<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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 number 1-8491
------------------------------------------
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)
208-769-4100
- ----------------------------------------------------------------
(Registrant's telephone number, including area code)
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 at least
the past 90 days. Yes XX . No .
---- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding October 31, 1996
- --------------------------------------- ----------------------------
Common stock, par value $0.25 per share 51,137,241 shares
<PAGE> 2
HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
I N D E X*
PAGE
PART I. - Financial Information
Item 1 - Consolidated Balance Sheets - September 30,
1996 and December 31, 1995 3
- Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1996 and 1995 4
- Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996
and 1995 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. - Other Information
Item 1 - Legal Proceedings 28
Item 6 - Exhibits and Reports on Form 8-K 32
*Items omitted are not applicable.
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,139 $ 4,024
Accounts and notes receivable 27,055 25,571
Income tax refund receivable 765 737
Inventories 19,339 20,915
Other current assets 1,473 2,038
---------- ---------
Total current assets 59,771 53,285
Investments 1,950 2,200
Restricted investments 16,468 16,254
Properties, plants and equipment, net 175,437 177,374
Other noncurrent assets 10,674 9,077
---------- ---------
Total assets $ 264,300 $ 258,190
========== =========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 14,872 $ 14,145
Accrued payroll and related benefits 2,986 3,217
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,323 1,042
Accrued reclamation costs 7,392 5,549
---------- ---------
Total current liabilities 28,585 25,965
Deferred income taxes 359 359
Long-term debt 33,082 36,104
Accrued reclamation costs 48,160 26,782
Other noncurrent liabilities 6,585 4,864
---------- ---------
Total liabilities 116,771 94,074
---------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value,
authorized 5,000,000 shares, issued
and outstanding - 2,300,000
liquidation preference $117,012 575 575
Common stock, $0.25 par value,
authorized 100,000,000 shares;
issued 1996 - 51,199,324;
issued 1995 - 48,317,324 12,800 12,079
Capital surplus 351,659 330,352
Accumulated deficit (211,733) (173,206)
Net unrealized gain on investments 12 100
Foreign currency translation adjustment (4,898) (4,898)
Less common stock reacquired at cost;
1996 - 62,076 shares, 1995 - 62,072 shares (886) (886)
---------- ---------
Total shareholders' equity 147,529 164,116
---------- ---------
Total liabilities and shareholders' equity $ 264,300 $ 258,190
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 4
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars and shares in thousands, except for per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales of products $ 37,662 $ 40,088 $ 121,132 $ 115,412
Cost of sales and other direct
production costs 29,998 31,298 96,623 94,211
Depreciation, depletion and amortization 5,304 7,015 15,186 18,580
--------- ---------- --------- ---------
35,302 38,313 111,809 112,791
--------- ---------- --------- ---------
Gross profit 2,360 1,775 9,323 2,621
--------- ---------- --------- ---------
Other operating expenses:
General and administrative 2,331 3,106 6,836 7,570
Exploration 1,410 2,671 3,400 4,879
Depreciation and amortization 82 97 256 265
Reduction in carrying value of
mining properties 12,902 97,387 12,902 97,387
Provision for closed operations
and environmental matters 25,492 4,069 22,691 4,296
--------- ---------- --------- ---------
42,217 107,330 46,085 114,397
--------- ---------- --------- ---------
Loss from operations (39,857) (105,555) (36,762) (111,776)
--------- ---------- --------- ---------
Other income (expense):
Interest and other income 3,346 4,185 4,754 6,476
Gain (loss) on investments (158) (1,051) (28) 2,842
Foreign exchange gain (loss) 9 (12) (19) 150
Interest expense:
Total interest cost (875) (650) (2,224) (1,236)
Less amount capitalized 671 474 1,714 850
--------- ---------- --------- ---------
2,993 2,946 4,197 9,082
--------- ---------- --------- ---------
Loss before income taxes (36,864) (102,609) (32,565) (102,694)
Income tax (provision) benefit 99 (114) 76 (251)
--------- ---------- --------- ---------
Net loss (36,765) (102,723) (32,489) (102,945)
Preferred stock dividends (2,013) (2,013) (6,038) (6,038)
--------- ---------- --------- ---------
Loss applicable to common shareholders $ (38,778) $ (104,736) $ (38,527) $(108,983)
========= ========== ========= =========
Loss per common share $ (0.76) $ (2.17) $ (0.75) $ (2.26)
========= ========== ========= =========
Cash dividends per common share $ - - $ - - $ - - $ - -
========= ========== ========= =========
Weighted average number of common
shares outstanding 51,137 48,237 51,133 48,178
========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE> 5
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Operating activities:
Net loss $ (32,489) $ (102,945)
Noncash elements included in net loss:
Depreciation, depletion and amortization 15,442 18,845
Gain on disposition of properties, plants and equipment (731) (3,484)
Loss (gain) on investments 28 (2,842)
Reduction in carrying value of mining properties 12,902 97,387
Provision for reclamation and closure costs 27,429 4,651
Change in:
Accounts and notes receivable (2,695) (7,224)
Income tax refund receivable (28) (3)
Inventories (699) 571
Other current assets 332 (732)
Accounts payable and accrued expenses 727 388
Accrued payroll and related benefits (231) (163)
Accrued taxes 281 661
Accrued reclamation and other noncurrent liabilities (2,488) (888)
---------- ----------
Net cash provided by operating activities 17,780 4,222
---------- ----------
Investing activities:
Additions to properties, plants and equipment (25,596) (33,083)
Proceeds from disposition of properties,
plants and equipment 3,158 3,069
Proceeds from the sales of investments 130 4,685
Purchase of investments and increase in cash
surrender value of life insurance (607) (822)
Increase in restricted investments (214) (1,439)
Other, net (1,715) (1,249)
---------- ----------
Net cash used by investing activities (24,844) (28,839)
---------- ----------
Financing activities:
Proceeds from exercise of stock warrants - - 1,239
Common stock issued under stock option plans - - 91
Dividends on preferred stock (6,038) (6,038)
Issuance of common stock, net of offering costs 22,028 - -
Borrowings against cash surrender value of life insurance 602 - -
Borrowing on long-term debt 40,500 41,000
Repayment on long-term debt (42,913) (11,796)
---------- ----------
Net cash provided by financing activities 14,179 24,496
---------- ----------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 7,115 (121)
Cash and cash equivalents at beginning of period 4,024 7,278
---------- ----------
Cash and cash equivalents at end of period $ 11,139 $ 7,157
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE> 6
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The notes to the consolidated financial statements as of
December 31, 1995, as set forth in the Company's 1995
Annual Report on Form 10-K, substantially apply to these
interim consolidated financial statements and are not
repeated here.
Note 2. The financial information given in the accompanying
unaudited interim consolidated financial statements
reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results
for the interim periods reported. All such adjustments
are of a normal recurring nature. All financial
statements presented herein are unaudited. However, the
balance sheet as of December 31, 1995, was derived from
the audited consolidated balance sheet described in
Note 1 above. Certain consolidated financial statement
amounts have been reclassified to conform to the 1996
presentation. These reclassifications had no effect on
the net loss or accumulated deficit as previously
reported.
