valid and binding obligation of the Sellers, enforceable against each
of them in accordance with its terms subject to the laws affecting the
enforcement of creditors rights generally and the availability of
discretionary judicial remedies.
(2) No Other Purchase Agreements. As of Closing, no person will have any
written or oral agreement, assignment, option, understanding or
commitment or any right or privilege capable of becoming an agreement,
for (i) the purchase from the Sellers of any of the Corporation's
Shares, or (ii) for the purchase, subscription, allotment or issuance
of, or conversion into convertible securities, warrants or convertible
obligations of any nature, any of the unissued shares in the capital
of the Corporation or any securities of the Corporation.
(3) Status
(a) The Corporation is a corporation duly incorporated and validly
subsisting in all respects under the laws of its respective
jurisdiction of incorporation. The Corporation has all necessary
corporate power to own its
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<PAGE> 21
Properties and to carry on its Business in the states as it is
now being conducted. The Corporation has not qualified to
conduct business or own assets in any state other than Idaho and
Montana.
(b) To the best of the Sellers' knowledge, the Corporation is duly
registered, licensed and qualified in each jurisdiction in which
the character of its property and assets now owned by it or the
nature of its business now conducted by it requires it to be so
registered, licensed or qualified and all such registrations,
licenses or qualifications are valid and subsisting and in good
standing, and the Corporation has filed all returns required to
be filed and has paid all fees and taxes required to be paid by
it to maintain such registrations, licenses or qualifications.
(4) No Violation. The execution, delivery and performance of this
Agreement by the Sellers, and the completion of the transactions
contemplated hereby, shall not constitute or result in a violation or
breach of or default under, or cause the acceleration of any
obligations of the Corporation under:
(a) any term or provision of any of the articles, by-laws or other
constating documents of the Corporation;
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<PAGE> 22
(b) the terms of any agreement (written or oral), indenture,
instrument or understanding or other obligation or restriction to
which the Corporation or the Sellers are a party or by which any
of them is bound; or
(c) any term or provision of any of the licenses of the Corporation
or any order of any court, governmental authority or regulatory
body or, to the best of the knowledge of the Sellers, any law or
regulation of any jurisdiction in which the Business of the
Corporation is carried on.
(5) Corporate Records. To the best of the knowledge of the Sellers, the
corporate records and minute books of the Corporation have been
maintained in accordance with reasonably accepted practice and in
particular contain minutes of all meetings of the directors and
shareholders of the Corporation and all such meetings were duly held.
To the best of the knowledge of the Sellers, the share certificate
books, register of security holders, register of transfers and any
similar corporate records of the Corporation are complete and
accurate.
(6) Authorized and Issued Capital. The authorized capital of the
Corporation consists of two hundred fifty thousand (250,000) common
shares, par value of one dollar ($1.00) each, of which
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<PAGE> 23
74,506 common shares have been duly issued and are outstanding as
fully paid and non-assessable shares, and 29,871 are issued and held
as Treasury Stock of the Corporation. The Sellers own 100% of the
issued and outstanding common shares of the Corporation as the
shareholder of record and as the beneficial owners, with good and
marketable title thereto free and clear of any and all Encumbrances.
(7) Shareholders Agreements, Etc. As of Closing, there will be no
shareholders' agreements, pooling agreements, voting trusts, stock
options, or other similar agreements with respect to the ownership or
voting of any of the Corporation's Shares.
(8) Financial Condition. To the best of the knowledge of the Sellers, the
financial position and all financial transactions of the Corporation
are presented fairly in its books and records. The Financial
Statements, including the notes thereto, present fairly the financial
position of the Corporation, including the assets and liabilities of
the Corporation normally recorded in the Financial Statements as at
the dates stated therein and the balance statement, income statement
and cash flow statement for the respective periods indicated in such
financial statements, and the Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on
a consistent basis,
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<PAGE> 24
except as specifically otherwise described in the Financial Statements.
(9) No Material Adverse Change. Since August 31, 1993, there has been no
material adverse change in the Business or Condition of the
Corporation from that shown in the Financial Statements as of such
date.
(10) Environmental. To the best of the Sellers' knowledge, information and
belief the Corporation has obtained, now and has at all times in the
past been in all material respects, in compliance with all permits,
licenses, approvals or other authorizations with respect to the
business of the Corporation that are currently required or that were
required in the past with respect to the business, operations and
assets of the Corporation pursuant to any federal, state or local law,
regulation, ordinance or other requirement of the United States or of
any state, municipality or other subdivision of any thereof relating
to pollution or protection of the environment. The Corporation has
not received any notice from a governmental authority or third party
of any actual or potential violation of or liability for noise,
pollution or contamination of the air, surface, water, groundwater or
land; solid, gaseous or liquid waste generation, handling, treatment,
storage, disposal or transportation; exposure to hazardous or toxic
substances; or the manufacture, processing
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<PAGE> 25
distribution in commerce, use or storage of chemical substances.
(11) Liabilities of the Corporation. There are no liabilities, debts or
obligations (contingent or otherwise) of the Corporation of any kind
whatsoever, and to the best of the knowledge of the Sellers there is
no basis for assertion against the Corporation of any liabilities of
any kind, other than:
(a) liabilities disclosed or reflected in or provided for in the
Financial Statements, and
(b) liabilities incurred since the Statement Date, which were
incurred in the ordinary course of the routine daily affairs of
the Business of the Corporation and, in the aggregate, are not
materially adverse to the Business of the Corporation, and
(c) contingent liabilities otherwise specifically disclosed in this
Agreement or the attached schedules.
(12) Outstanding Debts. The following amounts accurately represent the
Corporation's outstanding debt to the following named parties as of
the date specified, other than borrowings for working capital
specified in Section 5.1(4)(viii):
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<PAGE> 26
(a) the outstanding balance of all principal and interest on the Bank
of Commerce Debt as of November 1, 1993, will be $713,190.18.
(b) the outstanding balance of all principal and interest on the Key
Bank Debt as of November 1, 1993, will be $673,957.88.
(c) the obligations to repay certain cash advances made by Sellers,
which are evidenced by certain promissory notes, all of which are
dated October 8, 1993, are hereby stipulated to be payable in
full as to both principal and interest on December 31, 1993, in
the aggregate amount of $273,543.75 which notes shall not be
presented for payment prior to December 31, 1993, or the date
that Sellers are required to make any adjustment payment to
Purchaser under Section 2.4 hereof, whichever is later.
(13) Dividends and Distributions. Since the Statement Date, the
Corporation has not declared or paid any dividend or made any other
distribution on any of its shares of any class, or redeemed or
purchased or otherwise acquired any of its shares of any class, or
reduced its authorized capital or issued capital or any options or
warrants or otherwise granted a right to acquire any capital stock of
the Corporation, or agreed to do any of the foregoing.