Note 3. The components of the income tax (provision) benefit for
the nine months ended September 30, 1996 and 1995 are as
follows (in thousands):
1996 1995
------ ------
Current:
State income taxes $ (236) $ (251)
Federal income tax benefit 312 - -
------ ------
Total current (provision) benefit $ 76 $ (251)
======= ======
The Company's income tax (provision) benefit for the nine
months of 1996 and 1995 varies from the amount that would
have been provided by applying the statutory rate to the
loss before income taxes primarily due to the
nonutilization of net operating losses in 1996 and 1995.
-6-
<PAGE> 7
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Note 4. Inventories consist of the following (in thousands):
Sept. 30, Dec. 31,
1996 1995
--------- --------
Concentrates, bullion, metals
in transit and other products $ 3,798 $ 2,519
Industrial mineral products 7,096 8,671
Materials and supplies 8,445 9,725
-------- --------
$ 19,339 $ 20,915
======== ========
Note 5. In July 1991, the Coeur d'Alene Indian Tribe (the Tribe)
brought a lawsuit, under the Comprehensive Environmental
Response Liability Act of 1980, as amended (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 Superfund Site located at Kellogg, Idaho,
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, in a separate action between the Tribe and the
State of Idaho, the Idaho Federal District Court
determined that the 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 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. On
December 9, 1994, the 9th Circuit Court reversed the
decision of the Idaho Federal District Court and remanded
the case of the Tribe's ownership for trial before the
Idaho Federal District Court. In April 1996, the U.S.
Supreme Court accepted the appeal from the 9th Circuit
Court decision to the U.S. Supreme Court. The case is
fully briefed and oral argument was presented to the
court on October 16, 1996. In July 1994, the United
States, as Trustee for the Coeur d'Alene Tribe, initiated
a separate suit in Idaho Federal District Court seeking a
determination that the Coeur d'Alene Tribe owns
approximately the lower one-third of Lake Coeur d'Alene.
The State has denied the Tribe's ownership of any portion
of Lake Coeur d'Alene and its tributaries. In October
-7-
<PAGE> 8
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
1996, the legal proceeding related to the Tribe's natural
resource damage claims was consolidated with the United
States Natural Resources Damage litigation described
below.
On March 22, 1996, the United States filed a lawsuit in
Idaho Federal District Court against the Company and
other mining companies who conducted historic mining
operations in the Silver Valley of Northern Idaho. The
lawsuit asserts claims under CERCLA and the Clean Water
Act and seeks recovery for alleged damages to or loss of
natural resources located in the Coeur d'Alene River
Basin in North Idaho over which the United States asserts
to be the trustee under CERCLA. The lawsuit asserts that
the defendants' historic mining activity resulted in
releases of hazardous substances and damaged natural
resources within the Basin. The suit also seeks
declaratory relief that the Company and other defendants
are jointly and severally liable for response costs under
CERCLA for historic mining impacts in the Coeur d'Alene
River Basin outside the Bunker Hill Superfund Site. The
Company answered the complaint on May 17, 1996, denying
liability to the United States under CERCLA and the Clean
Water Act and asserted a counterclaim against the United
States for the federal government's involvement in mining
activity in the Coeur d'Alene River Basin which
contributed to the releases and damages alleged by the
United States. The Company believes it also has a number
of defenses to the United States' claims. In October
1996, the court consolidated the Coeur d'Alene Tribe
Natural Resource Damage litigation with this lawsuit for
discovery and other limited pretrial purposes.
On March 22, 1996, the Company entered into an agreement
(the Agreement) with the State of Idaho pursuant to which
the Company agreed to continue certain financial
contributions to environmental cleanup work in the
Coeur d'Alene River Basin being undertaken by a State
Trustees group. In return, the State agreed not to sue
the Company for damage to natural resources for which the
State is a trustee for a period of five years, to pursue
settlement with the Company of the State's natural
resource damage claims and to grant the Company credit
against any such State claims for all expenditures made
under the Agreement and certain other Company
contributions and expenditures for environmental cleanup
in the Coeur d'Alene Basin.
With respect to the Coeur d'Alene River Basin, the
Company increased its accrual for closed operations and
environmental matters by $0.5 million and $2.3 million
-8-
<PAGE> 9
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
during the first and third quarters of 1996,
respectively.
In 1991, the Company initiated litigation in the Idaho
State District Court in Kootenai County, Idaho, against a
number of insurance companies 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
for all liabilities and claims asserted against the
Company by the Environmental Protection Agency (EPA) and
the Tribe under CERCLA related to the Bunker Hill
Superfund Site and Coeur d'Alene River Basin in northern
Idaho. In 1992, the Court ruled that the primary
insurance companies had a duty to defend the Company in
the Tribe's lawsuit. During 1995 and 1996, the Company
entered into settlement agreements with a number of the
insurance carriers named in the litigation. The Company
has received a total of $7.195 million under the terms of
the settlement agreements. Thirty percent of these
settlements is payable to the EPA to reimburse the U.S.
Government for past costs under the Bunker Hill Superfund
Site Consent Decree previously entered into by the
Company. Litigation is still pending against one insurer
with trial continued until the underlying environmental
claims against the Company are resolved or settled. The
remaining insurance carrier is providing the Company with
a partial defense in all Coeur d'Alene River Basin
environmental litigation. As of September 30, 1996, the
Company had not reduced its accrual for reclamation and
closure costs to reflect the receipt of any anticipated
insurance proceeds.
In June 1994, a judgment was entered against the Company
in Idaho State District Court in the amount of $10.0
million in compensatory damages and $10.0 million in
punitive damages based on a jury verdict rendered in late
May 1994 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 concerning
the Company's November 1990 termination of the Star
Phoenix lease of the Star Morning Mine property. A
number of other claims by Star Phoenix and certain
principals of Star Phoenix against the Company in the
lawsuit were dismissed by the State District Court. On
May 3, 1995, the District Court issued its final opinion
and order on a number of post-trial issues pending before
the Court. The opinion and order included the Court's
denial of the post-trial motions filed by Star Phoenix
-9-
<PAGE> 10
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
and certain of its principals regarding claims which had
been previously dismissed by the Court during trial. The
Court also awarded Star Phoenix approximately $300,000 in
attorneys' fees and costs. The Company's post-trial
motions with respect to the judgment and motions were
denied by the State District Court, and the Company has
appealed the District Court judgment to the Idaho State
Supreme Court. Star Phoenix has cross-appealed certain
trial court discovery determinations. Briefing on the
appeal has been completed and oral argument was presented
to the Idaho State Supreme Court on April 10, 1996. A
decision from the Idaho Supreme Court is expected in late
1996. Post-judgment interest will accrue during the
appeal period; the current interest rate is 10.875%. In
order to stay the ability of Star Phoenix to collect on
the judgment during the pendency of the appeal, the
Company has posted an appeal bond in the amount of $27.2
million representing 136% of the District Court judgment.
The Company pledged U.S. Treasury Securities totaling
$10.0 million as collateral for the appeal bond. This
collateral amount is included in restricted investments
at September 30, 1996 and December 31, 1995. The Company
has vigorously pursued its appeal to the Idaho Supreme
Court and it has been the Company's position, and at the
current time it remains the Company's position, that it
will not enter into a settlement with Star Phoenix for
any material amount. Although the ultimate outcome of
the appeal of the Idaho District Court judgment is
subject to the inherent uncertainties of any legal
proceeding, based upon the Company's analysis of the
factual and legal issues associated with the proceeding
before the Idaho District Court and based on the opinions
of outside counsel, as of the date hereof, it is
management's belief that the Company should ultimately
prevail in this matter, although there can be no
assurance in this regard. Accordingly, the Company has
not accrued any liability associated with 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. Although
there can be no assurance as to the ultimate disposition
of these matters and the proceedings disclosed above, it
is the opinion of the Company's management, based upon
the information available at this time, that the expected
outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on the
results of operations and financial condition of the
Company and its subsidiaries.