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<PAGE> 27
(14) Litigation. There are no actions, suits, proceedings or
investigations, whether or not purportedly on behalf of the
Corporation, pending or, to the best of the knowledge of the Sellers,
threatened, by or against or affecting the Corporation, at law or in
equity, or before or by any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, except as disclosed in the
Financial Statements of the Corporation and except as set forth in
Schedule B. The Sellers are not aware of any existing grounds on
which any such action, suit, proceeding or investigation against the
Corporation might be commenced with any reasonable likelihood of
success.
(15) Title to Assets. The Corporation is the owner of and has good and
marketable title to all of its properties and assets, including,
without limitation, all properties and assets reflected in the
Financial Statements, and all properties and assets acquired by the
Corporation after the Statement Date, free and clear of all
Encumbrances whatsoever, subject to Subsection 3.1(14) hereof, except
for:
(i) the properties and assets disposed of, utilized or consumed by
the Corporation since the Statement Date in the ordinary course
of the Business of the Corporation;
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<PAGE> 28
(ii) liens for taxes not yet due and payable; and
(iii) those items that have been disclosed in writing to Purchaser or in
Schedule C-1.
(16) Properties.
(a) Schedules C-1 and C-2 attached hereto lists all Properties owned
by the Corporation.
(b) The Corporation is the beneficial owner of the Properties, free
and clear of any and all Encumbrances, except for liens for
current taxes not yet due, and Encumbrances associated with the
Key Bank Debt and the Bank of Commerce Debt.
(17) Subsidiaries and Other Interests. The Corporation has no subsidiaries
and does not own any securities issued by, or any equity or ownership
interest in, any other person, except as indicated in its Financial
Statements.
(18) Restrictions on Doing Business of the Corporation. The Corporation is
not a party to or bound by any agreement which would restrict or limit
its right to carry on any business or activity or to solicit business
from any person or in any geographical area or otherwise to conduct
the Business of the
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<PAGE> 29
Corporation as the Corporation may determine. The Corporation is not
subject to any legislation or any judgment, order or requirement of
any court or governmental authority which is not of general
application to persons carrying on a business similar to the Business
of the Corporation. To the best of the knowledge of the Sellers,
there are no facts or circumstances which could materially adversely
affect the ability of the Corporation to continue to operate the
Business of the Corporation as presently conducted following the
completion of the transactions contemplated by this Agreement.
(19) Good Standing of Agreements. To the best of the knowledge of the
Sellers, the Corporation is not in default or breach of any of its
obligations under any one or more contracts, agreements (written or
oral), commitments, indentures or other instruments to which it is a
party or by which it is bound and there exists no state of facts
which, after notice or lapse of time or both, would constitute such a
default or breach. All such contracts, agreements, commitments,
indentures and other instruments are now in good standing and in full
force and effect without amendment thereto, the Corporation is
entitled to all benefits thereunder and, to the best of the knowledge
of the Sellers, the other parties to such contracts, agreements,
commitments, indentures and other instruments are not in default or
breach of any of their obligations thereunder. Except for Sellers'
guarantees and pledges of
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<PAGE> 30
security in relation to the Key Bank Debt and the Bank of Commerce
Debt, there are no contracts, agreements, commitments, indentures or
other instruments under which the Corporation's rights or the
performance of its obligations are dependent upon or supported by the
guarantee of or any security provided by any other person.
(20) Tax Liabilities. Except as disclosed in Schedule D, to the best of
the knowledge of the Sellers, the Corporation has filed all tax and
other returns required to be filed by it and has paid all taxes which
are due and payable and has paid all assessments and reassessments and
paid or duly provided for all other governmental, including federal,
state and local taxes and charges, penalties, interest and fines due
and payable by it. The Corporation has been assessed with respect to
all fiscal periods up to and including the fiscal period ended August
31, 1993. As of the date hereof, no taxation authority has disagreed
with or raised any material issues concerning the information
contained in any tax returns filed by the Corporation. Adequate
provision has been made for taxes which may be payable by the
Corporation for the current period for which tax returns are not yet
required to be filed and all installments of taxes in the current year
have been paid in accordance with the applicable statutory
requirements. There are no agreements, waivers or other arrangements
providing for an extension of time with respect to any
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<PAGE> 31
assessment or reassessment or the filing of any tax return or payment
of any tax, governmental charge or deficiency by the Corporation and
there are no actions, suits, proceedings or investigations for claims
now pending or threatened against the Corporation in respect of taxes,
governmental charges or assessments or any matters under discussion
with any governmental authority relating to the same. The Corporation
has withheld from each payment made to any of its officers, directors
or employees, present and past, the amount of all taxes, including but
not limited to income tax and other deductions required to be withheld
therefrom and has paid the same to the proper tax or other receiving
officer within the time required under any applicable legislation.
(21) Other Returns. To the best of the knowledge of the Sellers, the
Corporation has filed all returns required and called for under any
statutes, regulations of any jurisdiction in which the failure to file
such returns would have a material adverse effect on its assets or
business and such returns were completed substantially in accordance
with the provisions of such statutes.
(22) Compliance with Laws. To the best of the knowledge of the Sellers,
the Corporation is not in violation of any federal, state, municipal
or other law, regulation or order of any
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<PAGE> 32
government or governmental or regulatory authority, domestic or
foreign.
(23) Copies of Documents. Complete and correct copies (including all
amendments) of all contracts, leases and other documents referred to
in this Agreement or any Schedule hereto or required to be disclosed
hereby to which the Corporation is a party have been delivered to or
made available to the Purchaser.
(24) Disclosure. No representation or warranty contained in this Section
3.1, and no statement contained in any Schedule, certificate, list,
summary or other disclosure document provided or to be provided to the
Purchaser pursuant hereto or in connection with the transactions
contemplated hereby contains or shall contain any untrue statement of
a material fact, or omits or shall omit to state any material fact
which is necessary in order to make the statements contained therein
not misleading.