-10-
<PAGE> 11
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Note 6. On October 31, 1996, the Company entered into a third
amendment to the Company's $55.0 million revolving and
term loan facility. Under the terms of the amendment,
the net tangible worth covenant is amended to permanently
reduce the required net tangible worth by the amount of
noncash charges associated with the American Girl mine
and the Grouse Creek mine from June 30, 1996 through
March 31, 1997. It also provides for temporary relief of
the net tangible worth covenant for a period of 180 days
for certain other items. All other terms of the credit
agreement remain consistent with those disclosed in Note
6 of Notes to Consolidated Financial Statements in the
Company's 1995 Annual Report on Form 10-K.
At September 30, 1996, there was $33.0 million
outstanding under the Company's $55.0 million revolving
and term loan facility classified as long-term debt. As
amended, the Company was in compliance with all
restrictive covenants of the facility as of September 30,
1996.
Note 7. In January 1996, the Company issued 2,875,000 shares of
its common stock realizing proceeds of approximately
$22.0 million, net of underwriting discount and issuance
costs of approximately $1.7 million. The Company used
$21.0 million of the net proceeds to repay borrowings
under its existing revolving and term loan credit
facility.
Note 8. Following the completion of the third quarter, the
Company determined that the ore contained in the Grouse
ore body at the Grouse Creek mine is not economical to
mine at current metals prices and the Company has decided
to suspend operations at the Grouse Creek mine. The mine
will be placed on a care-and-maintenance status upon
completion of mining at the Sunbeam pit which is
currently estimated to occur during the second quarter of
1997. In connection with the decision to suspend
operations at the Grouse Creek mine, the Company
determined that certain adjustments were required to
properly reflect the Company's interest in the net
realizable value of the property and the Company's share
of future severance, holding, reclamation, and closure
efforts. Included in the third quarter results, are
adjustments for the Company's estimate of its share of
future severance, holding, reclamation, and closure costs
at the Grouse Creek mine totaling approximately $22.5
million, and an adjustment to the carrying value of the
Company's interest in the Grouse Creek mine assets
totaling approximately $5.3 million, which reflects the
-11-
<PAGE> 12
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
net realizable value of property, plant, and equipment
and certain other assets.
Due to lower than expected ore reserves and lower ore
grade associated with the Oro Cruz ore body, American
Girl gold mine operations were suspended effective
November 4, 1996. In connection with the suspension of
operations, the Company determined that certain
adjustments were required to properly reflect the
estimated net realizable value of the American Girl gold
mine. These adjustments consisted of write-downs of
property, plant and equipment, inventories, and
production notes payable totaling approximately $7.6
million for the Company's interest in the American Girl
gold mine, and a provision for closed operations of
approximately $0.3 million.
-12-
<PAGE> 13
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Hecla Mining Company (Hecla or 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. In the following
descriptions, where there are changes that are
attributable to more than one factor, the Company presents
each attribute in descending order relative to the
attribute's importance to the overall change.
Except for the historical information contained herein,
the matters discussed are forward-looking statements that
involve risks and uncertainties, including the timely
development of existing properties and reserves (such as
the Rosebud project) and future projects, the impact of
metals prices and metal production volatility, changing
market conditions and regulatory environment and the other
risks detailed from time to time in the Company's Form
10-K and Form 10-Qs filed with the Securities and Exchange
Commission (reference for additional information is also
made to "Investment Considerations" of Part I, Item 1 of
the Company's 1995 Annual Report on Form 10-K). As a
result, actual results may differ materially from those
projected or implied. These forward-looking statements
represent the Company's judgment as of the date of this
filing. The Company disclaims, however, any intent or
obligation to update these forward-looking statements.
The Company incurred losses applicable to common
shareholders for each of the past three years in the
period ended December 31, 1995. If the Company's
estimates of market prices of gold, silver, lead and zinc
are realized in the remainder of 1996, the Company is
anticipating a loss applicable to common shareholders in
the range of $37.5 million to $40.5 million after the
expected dividends to preferred shareholders totaling
approximately $8.0 million for the year ended December 31,
1996. Due to the volatility of metals prices and the
significant impact metals price changes have on the
Company's operations, there can be no assurance that the
-13-
<PAGE> 14
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
actual results of operations for the year ending
December 31, 1996 will be as projected.
The variability 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. 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 assets. Moreover, a
review is made on a quarterly basis to assess the impact
of significant changes in market conditions and other
factors. Asset write-downs may occur if the Company
determines that the carrying values attributed to
individual assets are not recoverable given reasonable
expectations for future market conditions.
At the Grouse Creek mine, following completion of the
third quarter of 1996, the Company completed metallurgical
testing and economic analysis of the Grouse deposit which
has been ongoing throughout 1996. Based on the
information gathered and on current metal prices, the
Company determined that the ore contained in the Grouse
deposit is not economical at current metals prices and the
Company has decided to suspend operations at the Grouse
Creek mine. The mine will be placed on a care-and-
maintenance status upon completion of mining at the
Sunbeam pit which is estimated to occur during the second
quarter of 1997. In connection with the decision to
suspend operations at the Grouse Creek mine, the Company
determined that certain third quarter 1996 adjustments
were required to properly reflect the Company's interest
in the net realizable value of the property and the
Company's share of future severance, holding, reclamation,
and closure efforts. Included in the third quarter
results are adjustments for the Company's estimate of its
share of future severance, holding, reclamation, and
closure costs at the Grouse Creek mine totaling
approximately $22.5 million and an adjustment to the
carrying value of the Company's interest in the Grouse
Creek mine totaling approximately $5.3 million, which
reflects the net realizable value of property, plant, and
equipment and certain other assets.
The Company announced that operations at the American Girl
mine would be suspended effective November 4, 1996.
During the first six months of 1996 and continuing into
the third quarter of 1996, the American Girl gold mine, in
which the Company has a 47% interest, experienced
significantly higher than expected per gold ounce
-14-
<PAGE> 15
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
operating costs and lower than expected operating margins
resulting from higher than anticipated operating costs and
lower than expected gold ore grade. Based on its periodic
review of the carrying values of the Company's mining
properties, the Company determined that a 1996 third
quarter carrying value adjustment totaling $7.6 million
was required to properly reflect the estimated net
realizable value of its interest in the American Girl
Joint Venture. The amount of the adjustment was based on
the Company's carrying value of its interest in the
American Girl mine in excess of estimated discounted
future cash flows. In addition to the carrying value
adjustment, the Company also recorded a $0.3 million
provision for closed operations to increase the Company's
recorded liability for reclamation and closure costs to
its estimate of its interest in future closure and
reclamation costs.
On September 10, 1996, Hecla and Santa Fe Pacific Gold
Corporation (Santa Fe) announced that a final agreement
for the Rosebud project had been signed. Pursuant to the
agreement, a limited liability corporation was established
with each party owning a 50% interest to develop the
Rosebud gold property, which is an underground, oxide gold
deposit located in Pershing County, Nevada. Under the
terms of the agreement, Hecla will manage the mining
activities and ore will be trucked approximately 100 miles
to Santa Fe's Twin Creeks Pinon mill for processing.
Total mine-site capital expenditures to bring the project
into production are expected to be approximately $20-$25
million. Under the terms of the joint venture, Santa Fe
will fund the first $12.5 million of mine-site development
costs plus road and mill facility improvements. Santa Fe
also contributed exploration property adjacent to the
Rosebud property, and will fund the first $1 million in
exploration expenditures, and two-thirds of future
exploration expenditures beyond the initial $1 million.
In connection with the signing of the Rosebud agreement, a
separate Joint Venture agreement concerning the Golden
Eagle property in Ferry County, Washington, was entered
into between Hecla and Santa Fe. Santa Fe paid Hecla $2.5
million for an immediate 75% interest in the Golden Eagle
joint venture. In addition, Santa Fe is obligated to fund
all expenditures required at the Golden Eagle through the
feasibility stage.
In July 1996, operations recommenced at the Greens Creek
mine. Grinding and flotation circuits in the mill
commenced ahead of schedule. The Company holds a 29.73%
interest in the mine through a joint venture with
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Kennecott Greens Creek Mining Company, the operator of the
property. It is anticipated that the Greens Creek mine
will reach full production levels in the first quarter of
1997.
In 1996, the Company expects to produce between 155,000
and 165,000 ounces of gold compared to actual 1995 gold
production of 170,000 ounces of gold. The 1996 estimated
production includes 75,000 to 78,000 ounces from the La
Choya mine, 55,000 to 60,000 ounces from the Company's
81.05% interest in the Grouse Creek mine, 20,000 to 22,000
ounces from the Company's 47% interest in the American
Girl mine, and an additional 5,000 ounces from other
sources. The Company's share of silver production for
1996 is expected to be between 2.4 and 2.6 million ounces
compared to 1995 production of 2.2 million ounces.
In 1995, the Company shipped 991,000 tons of industrial
minerals, including ball clay, kaolin, feldspar, and
specialty aggregates. The Company's shipments of
industrial minerals are expected to increase in 1996 to
approximately 1,081,000 tons. Additionally, the Company
expects to ship approximately 1,014,000 cubic yards of
landscape material from Mountain West Products in 1996
compared to 867,000 cubic yards in 1995.
RESULTS OF OPERATIONS
FIRST NINE MONTHS 1996 COMPARED TO FIRST NINE MONTHS 1995
The Company reported a net loss of approximately $32.5
million ($0.64 per common share) in the first nine months
of 1996 compared to a net loss of approximately $102.9
million ($2.14 per common share) in the same period of
1995. After $6.0 million in dividends to shareholders of
the Company's Series B Cumulative Preferred Stock, the
Company's loss applicable to common shareholders for the
first nine months of 1996 was approximately $38.6 million,
or $0.75 per common share, compared to $109.0 million, or
$2.26 per common share in the comparable 1995 period. The
decreased loss in 1996 compared to the same period in 1995
was due to a variety of factors, the most significant of
which was the write-down of the Company's interest in the
Grouse Creek mine in the third quarter of 1995 totaling
approximately $97.0 million, compared to 1996 adjustments
totaling $35.7 million for severance, holding,
reclamation, closure costs, and carrying value adjustments
at the Grouse Creek mine and the American Girl mine.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Comparing the average metal prices for the nine months of
1996 with the comparable period for 1995, gold increased
2.1% to $392 per ounce from $384 per ounce, silver
increased 2.3% to $5.29 per ounce from $5.17 per ounce,
lead increased by 30.4% to $0.360 per pound from $0.276
per pound, and zinc decreased 1.5% to $0.464 per pound
from $0.471 per pound. The Company's average realized
gold price during the first nine months of 1996 was $397
per ounce.
Sales of the Company's products increased by approximately
$5.7 million, or 5.0%, in the first nine months of 1996 as
compared to the same period in 1995, principally the
result of increased product sales totaling $17.8 million,
most notably from (1) the La Choya mine where gold
production increased approximately 14,000 ounces, (2) K-T
Clay's kaolin division attributable to the June 1995
acquisition of the Langley kaolin plant, (3) Mountain West
Products, and (4) Lucky Friday mine due to increased
production and improved lead prices. K-T Mexico, K-T
Feldspar, American Girl mine, and Colorado Aggregate also
experienced increased sales. These factors were partially
offset by decreased sales of approximately $12.1 million
principally at (1) Grouse Creek due to the approximate two
month shutdown of milling operations necessary to raise
the tailings impoundment, (2) the Apex processing facility
which was sold in September 1995, (3) the Cactus mine
which completed operations in September 1995, (4) the
Republic mine which completed operations in February 1995,
and (5) K-T Clay's ball clay division.
Cost of sales and other direct production costs increased
approximately $2.4 million, or 2.6%, from the first nine
months of 1995 to the comparable 1996 period primarily due
to (1) increased production costs of $3.1 million at the
Lucky Friday mine due to increased ore processing and the
nonrecurring 1995 receipt of $1.1 million in insurance
proceeds related to the ore-conveyance accident in August
1994, (2) increased production costs at K-T Kaolin of $2.5
million as a result of the acquisition of the Langley
kaolin plant in June 1995, (3) production cost increases
at the American Girl mine of $1.9 million due to increased
production levels and difficulties associated with mining
in the Oro Cruz ore body, (4) production costs increases
of $1.8 million at Mountain West Products due to increased
product sales, (5) La Choya mine production costs
increased $1.1 million due to increased production levels,
and (6) increased production costs at K-T Mexico of $0.7
million, K-T Feldspar of $0.2 million and other increases
totaling $0.2 million. These increases in cost of sales
and other direct production costs were partially offset by
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
decreases in operating costs at other operations totaling
approximately $8.9 million, principally due to (1)
decreased costs associated with the Apex processing
facility of nearly $4.1 million which was sold in
September 1995, (2) decreased production costs at the
Grouse Creek mine totaling approximately $3.2 million
which is associated with the second quarter 1996 temporary
shutdown as well as higher costs in 1995 due to the start
up of the Grouse Creek mine in December 1994, (3)
decreased production costs at the Cactus mine of
approximately $1.0 million associated with the completion
of operations in September 1995, and (4) decreased costs
at the Republic mine of nearly $0.6 million due to the
completion of operations at Republic in February 1995.
Cost of sales and other direct production costs as a
percentage of sales decreased to 79.8% in the first nine
months of 1996 from 81.6% in the comparable 1995 period,
primarily due to the increased sales and production at the
La Choya mine and higher metals prices.
Cash operating cost, total cash cost, and total production
cost per gold ounce decreased from $300, $303, and $424
for the first nine months of 1995 to $273, $277, and $375
for the comparable 1996 period, respectively. The
decreases in these costs per gold ounce are primarily
attributable to decreased unit production costs at the La
Choya and Grouse Creek mines in the 1996 period.
Cash operating cost, total cash cost, and total production
cost per silver ounce decreased from $4.73, $4.73, and
$5.95 in the first nine months of 1995 to $4.07, $4.07,
and $5.30 in the comparable 1996 period, respectively.
The decreases in the cost per silver ounce are due
primarily to increased production levels and favorable by-
product prices, principally lead, in the 1996 period at
the Lucky Friday mine.