3.2 Representations and Warranties by the Purchaser
The Purchaser hereby represents, warrants and covenants to the Sellers
as follows, and acknowledges that the Sellers are relying upon such
representations, warranties and covenants in connection
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<PAGE> 33
with the purchase of the Corporation's Shares by the Purchaser as herein
provided:
(1) Corporate Authority and Binding Obligation. Subject to obtaining
Board of Directors approval prior to the Closing Date, the Purchaser
has good right, full corporate power and authority to enter into this
Agreement and to purchase the Corporation's Shares from the Sellers
and to issue the Purchaser's Shares to the Sellers in the manner
contemplated herein and to perform all of the Purchaser's obligations
under this Agreement. The Purchaser has taken all necessary or
desirable actions, steps and corporate and other proceedings to
approve or authorize, validly and effectively, the entering into of,
and the execution, delivery and performance of, this Agreement and the
purchase of the Corporation's Shares from the Sellers and the issue of
the Purchaser's Shares to the Sellers. Except as hereinabove
provided, this Agreement is a legal, valid and binding obligation of
the Purchaser, enforceable against it in accordance with its terms
subject to the laws affecting the enforcement of creditors rights
generally and the availability of discretionary judicial remedies.
(2) Status. The Purchaser is a corporation duly incorporated and validly
subsisting in all respects under the laws of its jurisdiction of
incorporation.
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(3) No Violation. The execution, delivery and performance of this
Agreement and each of other agreements contemplated or referred to
herein by the Purchaser, and the completion of the transactions
contemplated hereby, shall not constitute or result in a violation or
breach of or default under, or cause the acceleration of any
obligations of the Purchaser under:
(a) any term or provision of the certificate of incorporation,
by-laws or other constating documents of the Purchaser,
(b) the terms of any agreement (written or oral), indenture,
instrument or understanding or other obligation or restriction to
which the Purchaser is a party or by which it is bound, or
(c) any term or provision of any of the licenses or any order of any
court, governmental authority or regulatory body or any law or
regulation of any jurisdiction in which the Business of the
Purchaser is carried on.
(4) Purchaser's Shares. The Purchaser's Shares to be delivered to Sellers
at Closing shall be duly authorized and validly issued and such shares
when issued will be fully paid and non-assessable. Subject to Section
5.2(2), the Purchaser's Shares
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shall not be registered under the Securities Act of 1933 or any
comparable state securities law and shall therefore be held by Sellers
as restricted stock for investment purposes. Each certificate for the
Purchaser's Shares shall contain the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
the securities laws of any state or other jurisdiction and may
not be sold, offered for sale or otherwise transferred unless
registered and qualified under said Act and applicable state's
securities laws or unless the company receives an opinion in
acceptable form and scope of counsel satisfactory to the company
that registration, qualification or such other actions are not
required under any such laws."
(5) Compliance with Laws. The Purchaser is not in violation of any
federal, state, municipal or other law, regulation or order of any
government or governmental or regulatory authority, domestic or
foreign, the violation of which would have a material adverse effect
on the Purchaser and its consolidated subsidiaries taken as a whole.
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(6) Disclosure. No representation or warranty contained in this Section
3.2, and no statement contained in any Schedule, certificate, list,
summary or other disclosure document provided or to be provided to the
Sellers pursuant hereto or in connection with the transactions
contemplated hereby contains or shall contain any untrue statement of
a material fact, or omits or shall omit to state any material fact
which is necessary in order to make the statements contained therein
not misleading.
ARTICLE 4
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
4.1 Survival of Representations and Warranties
The representations, warranties and covenants contained in Article 3
shall survive the Closing and shall continue in full force and effect
thereafter for the benefit of the Purchaser or the Sellers, as the case may be,
provided, however, that:
(i) the representations, warranties and covenants contained in
Article 3, except those relating to tax liabilities and the
due allotment and issuance of the Purchaser's Shares, shall
continue only for a period of two (2) years from the Closing
Date;
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(ii) the representations, warranties and covenants relating to tax
liabilities for a particular taxation year shall continue
until the expiration of the period (if any) during which an
assessment, reassessment or other form of recognized document
assessing liability for tax, interest or penalties in respect
of such taxation year under applicable legislation could be
issued, assuming that the Corporation or the Purchaser, as
the case may be, does not file any waiver or similar document
extending such period as otherwise determined; and
(iii) there shall be no time limit in respect of the
representations, warranties and covenants relating to tax
liabilities based upon any misrepresentation made or fraud
committed in the filing of a return or in supplying
information for the purposes of the United States Internal
Revenue Code or any other legislation imposing a tax.
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ARTICLE 5
COVENANTS
5.1 Covenants by the Sellers
The Sellers covenant to the Purchaser that they shall do or cause to
be done the following:
(1) Inspection of Records. During the Interim Period, the Sellers shall
provide and shall cause the Corporation to provide, and shall permit
the Purchaser and its duly authorized representatives, including the
Purchaser's agents, accountants and attorneys, reasonable access
during business hours to all the facilities, properties, books,
contracts, commitments and records of the Corporation and shall
furnish to the Purchaser during such period all such information
relating to the assets, liabilities and other material aspects of the
Business of the Corporation as the Purchaser may reasonably request,
and the Sellers shall permit the Purchaser to take relevant extracts
from such books, contracts, commitments and records; provided that the
Purchaser shall maintain strictly confidential any and all materials
so obtained or used and shall not use such materials for any purpose
other than the completion and implementation of the purpose and intent
of this Agreement and the transactions contemplated hereunder.
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(2) Transfer of Corporation's Shares. At or before the Closing Time, the
Sellers shall cause all necessary steps and corporate proceedings to
be taken to permit the Corporation's Shares to be duly and regularly
transferred to the Purchaser. Prior to the Closing Time, Sellers
shall take all steps and execute the necessary documents to waive and
release any and all cross- purchase rights, and any restrictive
legends appearing on the stock certificates of the Corporation's
Shares and certify that all stock option rights with respect to the
Corporation shall be null, void and legally unenforceable.
(3) New Agreements. Prior to the Closing Time, the Sellers shall cause
the Corporation to enter into agreements with the persons specified in
Schedule E, which agreements shall be substantially in the form
attached thereto.
(4) Business of Corporation During Interim Period. During the Interim
Period, the Corporation shall operate its business only in the usual
and ordinary course and shall (i) preserve intact its business
organization and goodwill in all material respects and continue to
operate in the ordinary course of business; (ii) maintain existing
contracts for sale and delivery of Products; (iii) keep available the
services of its officers and key employees; and (iv) maintain intact
its relationships with customers, suppliers, distributors and
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others having business relationships with it, and the Corporation
shall not without the prior written consent of Purchaser, (i) amend or
otherwise change its charter or by-laws; (ii) issue, sell or authorize
for issuance or sale, shares of any class of its securities
(including, but not limited to, by way of stock split or dividend) or
any subscriptions, options, warrants, rights, convertible securities
or other agreements or commitments of any character obligating it to
issue such securities; (iii) declare, set aside, make or pay any
dividend or other distribution (whether in cash, stock or property)
with respect to its capital stock; (iv) redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock; (v) enter
into any agreement, commitment or transaction (including, but not
limited to, any capital expenditure or sale of assets), except for the
agreements specified in Section 5.1(3) and other than for an aggregate
amount not exceeding $10,000 which shall be necessary in the ordinary
course of business; (vi) grant any increase in the compensation
payable or to become payable by the Corporation to any of their
respective directors, officers or employees, or any increase in or new
agreements or arrangements providing for any bonus, insurance, pension
or other employee benefit plan, payment or arrangement (including, but
not limited to, the granting of stock options or stock appreciation
rights) made to, for or with any director, officer or employee; (vii)
enter into any employment
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agreement, grant any severance or termination pay with or to any
officer, director or employee of the Corporation; or (viii) borrow
funds, except for working capital requirements in the ordinary course
of business not to exceed one hundred thousand dollars ($100,000).