Depreciation, depletion, and amortization decreased
approximately $3.4 million, or 18.3%, from the first nine
months of 1995 to the comparable 1996 period primarily due
to (1) the write-down of Grouse Creek property, plant, and
equipment in the third quarter of 1995, the impact of
which was $6.7 million, and (2) decreased depreciation,
depletion and amortization at K-T Clay's ball clay
division of $0.1 million. These decreases were offset by
increases in depreciation, depletion, and amortization at
(1) the La Choya mine of $2.4 million due to increased
production, (2) the American Girl mine of $0.7 million due
to an increased depreciable base associated with
capitalized costs at the Oro Cruz ore body, (3) K-T Clay's
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<PAGE> 19
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
kaolin division of $0.2 million due to the acquisition of
the Langley kaolin plant in June 1995, and (4) other
increases totaling $0.1 million.
Other operating expenses decreased by $68.3 million, or
59.7%, in the 1996 period from the 1995 period, due
principally to the (1) decreased reduction in carrying
value of mining properties of $84.5 million, consisting of
the Company's 1995 reduction of carrying value of the
Company's interest in the Grouse Creek mine ($97.0
million) and the Company's interest in the Consolidated
Silver Corporation's Silver Summit mine ($0.4 million),
offset by the 1996 reduction in carrying value of mining
properties at the American Girl mine totaling
approximately $7.6 million and the Grouse Creek mine
totaling approximately $5.3 million, (2) decreased
exploration expenditures of approximately $1.5 million,
and (3) decreased general and administrative expenses of
$0.7 million. These decreases were partially offset by a
$18.4 million increase in provision for closed operations
and environmental matters, consisting of (1) the 1996
provision for the Grouse Creek mine totaling approximately
$22.5 million, (2) the increased 1996 provision over the
1995 provision for remediation and future costs associated
with the Coeur d'Alene River Basin of $2.4 million, (3)
the American Girl closure cost accrual of $0.3 million in
1996, and (4) provision for environmental matters at the
Company's former Yellow Pine mine of $0.1 million,
partially offset by (1) 1995 provision totaling $3.4
million for the Bunker Hill superfund site, (2) receipt of
$2.6 million in insurance proceeds in 1996 related to the
remediation liability at Bunker Hill, and (3) timber
proceeds from the closed Star Unit area of $0.9 million.
Other income was $4.2 million in the first nine months of
1996 compared to $9.1 million in the comparable 1995
period. The $4.9 million decrease was primarily due to
(1) decrease in gain on sale of investments of $2.9
million, (2) decreased interest and other income of $1.7
million, (3) foreign exchange loss in 1996 compared to a
gain in 1995, the impact of which is $0.2 million, and (4)
decreased net interest costs of $0.1 million. Total
interest cost increased approximately $1.0 million due to
higher borrowings in 1996 than in 1995 under the Company's
revolving and term loan facility. Capitalized interest
costs increased $0.9 million principally due to
capitalized interest costs associated with the Greens
Creek development, the Rosebud project, the Lucky Friday
expansion project, and development at the American Girl's
Oro Cruz ore body.
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<PAGE> 20
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995
The Company reported a net loss of approximately $36.8
million ($0.72 per common share) in the third quarter of
1996 compared to a net loss of approximately $102.7
million ($2.13 per common share) in the same period of
1995. After $2.0 million in dividends to shareholders of
the Company's Series B Cumulative Preferred Stock, the
Company's loss applicable to common shareholders was
approximately $38.8 million ($0.76 per common share) and
$104.7 million ($2.17 per common share) for the third
quarter of 1996 and 1995, respectively. The decreased
loss in 1996 compared to the same period in 1995 was due
to a variety of factors, the most significant of which was
the write-down of the Company's interest in the Grouse
Creek mine in the third quarter of 1995 totaling
approximately $97.0 million, compared to the 1996
adjustments totaling $35.7 million for reclamation and
closure costs and carrying value adjustments at the Grouse
Creek mine and the American Girl mine.
Sales of the Company's products decreased by approximately
$2.4 million, or 6.1%, in the third quarter of 1996 as
compared to the same period in 1995, principally the
result of decreased product sales totaling $3.8 million,
most notably from (1) the Apex processing facility which
was sold in September 1995, (2) the La Choya mine where
gold production decreased approximately 1,800 ounces, (3)
the Cactus mine where operations were completed in
September 1995, and (4) Grouse Creek, as well as K-T
Clay's kaolin division, American Girl mine, and Mountain
West Products. These factors were partially offset by
increased sales of approximately $1.3 million at K-T
Feldspar, K-T Mexico, Colorado Aggregate, and K-T Clay's
ball clay division.
Comparing the average metal prices for the third quarter
of 1996 with the comparable period for 1995, gold
increased slightly to $385 per ounce from $384 per ounce,
silver decreased by 5.3% to $5.05 per ounce from $5.33 per
ounce, lead increased by 30.2% to $0.362 per pound from
$0.278 per pound, and zinc decreased slightly to $0.455
per pound from $0.458 per pound. The Company's average
realized gold price during the third quarter of 1996 was
$391 per ounce.
Cost of sales and other direct production costs decreased
approximately $1.3 million, or 4.2%, from the third
quarter of 1995 to the comparable 1996 period primarily
due to (1) decreased production costs of $1.7 million at
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<PAGE> 21
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
the Apex processing facility which was sold in September
1995, (2) a $0.4 million decrease in production costs at
the Cactus mine where operations were completed in
September 1995, and (3) additional production costs
decreases totaling approximately $0.6 million at K-T
Clay's kaolin division, American Girl, La Choya, Mountain
West Products, and K-T Ball Clay. These production costs
decreases were partially offset by production costs
increases at (1) the Grouse Creek mine totaling
approximately $0.8 million, (2) K-T Feldspar, where
production costs increased approximately $0.3 million, and
(3) other production costs increases totaling $0.3 million
at other Industrial Minerals locations.
Cost of sales and other direct production costs as a
percentage of sales increased to 79.7% in the third
quarter of 1996 from 78.1% in the comparable 1995 period,
primarily due to the increased production costs and
decreased sales at the Grouse Creek mine.
Cash operating cost and total cash cost per gold ounce
increased from $261 and $264 in the third quarter of 1995
to $284 and $288 for the comparable 1996 period,
respectively. The increase in the cash operating cost and
total cash cost per gold ounce is primarily attributable
to increased unit production costs at the La Choya and
Grouse Creek mines in the 1996 period. Total production
costs decreased from $393 per gold ounce in the 1995
period to $389 in the 1996 period principally due to
decreased depreciation expense, the result of the write-
down of the Grouse Creek mining property in the third
quarter of 1995.
Cash operating cost, total cash cost, and total production
cost per silver ounce decreased from $4.57, $4.57, and
$5.71 in the third quarter of 1995 to $3.37, $3.37, and
$4.55 in the comparable 1996 period, respectively. The
decreases in the cost per silver ounce are due primarily
to increased production levels and favorable by-product
prices, principally lead, in the 1996 period at the Lucky
Friday mine.
Depreciation, depletion, and amortization decreased
approximately $1.7 million, or 24.4%, from the third
quarter of 1995 to the comparable 1996 period primarily
due to the write-down of Grouse Creek property, plant, and
equipment in the third quarter of 1995, the impact of
which was $1.7 million.
Other operating expenses decreased by $65.1 million, or
60.7%, in the 1996 period from the 1995 period, due
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<PAGE> 22
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
principally to the (1) decreased reduction in carrying
value of mining properties of $84.5 million, consisting of
the Company's 1995 reduction of carrying value of the
Company's interest in the Grouse Creek mine ($97.0
million) and the Company's interest in the Consolidated
Silver Corporation's Silver Summit mine ($0.4 million),
offset partly by the 1996 reduction in carrying value of
mining properties at the American Girl mine totaling
approximately $7.6 million and the Grouse Creek mine of
approximately $5.3 million, (2) decreased exploration
expenditures of approximately $1.3 million, and (3)
decreased general and administrative expenses of $0.8
million. These decreases were partially offset by a $21.4
million increase in provision for closed operations and
environmental matters, consisting of (1) the 1996 third
quarter provision for the Grouse Creek mine totaling
approximately $22.5 million, (2) increased 1996 provision
over 1995 provision for remediation and future costs
associated with the Coeur d'Alene River Basin of $1.9
million, (3) the American Girl closure cost accrual of
$0.3 million, and (4) provision for environmental matters
at the Company's former Yellow Pine mine of $0.1 million,
partially offset by the 1995 provision totaling
approximately $3.4 million for the Bunker Hill superfund
site.
Other income was $3.0 million in the third quarter of 1996
compared to $2.9 million in the comparable 1995 period.
The increase was primarily due to a decrease in write-down
of certain common stock investments of $0.9 million,
offset by decreased interest and other income of $0.8
million. Total interest cost increased approximately $0.2
million due to higher borrowings in 1996 under the
Company's revolving and term loan facility than in 1995,
and increased fees associated with the loan facility.
Capitalized interest costs increased $0.2 million
principally due to capitalized interest costs associated
with the Greens Creek development, the Rosebud project,
and the Lucky Friday expansion project.
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 also
subject to many of the same inflationary pressures as the
U.S. economy in general. The Company continues to
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<PAGE> 23
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
implement cost-cutting measures in an effort to reduce per
unit production costs. 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, changes in legal and regulatory requirements,
and other property transactions can have a significant
impact on the need for capital.
At September 30, 1996, assets totaled approximately $264.3
million and shareholders' equity totaled approximately
$147.5 million. Cash and cash equivalents increased by
$7.1 million to $11.1 million at September 30, 1996 from
$4.0 million at the end of 1995.
Operating activities provided approximately $17.8 million
of cash during the first nine months of 1996. The primary
sources of cash provided by operating activities were from
the La Choya mine and the Industrial Minerals segment.
Partially offsetting these primary sources was a $2.7
million dollar increase in accounts and notes receivable
due to (1) increased product receivables at Mountain West
Products related to its seasonal nature of sales, (2)
other increases at K-T Feldspar and K-T Clay's ball clay
division, (3) and increased product receivables at the
Lucky Friday mine due principally to the increase in lead
prices. These increases were partially offset by a
decrease in product receivables at Colorado Aggregate.
Additionally, accrued reclamation and other noncurrent
liabilities used cash of $2.5 million. Principal noncash
charges included in operating activities include (1)
provision for reclamation, holding, severance, and closure
costs of approximately $27.4 million, (2) depreciation,
depletion, and amortization of approximately $15.4
million, and (3) adjustments for reduction in carrying
value of mining properties totaling approximately $12.9
million.
During the first nine months of 1996, approximately $14.2
million of cash was provided from financing activities.
The major sources of cash provided by financing activities
were proceeds from borrowings on the long-term debt of
$40.5 million, proceeds totaling approximately $22.0
million from the issuance of 2.875 million common shares
in an underwritten offering completed in January 1996,
partially offset by repayments on long-term debt of $42.9
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
million and payment of the preferred stock dividend of
$6.0 million.
The Company's investing activities used $24.8 million of
cash during the first nine months of 1996. The most
significant use of cash was $25.6 million of property,
plant, and equipment additions. During the first nine
months of 1996, significant additions occurred at the
Greens Creek mine, the Grouse Creek mine, the Lucky Friday
mine, the American Girl mine, and the Rosebud project
totaling $15.2 million, $3.8 million, $1.9 million, $1.8
million, and $1.4 million, respectively. This use of cash
was offset partly by proceeds on dispositions of fixed
assets totaling approximately $3.2 million.
The Company estimates that remaining capital expenditures
to be incurred over the balance of 1996 will be
approximately $9.7 million including capitalized interest
costs of $0.5 million. These capital expenditures consist
primarily of (1) the Company's share of development
expenditures and capitalized start-up costs at the Greens
Creek project expected to total approximately $4.1
million, (2) development expenditures at the Rosebud
project totaling approximately $2.5 million, (3) capital
expenditures at K-T Clay's kaolin division of $1.2 million
principally for equipment purchases and plant improvements
at the Langley kaolin plant, and (4) development
expenditures at the Company's Lucky Friday expansion
project totaling approximately $1.0 million. The Company
intends to finance these capital expenditures through a
combination of existing cash and cash equivalents and cash
flow from operating activities. In addition, the Company
may borrow funds from its revolving and term loan credit
facility which, subject to certain conditions, provides
for borrowings up to a maximum of $55.0 million. The
Company had $33.0 million outstanding under the facility
at September 30, 1996.
The Company's estimate of its capital expenditure
requirements assumes the Company's joint venture partners
will not default with respect to their portion of
development costs and capital expenditures.
Pursuant to a Registration Statement filed with the
Securities and Exchange Commission and declared effective
in the third quarter of 1995, the Company can, at its
option, issue debt securities, common shares, preferred
shares or warrants in an amount not to exceed $100.0
million in the aggregate. In January 1996, the Company
issued 2.875 million common shares to facilitate the
funding of the Company's capital expenditures in 1996.
The Company used $21.0 million of the net proceeds of
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<PAGE> 25
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
approximately $22.0 million from the sale of its common
shares to pay down debt under its existing revolving and
term loan credit facility thus increasing its borrowing
capacity under the facility. As of September 30, 1996, a
total of $22.0 million remained available under the bank
facility.
On October 31, 1996, the Company entered into a third
amendment to the Company's $55.0 million revolving and
term loan credit facility. Under the terms of the
amendment, the net tangible worth covenant is amended to
permanently reduce the required net tangible worth by the
amount of noncash charges associated with the American
Girl mine and the Grouse Creek mine from June 30, 1996
through March 31, 1997. It also provides for temporary
relief of the net tangible worth covenant for a period of
180 days for certain other items. All other terms of the
credit agreement remain consistent with those disclosed in
Note 6 of Notes to Consolidated Financial Statements in
the Company's 1995 Annual Report on Form 10-K.
The Company's planned environmental and reclamation
expenditures for the balance of 1996 are estimated to be
approximately $2.1 million, principally for activities at
the Bunker Hill Superfund Site, the Coeur d'Alene River
Basin, and the Republic mine.
Exploration expenditures for the balance of 1996 are
expected to be approximately $1.0 million. The Company's
exploration strategy is to focus further exploration at or
in the vicinity of its currently owned properties.
Accordingly, these expenditures will be incurred
principally at exploration targets including La Choya,
Lucky Friday and Greens Creek. Additionally, expenditures
will be made on industrial minerals exploration projects.