(5) Verification of scoria and peat reserves. Immediately upon execution
of this Agreement, Sellers shall cause the Corporation to make
available to Purchaser access to Seller's Properties and sources of
supply for scoria and peat in order to enable Purchaser, at its
expense, to undertake a program of exploratory trenching to verify the
color, quantity, and extent of the deposits and sources supplying the
Corporation's scoria and peat.
(6) Sale of Purchaser's Shares. Each Seller shall notify the Purchaser
when it has disposed of all of Purchaser's Shares held by such Seller.
5.2 Covenants by the Purchaser
The Purchaser covenants to the Sellers that it shall do or cause to be
done the following:
(1) Issue of Purchaser's Shares. At or before the Closing Time, the
Purchaser shall cause all necessary steps and corporate
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proceedings to be taken in order to issue and allot the Purchaser's
Shares to the Sellers pursuant to Section 2.3 hereof.
(2) Registration and Listing of Purchaser's Shares. Subject to the
conditions specified below, the Purchaser shall as promptly as
practicable prepare and file with the SEC no later than ten (10)
business days after Closing and thereafter use its best efforts to
cause to become effective as promptly as practicable a registration
statement for a public offering to be made on a continuous or delayed
basis pursuant to Rule 415 under the Securities Act (or any successor
to such rule permitting securities to be registered on a continuous or
delayed basis in the future) covering the Purchaser's Shares in order
to permit the public sale or disposition of the Purchaser's Shares by
the Sellers;
(a) The Purchaser will prepare and file with the SEC amendments and
supplements to such registration statement and the prospectus
used in connection therewith (i) as may be necessary to keep such
registration statement effective under the Securities Act for a
period of two (2) years from the Closing Date (subject to earlier
termination in the event all the Purchaser's Shares held by the
Sellers have been sold prior to the end of such two-year period).
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(b) The Purchaser will furnish to the Sellers such number of copies
of the registration statement and such prospectus and amendment
or supplement as the Sellers shall reasonably request.
(c) The Purchaser will notify the Sellers in the event any prospectus
then in use contains any untrue statement of a material fact or
any omission of a material fact necessary to make the statements
therein in light of the circumstances under which they are made
not misleading.
(d) The Purchaser will use its best efforts to register or qualify
such Purchaser's Shares covered by such registration statement
under such other securities or "blue sky" laws of such
jurisdictions as any Sellers of Purchaser's Shares representing
more than 15% of the total number of securities covered by such
registration statement shall reasonably request, and do any and
all other acts and things that may be necessary or advisable to
enable such Sellers to consummate the disposition in such
jurisdictions of such Purchaser's Shares owned by such Sellers;
provided, however, that the Purchaser shall not for any such
purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but
for the
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requirements of this clause (d) be obligated to be so qualified,
to subject itself to taxation in any such jurisdiction or to
consent to general service of process in any such jurisdiction.
(e) If the Purchaser shall furnish to the Sellers a certificate
signed by the Chairman and Chief Executive Officer, the President
or any Vice President of the Purchaser stating that the Purchaser
would be required to disclose in such registration statement or
amendment or supplement to such registration statement and the
prospectus used in connection therewith a material business
situation, transaction or negotiation affecting the Purchaser not
otherwise then required in the opinion of the Purchaser's
counsel, by law to be publicly disclosed and such disclosure
would, in the opinion of the Purchaser, materially and adversely
affect such business situation, transaction or negotiation, the
obligation of the Purchaser to file such registration statement
or the prospectus used in connection therewith (or to keep such
registration statement or prospectus effective) shall be tolled
until the earlier to occur of (A) the date of public disclosure
of such material business situation, transaction or negotiation
or (B) the date on which the Purchaser would no longer be
required
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to make such disclosure; provided, however, that such period may
not be tolled for more than sixty (60) days.
(f) The Purchaser shall use its best efforts to list the Purchaser's
Shares issued to Sellers on the New York Stock Exchange.
(g) The Purchaser shall pay all Registration Expenses in connection
with the registration of Purchaser's Shares; provided that the
Sellers shall pay all underwriting discounts and commissions and
transfer taxes, if any (and any other expenses specifically
excluded from the definition of Registration Expenses), relating
to the sale or disposition of Purchaser's Shares by a Seller
pursuant to a registration statement effected pursuant to this
Agreement.
Notwithstanding the foregoing, the Purchaser shall not be obligated to
enter into any type of underwriting agreement.
Each Seller who holds Purchaser's Shares agrees that upon receipt of
any notice from the Purchaser of the happening of any event of the kind
described in clause (c) of this Section 5.2(2), such holder will forthwith
discontinue disposition of Purchaser's Shares pursuant to the registration
statement covering such Purchaser's Shares until the Sellers receive copies of
a prospectus
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supplemented or amended so that the prospectus does not contain any untrue
statement of a material fact or any omission of a material fact necessary to
make the statements therein in light of the circumstances under which they are
made not misleading. In addition, each Seller who holds Purchaser's Shares
agrees that upon receipt of a certificate from Purchaser of the kind described
in clause (e) of this Section 5.2(2), such holder will forthwith discontinue
disposition of Purchaser's Shares pursuant to the registration statement
covering such Purchaser's Shares until the earlier of (A) the date of public
disclosure of such material business situation, transaction or negotiation or
(B) the date on which the Purchaser would no longer be required to make such
disclosure.
The Purchaser may require the Sellers holding Purchaser's Shares to
furnish to the Purchaser and its counsel such information regarding each of the
Sellers and the distribution of such securities as the Purchaser may from time
to time reasonably request in writing. Such information may be included in the
registration statement and other SEC filings as required by applicable law.