In the normal course of its business, the Company uses
forward sales commitments and commodity put and call
option contracts to manage its exposure to fluctuations in
the prices of certain metals which it produces. Contract
positions are designed to ensure that the Company will
receive a defined minimum price for certain quantities of
its production. Gains and losses, and the related costs
paid or premiums received, for contracts which hedge the
sales prices of commodities are deferred and included in
income as part of the hedged transaction. Revenues from
the aforementioned contracts are recognized at the time
contracts are closed out by delivery of the underlying
commodity or settlement of the net position in cash. The
Company is exposed to certain losses, generally the amount
by which the contract price exceeds the spot price of a
commodity, in the event of nonperformance by the
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<PAGE> 26
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
counterparties to these agreements. At September 30,
1996, the Company had forward sales commitments through
January 1997 for 4,000 ounces of gold at an average price
of $412 per ounce. The estimated fair value of these
forward sales commitments was $123,000 at September 30,
1996. The Company has also purchased options to put
44,610 ounces of gold to counterparties to such options at
an average price of $396 per ounce. Concurrently, the
Company sold options to allow the counterparties to such
options to call 44,610 ounces of gold from the Company at
an average price of $461 per ounce. There was no net cost
associated with the purchase and sale of these options
which expire on a monthly basis through December 1997.
The London Final gold price at September 30, 1996 was
$381. At September 30, 1996, the estimated fair value of
the Company's purchased gold put options was approximately
$635,000. If the Company had chosen to close its
offsetting short call option position, it would have
incurred a liability of approximately $13,500. The nature
and purpose of these forward sales contracts, however, do
not presently expose the Company to any significant net
loss. All of the aforementioned contracts are designated
as hedges at September 30, 1996.
As described in Note 5 of Notes to Consolidated Financial
Statements, the Company is a defendant in a legal action
filed in November 1990 by Star Phoenix and certain
principals of Star Phoenix, asserting that the Company
breached the terms of Star Phoenix's lease agreement for
the Company's Star Morning Mine and that the Company
interfered with certain contractual relationships of Star
Phoenix relating to the Company's 1990 termination of such
lease agreement. In June 1994, a judgment was entered by
the Idaho State District Court against the Company in the
legal proceeding in the amount of $10.0 million in
compensatory damages and $10.0 million in punitive damages
based on a jury verdict rendered in the case in late May
1994. The Company's post-trial motions were denied by the
District Court, and the Company appealed the judgment to
the Idaho State Supreme Court. Briefing on the appeal has
been completed and oral argument was presented to the
Idaho State Supreme Court on April 10, 1996. A decision
from the Idaho State Supreme Court is expected in late
1996. Post-judgment interest will accrue during the
appeal period; the current interest rate is 10.875%. In
order to stay the ability of Star Phoenix to collect on
the judgment during the pendency of the appeal, the
Company posted an appeal bond in the amount of $27.2
million representing 136% of the District Court judgment.
The Company pledged U.S. Treasury Securities totaling
$10.0 million as collateral for the $27.2 million bond.
Although the ultimate outcome of the appeal of the
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<PAGE> 27
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
judgment is subject to the inherent uncertainties of any
legal proceeding, based on the Company's analysis of the
factual and legal issues associated with the proceeding
before the District Court and based upon the opinions of
outside counsel, as of the date hereof, it is management's
belief that the Company should ultimately prevail in this
matter, although there can be no assurance in this regard.
In the event of an unfavorable outcome in this proceeding,
the judgment would be paid from the pledged collateral
totaling $10.0 million with the remaining balance to be
paid from bank borrowings, other potential financing
arrangements or proceeds from certain asset sales.
Although the ultimate disposition of this matter 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 results of
operations and financial condition of the Company and its
subsidiaries.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No.
123). SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation
plans. SFAS No. 123 encourages all entities to adopt a
fair value based method of accounting, but allows an
entity to continue to measure compensation cost for those
plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." The Company will comply with the
provisions of SFAS No. 123 on January 1, 1996, by
presenting the pro-forma disclosure requirements of SFAS
No. 123 in its 1996 annual financial statements.
In October 1996, the American Institute of Certified
Public Accountants issued Statement of Position 96-1,
"Environmental Remediation Liabilities" (SOP 96-01). SOP
96-1 provides authoritative guidance with respect to
specific accounting issues that are present in the
recognition, measurement, display, and disclosure of
environmental remediation liabilities. The provisions of
SOP 96-1 are effective for fiscal years beginning after
December 15, 1996. The Company has adopted the provisions
of the SOP 96-1 at September 30, 1996. The adoption of
the provisions of SOP 96-1 had no material affect on the
results of operations or financial condition and liquidity
of the Company that would not have been experienced
otherwise regardless of its adoption.
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<PAGE> 28
PART II - OTHER INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe)
brought a lawsuit, under the Comprehensive Environmental
Response Liability Act of 1980, as amended (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 Superfund Site located at Kellogg, Idaho, 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, in a separate action between the Tribe and the
State of Idaho, the Idaho Federal District Court
determined that the 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
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. On
December 9, 1994, the 9th Circuit Court reversed the
decision of the Idaho Federal District Court and remanded
the case of the Tribe's ownership for trial before the
Idaho Federal District Court. In April 1996, the U.S.
Supreme Court accepted the appeal from the 9th Circuit
Court decision to the U.S. Supreme Court. The case is
fully briefed and oral argument was presented to the court
on October 16, 1996. In July 1994, the United States, as
Trustee for the Coeur d'Alene Tribe, initiated a separate
suit in Idaho Federal District Court seeking a
determination that the Coeur d'Alene Tribe owns
approximately the lower one-third of Lake Coeur d'Alene.
The State has denied the Tribe's ownership of any portion
of Lake Coeur d'Alene and its tributaries. In October
1996, the legal proceeding related to the Tribe's natural
resource damage claims was consolidated with the United
States Natural Resources Damage litigation described
below.
On March 22, 1996, the United States filed a lawsuit in
Idaho Federal District Court against the Company and other
mining companies who conducted historic mining operations
in the Silver Valley of Northern Idaho. The lawsuit
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<PAGE> 29
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
asserts claims under CERCLA and the Clean Water Act and
seeks recovery for alleged damages to or loss of natural
resources located in the Coeur d'Alene River Basin in
North Idaho over which the United States asserts to be the
trustee under CERCLA. The lawsuit asserts that the
defendants' historic mining activity resulted in releases
of hazardous substances and damaged natural resources
within the Basin. The suit also seeks declaratory relief
that the Company and other defendants are jointly and
severally liable for response costs under CERCLA for
historic mining impacts in the Coeur d'Alene River Basin
outside the Bunker Hill Superfund Site. The Company
answered the complaint on May 17, 1996, denying liability
to the United States under CERCLA and the Clean Water Act
and asserted a counterclaim against the United States for
the federal government's involvement in mining activity in
the Coeur d'Alene River Basin which contributed to the
releases and damages alleged by the United States. The
Company believes it also has a number of defenses to the
United States' claims. In October 1996, the court
consolidated the Coeur d'Alene Tribe Natural Resource
Damage litigation with this lawsuit for discovery and
other limited pretrial purposes.
On March 22, 1996, the Company entered into an agreement
(the Agreement) with the State of Idaho pursuant to which
the Company agreed to continue certain financial
contributions to environmental cleanup work in the
Coeur d'Alene River Basin being undertaken by a State
Trustees group. In return, the State agreed not to sue
the Company for damage to natural resources for which the
State is a trustee for a period of five years, to pursue
settlement with the Company of the State's natural
resource damage claims and to grant the Company credit
against any such State claims for all expenditures made
under the Agreement and certain other Company
contributions and expenditures for environmental cleanup
in the Coeur d'Alene Basin.