(3) Trading Limitation of Purchaser's Shares. Upon the registration and
listing of Purchaser's Shares pursuant to Section 5.2(2) hereof,
Sellers shall not, in the aggregate, dispose of more than 50,000 of
the Purchaser's Shares during
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any one trading day. In addition, so long as Sellers continue to hold
at least twenty percent (20%) of the Purchaser's Shares held by them
upon consummation of the transactions contemplated by this Purchase
Agreement, Purchaser shall notify Sellers of the pendency of a sale
under any public offering by Purchaser of Purchaser's common stock or
any other Purchaser equity security, in which event none of the
Sellers nor any of their affiliates shall effect any sales of any
Purchaser's Shares within twenty (20) days prior to the commencement
of or during such offering.
(4) Release of Sellers Guarantee of Corporation's Debt. Within thirty
(30) days after Closing, Purchaser shall restructure, repay, or
otherwise address the Key Bank Debt and the Bank of Commerce Debt to
provide for the release of any guarantee for these debts by Sellers,
including the release of any security granted by any of the Sellers.
(5) Nontransferability & Nonassignability. The covenants of Section
5.2(2) hereof shall be personal to the Sellers individually, and shall
not be transferable or assignable under any circumstances.
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5.3 Confidentiality
Prior to the Closing Time and, if the transactions contemplated hereby
are not completed, at all times after the Closing Time, each party hereto shall
keep confidential all information obtained by it relating to the Corporation,
the Business of the Corporation, the Purchaser and the Business of the
Purchaser, as the case may be, except such information which (i) prior to the
date hereof was already in the possession of such party, as demonstrated by
written records, (ii) is generally available to the public, other than as a
result of a disclosure by such party, or (iii) is made available to such party
on a non-confidential basis from a source other than the other party (or its
representatives). Each party further agrees that such information shall be
disclosed only to those of its employees and duly authorized representatives of
its advisors who need to know such information for the purposes of evaluating
and implementing the transactions contemplated hereby. Notwithstanding the
foregoing provisions of this Section 5.3, the obligation to maintain the
confidentiality of such information shall not apply to the extent that
disclosure of such information is required in connection with governmental or
other applicable filings relating to the transactions hereunder, provided that,
in such case, unless the other party otherwise agrees, a party shall, if
possible, request confidentiality in respect of such governmental or other
filings. For greater certainty, if the transactions contemplated hereby are
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not completed, this Section 5.3 shall survive the termination of this
Agreement. The obligations set forth in this Section 5.3 shall supersede and
replace the obligations of the parties set forth in the Confidentiality
Agreements between the parties dated October 14, 1992, and March 22, 1993.
ARTICLE 6
CONDITIONS
6.1 Conditions to the Obligations of the Purchaser
Notwithstanding anything herein contained, the obligation of the
Purchaser to complete the transactions provided for herein shall be subject to
the fulfillment of the following conditions for the exclusive benefit of the
Purchaser at or prior to the Closing Time, and the Sellers shall cause such
conditions to be fulfilled or performed insofar as they relate to matters
within its control:
(1) Accuracy of Representations and Warranties and Performance of
Covenants. The representations and warranties of the Sellers
contained in this Agreement or in any documents delivered in order to
carry out the transactions contemplated hereby shall be true and
accurate on the date hereof and at the Closing Time with the same
force and effect and as though such representations and warranties had
been made as of the closing Time (regardless of the date as of which
the information in
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this Agreement or in any Schedule or other document made pursuant
thereto is given). In addition, the Sellers shall have complied with
all covenants and agreements herein agreed to be performed or caused
to be performed by it at or prior to the Closing Time. In addition,
the Sellers shall have delivered to the Purchaser a certificate signed
by all Sellers confirming that the facts with respect to each of such
representations and warranties by the Sellers are as set out herein at
the Closing Time and that the Sellers have performed all covenants
required to be performed by it hereunder.
(2) No Restraining Proceedings. No order, decision or ruling of any
court, tribunal or regulatory authority having jurisdiction shall have
been made, and no action or proceeding shall be pending or threatened
which, in the opinion of counsel to the Purchaser, is likely to result
in an order, decision or ruling,
(a) to disallow, enjoin, prohibit or impose any limitations or
conditions on the purchase and sale of the Corporation's Shares
contemplated hereby or the right of the Purchaser to own the
Corporation's Shares; or
(b) to impose any limitations or conditions which may have a material
adverse affect on the Business or the Condition of the
Corporation.
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(3) No Material Adverse Change. During the Interim Period, there shall
have been no material adverse change in the Business or Condition of
the Corporation considered as a whole and no legislation (whether by
statute, by-law, regulation or otherwise) shall have been enacted or
introduced which materially and adversely affects or may materially
and adversely affect the Business or the Condition of the Corporation
considered as a whole.
(4) Regulatory Approvals. There shall have been obtained from all
governmental, administrative and regulatory bodies having
jurisdiction, such approvals or consents without conditions
unacceptable to the Purchaser, acting reasonably, as are required in
connection with the transactions contemplated hereunder.
(5) Opinion of Sellers' Counsel. At the Closing Time, the Purchaser shall
have received an opinion of legal counsel for the Sellers dated the
Closing Date substantially in the form of the draft opinion attached
hereto as Schedule F.
(6) Compliance with Terms, Covenants and Conditions. All of the terms,
covenants and conditions in this Agreement to be complied with or
performed by the Sellers on or before the Time of Closing shall have
been complied with or performed.
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(7) Execution of Agreements. Prior to the Closing Time, the Sellers shall
have caused the Corporation to enter into valid and binding agreements
as specified in Section 5.1 (3).
(8) Non-Competition Agreement. At Closing Time, Sellers shall have
executed and delivered to the Purchaser the Non-Competition Agreement
appended to this Agreement as Schedule G.
(9) Directors Approval. The Purchaser shall have obtained approval of
this Agreement and the transactions contemplated hereby by the
Purchaser's Board of Directors.
(10) Amount of scoria and peat reserves. Purchaser's exploratory trenching
program undertaken in accordance with Section 5.1(5) of this Agreement
shall have established to Purchaser's satisfaction the existence of
the following recoverable scoria and peat reserves: One million
(1,000,000) tons of red scoria; two hundred thousand (200,000) cubic
yards of black scoria; two hundred thousand (200,000) tons of gold
pumice; and two hundred thousand (200,000) tons of peat.
(11) Amount of Adjustment. The Aggregate Difference specified in Section
2.4 payable by Purchaser, if any, shall be less than
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one hundred eighty-six thousand dollars ($186,000). Sellers shall
have the right to waive any amounts in excess of one hundred
eighty-six thousand dollars ($186,000) in which event this provision
shall not be a condition to Purchaser's obligations.
6.2 Conditions to the Obligations of the Sellers
Notwithstanding anything herein contained, the obligations of the
Sellers to complete the transactions provided for herein shall be subject to
the fulfillment of the following conditions for the exclusive benefit of the
Sellers at or prior to the Closing Time, and the Purchaser shall cause such
conditions to be fulfilled or performed insofar as they relate to matters
within its control:
(1) Accuracy of Representations and Warranties and Performance of
Covenants. The representations and warranties of the Purchaser
contained in this Agreement or in any documents delivered in order to
carry out the transactions contemplated hereby shall be true and
accurate on the date hereof and at the Closing Time with the same
force and effect as though such representations and warranties had
been made as of the Closing Time (regardless of the date as of which
the information in this Agreement or in any Schedule or other document
made pursuant hereto is given). In addition, the Purchaser shall have
complied with all covenants and agreements herein agreed
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to be performed or caused to be performed by it at or prior to the
Closing Time. In addition, the Purchaser shall have delivered to the
Sellers a certificate of a senior officer confirming on behalf of the
Purchaser that the facts with respect to each of the representations
and warranties of the Purchaser are as set out herein at the Closing
Time and that the Purchaser has performed each of the covenants
required to be performed by it hereunder.
(2) No Restraining Proceedings. No order, decision or filing of any
court, tribunal or regulatory authority having jurisdiction shall have
been made, and no action or proceeding shall be pending or threatened
which, in the opinion of counsel to the Sellers, is likely to result
in an order, decision or ruling:
(a) to disallow, enjoin or prohibit the purchase and sale of the
Corporation's Shares contemplated hereby or the issue and
allotment of the Purchaser's Shares.
(b) to impose any limitations or conditions which may have a material
adverse affect on the Business or the Condition of the Purchaser.
(3) No Material Adverse Change. During the Interim Period, there shall
have been no material adverse change in the Business or
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the Condition of the Purchaser considered as a whole and no
legislation (whether by statute, by-law, regulation or otherwise)
shall have been enacted or introduced which materially and adversely
affects or may materially and adversely affect the Business or the
Condition of the Purchaser and its consolidated subsidiaries
considered as a whole.
(4) Regulatory Approvals. There shall have been obtained from all
governmental, administrative and regulatory bodies having
jurisdiction, such approvals or consents without conditions
unacceptable to the Sellers, acting reasonably, as are required in
connection with the transactions contemplated hereunder.
(5) Opinion of Purchaser's Counsel. At the Closing Time, the Sellers
shall have received an opinion of legal counsel for the Purchaser
dated the Closing Date substantially in the form of the draft opinion
attached hereto as Schedule H.
(6) Compliance with Terms, Covenants and Conditions. All of the terms,
covenants and conditions in this Agreement to be complied with or
performed by the Purchaser on or before the Time of Closing shall have
been complied with or performed.
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(7) Amount of Adjustment. The Aggregate Difference specified in Section
2.4 payable by Sellers, if any, shall be less than one hundred
eighty-six thousand dollars ($186,000). Purchaser shall have the
right to waive any amounts in excess of one hundred eighty-six
thousand dollars ($186,000) in which event this provision shall not be
a condition to Sellers' obligations.
6.3 Waiver or Termination by Purchaser
The conditions contained in Section 6.1 hereof are inserted for the
exclusive benefit of the Purchaser and may be waived in whole or in part by the
Purchaser at any time. The Sellers acknowledge that the waiver by the
Purchaser of any condition or any part of any condition shall constitute a
waiver only of such condition or such part of such condition, as the case may
be, and shall not constitute a waiver of any covenant, agreement,
representation or warranty made by the Sellers herein that corresponds or is
related to such condition or such part of such condition, as the case may be.
If any of the conditions contained in Section 6.1 hereof are not fulfilled or
complied with as herein provided, the Purchaser may, at or prior to the Closing
Time at its option, rescind this Agreement by notice in writing to the Sellers
and in such event, subject to Section 5.3 hereof, the Purchaser shall be
released from all obligations hereunder and, unless the condition or conditions
which have not been fulfilled are
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reasonably capable of being fulfilled or caused to be fulfilled by the Sellers
then, subject to Section 5.3 hereof, the Sellers shall also be released from
all obligations hereunder.
6.4 Waiver or Termination by Sellers
The Conditions contained in Section 6.2 hereof are inserted for the
exclusive benefit of the Sellers and may be waived in whole or in part by the
Sellers, acting collectively, at any time. The Purchaser acknowledges that the
collective waiver by the Sellers of any condition or any part of any condition
shall constitute a waiver only of such condition or such part of such
condition, as the case may be, and shall not constitute a waiver of any
covenant, agreement, representation or warranty made by the Purchaser herein
that corresponds or is related to such condition or such part of such
condition, as the case may be. If any of the conditions contained in Section
6.2 hereof are not fulfilled or complied with as herein provided, the Sellers
may, at or prior to the Closing Time at its option, collectively rescind this
Agreement by notice in writing to the Purchaser and in such event, subject to
Section 5.3 hereof, the Sellers shall be released from all obligations
hereunder and, unless the condition or conditions which have not been fulfilled
are reasonably capable of being fulfilled or caused to be fulfilled by the
Purchaser, then, subject to Section 5.3 hereof, the Purchaser shall also be
released from all obligations hereunder. In the event of disagreement among
the Sellers as to
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whether or not to waive any such condition, the decision of the holders of a
majority of the shares of stock of the Corporation shall be binding upon and
enforceable against all holders thereof in accordance with the terms of this
Agreement.
ARTICLE 7
ACKNOWLEDGEMENTS
7.1 Unregistered Shares
Subject to Section 5.2(2) hereof, the Purchaser's Shares to be issued
to the Sellers pursuant to the terms hereof will not be registered under the
Securities Act of 1933 or under any applicable state law. The Sellers
acknowledge that the Purchaser's Shares received by Sellers are subject to
restrictions on resale. The Sellers represent and warrant to Purchaser that
they are acquiring the Purchaser's Shares for their own accounts for the
purpose of investment and not with a view to or for sale in connection with any
distribution thereof, and the Sellers have no present intention or plan to
effect any distribution of the Purchaser's Shares.
7.2 Nature of Purchase
The Sellers shall receive the Purchaser's Shares issued to them by the
Purchaser pursuant hereto as principals and shareholders of the Corporation,
and not in any other capacity.
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ARTICLE 8
CLOSING
8.1 Location
Subject to the terms and conditions hereof, the Closing shall take
place on the Closing Date commencing at the Closing Time at the offices of
Purchaser in Coeur d'Alene, Idaho, or at such other place or places as may be
mutually agreed upon by the Sellers and the Purchaser.
8.2 Transfer
At the Closing, upon the fulfillment of all the conditions set out in
Article 6 which have not been waived in writing as herein provided, the Sellers
shall deliver to the Purchaser a share certificate(s) of the Corporation
representing the Corporation's Shares registered in the name of the Purchaser.
8.3 Payment
Upon completion of the matters set forth in Section 8.2 above, the
Purchaser shall deliver to the respective Sellers certificates for the number
of Purchaser's Shares calculated in accordance with Section 2, representing the
Purchaser's Shares registered in the names of the Sellers and countersigned by
the Purchaser's transfer
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agent and registrar, as payment in full of the Purchase Price for acquisition
of the Corporation's Shares.
8.4 Termination
In the event that the Closing is not completed on the Closing Date,
this Agreement and the transactions contemplated herein shall terminate and the
parties hereto shall be released from any and all obligations arising
hereunder, except those confidentiality obligations contemplated by Section 5.3
hereof.
ARTICLE 9
INDEMNIFICATION AND SET-OFF
9.1 Indemnity by the Sellers
(a) The Sellers hereby agree jointly and severally to indemnify and
save the Purchaser harmless from and against any claims, demands,
actions, causes of action, damage, loss, deficiency, cost,
liability and expense which may be made or brought against the
Purchaser or which the Purchaser may suffer or incur as a result
of, in respect of or arising out of:
(i) any non-performance or non-fulfillment of any covenant or
agreement on the part of the Sellers
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contained in this Agreement or in any document given in
order to carry out the transactions contemplated hereby;
(ii) any misrepresentation, inaccuracy, incorrectness or breach
of any representation or warranty made by the Sellers
contained in this Agreement or contained in any document or
certificate given in order to carry out the transactions
contemplated hereby; and
(iii) all costs and expenses including, without limitation, legal
fees incidental to or in respect of the foregoing.
(b) The obligations of indemnification by the Sellers pursuant to
Clause (a) of this Section 9.1 shall be:
(i) subject to the limitations referred to in Section 4.1 hereof
with respect to the survival of the representations and
warranties by the Sellers; and
(ii) subject to the provisions of Section 9.3 hereof.
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<PAGE> 62
9.2 Indemnity by the Purchaser
(a) The Purchaser hereby agrees to indemnify and save the Sellers
harmless from and against any claims, demands, actions, causes of
action, damage, loss, deficiency, cost, liability and expense
which may be made or brought against the Sellers or which the
Sellers may suffer or incur as a result of, in respect of or
arising out of:
(i) any non-performance or non-fulfillment of any covenant or
agreement on the part of the Purchaser contained in this
Agreement or in any document given in order to carry out the
transactions contemplated hereby;
(ii) any misrepresentation, inaccuracy, incorrectness or breach
of any representation or warranty made by the Purchaser
contained in this Agreement or contained in any document or
certificate given in order to carry out the transactions
contemplated hereby; and
(iii) all costs and expenses including, without limitation, legal
fees incidental to or in respect of the foregoing.
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(b) The obligations of indemnification by the Purchaser pursuant to
Clause (a) of this Section 9.2 shall be:
(i) subject to the limitations referred to in Section 4.1 hereof
with respect to the survival of the representations and
warranties by the Purchaser; and
(ii) subject to the provisions of Section 9.3 hereof.
9.3 Provisions Relating to Indemnity Claims
The following provisions shall apply to any claim by a party seeking
indemnification (the "Indemnified Party") against the party from whom indemnity
is sought (the "Indemnifying Party") pursuant to Sections 9.1 and 9.2 hereof.
(a) The Indemnified Party shall give prompt notice to the
Indemnifying Party of any loss or liability incurred by the
Indemnified Party, stating the nature, basis and estimated amount
thereof.
(b) In case of any loss suffered by the Indemnified Party as a result
of any breach of a representation, warranty or covenant herein
contained (other than in respect of a claim by a third party
against the Indemnified Party),
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such Indemnifying Party shall, provided such loss is covered
hereby, forthwith after notice of such loss pay to the
Indemnified Party an amount equal to such loss.
(c) In case of any claim by a third party against the Indemnified
Party in respect of which the Indemnifying Party may be required
to provide indemnification pursuant to this Article, such
Indemnifying Party shall be entitled to assume the defence of
such claim, and after notice from such Indemnifying Party to the
Indemnified Party of the Indemnifying Party's election to assume
the defence thereof, the Indemnifying Party shall not be liable
to the Indemnified Party for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with
the defence thereof, other than reasonable costs of
investigation, unless such Indemnifying Party does not actually
assume the defence thereof following notice of such election.
The Indemnified Party shall make available to the Indemnifying
Party and its attorneys and other authorized representatives, at
all reasonable times, and subject to confidentiality as to
certain information, all books and records of the Indemnified
Party relating to such claim and shall render to such
Indemnifying Party such assistance as may reasonably be required
in order to ensure proper and adequate defence of any such claim.
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<PAGE> 65
(d) The Indemnified Party shall not make any settlement of any such
claim which might give rise to an obligation by the Indemnifying
Party to indemnify it pursuant to this Article without the
written consent of the Indemnifying Party. If the Indemnifying
Party desires to effect a bona fide compromise or settlement of
any such claim and the Indemnified Party should unreasonably
refuse to consent to such compromise or settlement, then the
Indemnifying Party's liability under this Article with respect to
such claim shall be limited to the amount so offered in
compromise or settlement together with all legal and other
expenses which may have been incurred prior to the date on which
the Indemnified Party has refused to consent to such compromise
or settlement.
ARTICLE 10
GENERAL PROVISIONS
10.1 Further Assurances
Each of the Sellers and the Purchaser hereby covenants and agrees that
at any time and from time to time after the Closing Date it shall, upon the
request of the other party, do, execute, acknowledge and deliver or cause to be
done, executed, acknowledged and delivered all such further acts, deeds,
assignments, transfers,
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conveyances and assurances as may be required for the better carrying out and
performance of all the terms of this Agreement.
10.2 Notices
All notices, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered or if mailed
by first class registered mail or sent by telex, telecopier or other means of
electronic transmission:
(i) for the benefit of all the Sellers, to the following
individual at:
Mountain West Bark Products, Inc.
4212 South Highway 191
Rexburg, Idaho 83440
Attention: Gerald Taylor
Telecopier: (208) 356-0200
(ii) To the Purchaser at:
Hecla Mining Company
6500 Mineral Drive
Box C-8000
Coeur d'Alene, Idaho 83814-1931
Attention: Vice President - General Counsel
Telecopier: (208) 769-4159
or to such other address or telecopier number as the party to whom such notice,
demand or other communication is to be given may hereafter have designated by
notice given in the manner provided in
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this Section 10.2; and (x) if so mailed addressed as aforesaid, shall be deemed
to have been given on the fourth Business Day following such mailing unless
there is an interruption in the mails in which case it shall be deemed to have
been given when received, and (y) if so delivered or sent by telex, telecopier
or other means of electronic transmission, shall be deemed to have been given
on the first Business Day following the transmittal thereof.
10.3 Counterparts
This Agreement may be executed in several counterparts, each of which
so executed shall be deemed to be an original and all of which collectively
shall constitute one and the same instrument and executed facsimile copies
shall be deemed for all purposes hereunder to be valid executed copies hereof.
10.4 Expenses of Parties
Each of the parties hereto shall bear all expenses incurred by it in
connection with this Agreement including, without limitation, the charges of
its respective counsel, accountants, financial advisors and finders.
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<PAGE> 68
10.5 Brokerage and Finder's Fees
Each of the parties hereto agree to indemnify the other party and hold
the other party harmless in respect of any claim for brokerage or other
commissions relative to this Agreement or the transactions contemplated hereby
which is caused by actions of such party or any of its affiliates.
10.6 Disclosure
Except to the extent required by law, any regulatory authority have
jurisdiction or any stock exchange on which the securities of the Purchaser are
listed, neither any of the Sellers nor the Purchaser shall make public
disclosure of this Agreement, or of the transactions provided for herein and
therein without the prior written consent of the other party and the parties
hereto shall cooperate in good faith as to the content and timing in making any
such required or agreed public disclosure.
10.7 Assignment
The rights of each of the parties hereunder shall not be assignable
without the written consent of the other party.
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10.8 Successors and Assigns
This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted assigns. Nothing
herein, express or implied, is intended to confer upon any person, other than
the parties hereto and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
10.9 Entire Agreement
This Agreement (including the Schedules referred to herein) and the
documents referred to herein constitute the entire understanding and agreement
between the parties hereto with respect to the subject matter hereof and any
previous agreements or understandings, representations or warranties between
the parties or information exchanged by and regarding the subject matter
hereof, including without limitation the Letter of Intent, are merged into and
superseded by this Agreement.
10.10 Waiver
Except as otherwise expressly provided for herein, any party hereto
which is entitled to the benefits of this Agreement may, and has the right to,
waive any term or condition hereof at any time on or prior to the Closing Time;
provided, however, that such waiver
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shall be evidenced by written instrument duly executed on behalf of such party.
10.11 Amendments
No modification or amendment to this Agreement may be made unless
agreed to by the parties hereto in writing.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement under seal as of the day and year first above written.
<TABLE>
<S> <C>
GERALD TAYLOR: GAE TAYLOR:
/s/ Gerald Taylor /s/ Gae Taylor
- ---------------------------- ----------------------------
FRANK J. DANIELS: SHARON D. DANIELS:
/s/ Frank J. Daniels /s/ Sharon D. Daniels
- ---------------------------- ----------------------------
DEE R. THUESON: DONNA THUESON:
/s/ Dee R. Thueson /s/ Donna Thueson
- ---------------------------- ----------------------------
CLAIR O. THUESON: ANN B. THUESON:
/s/ Clair O. Thueson /s/ Ann B. Thueson
- ---------------------------- ----------------------------
</TABLE>
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<PAGE> 71
<TABLE>
<S> <C>
NEIL H. KNUDSEN: LINDA J. KNUDSEN:
/s/ Neil H. Knudsen /s/ Linda J. Knudsen
- ---------------------------- ----------------------------
HECLA MINING COMPANY: ATTEST:
/s/ Arthur Brown /s/ Michael B. White
- ---------------------------- ----------------------------
Arthur Brown Michael B. White
Chairman and Chief Secretary
Executive Officer
</TABLE>
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<PAGE> 1
FORM 10-K DECEMBER 31, 1993
COMMISSION FILE NO. 1-8491
EXHIBIT 11
HECLA MINING COMPANY AND SUBSIDIARIES
CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
For the Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Shares of common stock issued at
beginning of period 31,651,192 30,308,680 30,118,683
The incremental effect of the issuance
of new shares in exchange for
outstanding Liquid Yield Option Notes 1,269,217 516,981 - -
The incremental effect of the issuance
of new shares for the acquisition
of La Choya mineral concessions - - 85,321 - -
The incremental effect of the issuance
of new shares under Stock Option and
Employee Stock Ownership Plans 49,970 15,667 35,098
The incremental effect of the issuance
of new shares for the acquisition of
Mountain West Bark Products, Inc. 8,397 - - - -
---------- ---------- ----------
32,978,776 30,926,649 30,118,683
Less:
Weighted average treasury shares held 63,728 60,933 60,201
---------- ---------- ----------
Weighted average number of common shares
outstanding during the period 32,915,048 30,865,716 30,093,580
========== ========== ==========
</TABLE>
<PAGE> 1
FORM 10-K DECEMBER 31, 1993
COMMISSION FILE NO. 1-8491
EXHIBIT 22
HECLA MINING COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
December 31, 1993
<TABLE>
<CAPTION>
State or Country Percentage of
in Which Voting Securities
Organized Owned
----------------- -----------------
<S> <C> <C>
CoCa Mines Inc. Colorado 100 (A)
Colorado Aggregate Company of
New Mexico New Mexico 100 (A)
Consolidated Silver Corporation Idaho 67.5 (A)
Granduc Mines Limited(C) Canada 37.9 (B)
Hecla Mining Company of
Canada Ltd. Canada 100 (A)
Kentucky-Tennessee Clay Company Delaware 100 (A)
K-T Clay de Mexico, S.A. de C.V. Mexico 100 (A)
K-T Feldspar Corporation North Carolina 100 (A)
Minera Hecla, S.A. de C.V. Mexico 100 (A)
Mountain West Bark Products Inc. Idaho 100 (A)
</TABLE>
(A) Included in the consolidated financial statements filed herewith.
(B) At December 31, 1993, the Company accounts for its common stock
investment using the equity method.
(c) Divested as of January 24, 1994.
<PAGE> 1
Letterhead of Coopers & Lybrand
Form 10-K December 31, 1993
Commission File No. 1-8491
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Hecla Mining Company on Forms S-8 (File Numbers 33-7833, 33-14758,
33-41833 and 33-40691) and Forms S-3 (File Number 33-72834) of our reports
dated February 3, 1994, except for Note 5, as to which the date is
February 8, 1994, on our audits of the consolidated financial statements and
financial statement schedules of Hecla Mining Company as of December 31, 1993
and 1992, and for the years ended December 31, 1993, 1992 and 1991, which
reports are included in this Annual Report on Form 10-K.
/s/Coopers & Lybrand
COOPERS & LYBRAND
Spokane, Washington
February 25, 1994