With respect to the Coeur d'Alene River Basin, the Company
increased its accrual for closed operations and
environmental matters by $0.5 million during the first
quarter of 1996 and again by $2.3 million in the third
quarter.
In 1991, the Company initiated litigation in the Idaho
State District Court in Kootenai County, Idaho, against a
number of insurance companies 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
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<PAGE> 30
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
under their policies of insurance for all liabilities and
claims asserted against the Company by the Environmental
Protection Agency (EPA) and the Tribe under CERCLA related
to the Bunker Hill Superfund Site and Coeur d'Alene River
Basin in northern Idaho. In 1992, the Court ruled that
the primary insurance companies had a duty to defend the
Company in the Tribe's lawsuit. During 1995 and 1996, the
Company entered into settlement agreements with a number
of the insurance carriers named in the litigation. The
Company has received a total of $7.195 million under the
terms of the settlement agreements. Thirty percent of
these settlements is payable to the EPA to reimburse the
U.S. Government for past costs under the Bunker Hill
Superfund Site Consent Decree previously entered into by
the Company. Litigation is still pending against one
insurer with trial continued until the underlying
environmental claims against the Company are resolved or
settled. The remaining insurance carrier is providing the
Company with a partial defense in all Coeur d'Alene River
Basin environmental litigation. As of September 30, 1996,
the Company had not reduced its accrual for reclamation
and closure costs to reflect the receipt of any
anticipated insurance proceeds.
In June 1994, a judgment was entered against the Company
in Idaho State District Court in the amount of $10.0
million in compensatory damages and $10.0 million in
punitive damages based on a jury verdict rendered in late
May 1994 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 concerning
the Company's November 1990 termination of the Star
Phoenix lease of the Star Morning Mine property. A number
of other claims by Star Phoenix and certain principals of
Star Phoenix against the Company in the lawsuit were
dismissed by the State District Court. On May 3, 1995,
the District Court issued its final opinion and order on a
number of post-trial issues pending before the Court. The
opinion and order included the Court's denial of the post-
trial motions filed by Star Phoenix and certain of its
principals regarding claims which had been previously
dismissed by the Court during trial. The Court also
awarded Star Phoenix approximately $300,000 in attorneys'
fees and costs. The Company's post-trial motions with
respect to the judgment and motions were denied by the
State District Court, and the Company has appealed the
District Court judgment to the Idaho State Supreme Court.
Star Phoenix has cross-appealed certain trial court
discovery determinations. Briefing on the appeal has been
completed and oral argument was presented to the Idaho
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<PAGE> 31
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
State Supreme Court on April 10, 1996. A decision from
the Idaho Supreme Court is expected in late 1996. Post-
judgment interest will accrue during the appeal period;
the current interest rate is 10.875%. In order to stay
the ability of Star Phoenix to collect on the judgment
during the pendency of the appeal, the Company has posted
an appeal bond in the amount of $27.2 million representing
136% of the District Court judgment. The Company pledged
U.S. Treasury Securities totaling $10.0 million as
collateral for the appeal bond. This collateral amount is
included in restricted investments at September 30, 1996
and December 31, 1995. The Company has vigorously pursued
its appeal to the Idaho Supreme Court and it has been the
Company's position, and at the current time it remains the
Company's position, that it will not enter into a
settlement with Star Phoenix for any material amount.
Although the ultimate outcome of the appeal of the Idaho
District Court judgment is subject to the inherent
uncertainties of any legal proceeding, based upon the
Company's analysis of the factual and legal issues
associated with the proceeding before the Idaho District
Court and based on the opinions of outside counsel, as of
the date hereof, it is management's belief that the
Company should ultimately prevail in this matter, although
there can be no assurance in this regard. Accordingly,
the Company has not accrued any liability associated with
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. Although
there can be no assurance as to the ultimate disposition
of these matters and the proceedings disclosed above, it
is the opinion of the Company's management, based upon the
information available at this time, that the expected
outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on the
results of operations and financial condition of the
Company and its subsidiaries.
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<PAGE> 32
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1(d) - Third Amendment to Credit Agreement dated
October 31, 1996, among Registrant and
Certain Subsidiaries and NationsBank of
Texas, N.A., as Agent, and Certain Banks
as Lenders.
10.11(a) - Amended and Restated Golden Eagle Earn-In
Agreement between Santa Fe Pacific Gold
Corporation and Hecla Mining Company dated
as of September 6, 1996.
10.11(b) - Golden Eagle Operating Agreement between
Santa Fe Pacific Gold Corporation and
Hecla Mining Company dated as of September
6, 1996.
10.12 - Limited Liability Company Agreement of the
Rosebud Mining Company, L.L.C. among Santa
Fe Pacific Gold Corporation and Hecla
Mining Company dated as of September 6,
1996.
12 - Fixed Charge Coverage Ratio Calculation
13 - Third Quarter Report to Shareholders for
the quarter ending September 30, 1996, for
release dated November 11, 1996.
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
Items 2, 3, 4 and 5 of Part II are omitted from this report as
inapplicable.
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<PAGE> 33
HECLA MINING COMPANY and SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HECLA MINING COMPANY
(Registrant)
Date: November 12, 1996 By /s/ Arthur Brown
---------------------------------
Arthur Brown, Chairman, President
and Chief Executive Officer
Date: November 12, 1996 By /s/ S. E. Hilbert
---------------------------------
S. E. Hilbert
Corporate Controller
(Chief Accounting Officer)
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<PAGE> 34
EXHIBIT INDEX
Exhibit
No. Description
- -------- -----------------------
10.1(d) Third Amendment to Credit Agreement dated
October 31, 1996, among Registrant and Certain
Subsidiaries and NationsBank of Texas, N.A., as
Agent, and Certain Banks as Lenders.
10.11(a) Amended and Restated Golden Eagle Earn-In
Agreement between Santa Fe Pacific Gold
Corporation and Hecla Mining Company dated as of
September 6, 1996.
10.11(b) Golden Eagle Operating Agreement between Santa Fe
Pacific Gold Corporation and Hecla Mining Company
dated as of September 6, 1996.
10.12 Limited Liability Company Agreement of the Rosebud
Mining Company, L.L.C. among Santa Fe Pacific Gold
Corporation and Hecla Mining Company dated as of
September 6, 1996.
12 Fixed Charge Coverage Ratio Calculation for the
nine months ended September 30, 1995 and 1996
13 Third Quarter Report to Shareholders for the
quarter ending September 30, 1996, for release
dated November 11, 1996
27 Financial Data Schedule
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<PAGE> 1
Exhibit 10.1(d)
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (herein called the "AMENDMENT")
made as of the 31st day of October, 1996, by and among HECLA MINING COMPANY, a
Delaware corporation (herein called "BORROWER"), Colorado Aggregate Company of
New Mexico, Inc., a New Mexico corporation, Kentucky-Tennessee Clay Company, a
Delaware corporation, K-T Feldspar Corporation, a North Carolina corporation,
Mountain West Products, inc., an Idaho corporation (collectively, the
"SUBSIDIARY GUARANTORS"), and NATIONSBANK OF TEXAS, N.A., a national banking
association (in its capacity as Agent under the Original Agreement, herein
called "AGENT"), and Lenders named in the Original Agreement referred to below
("LENDERS"),
W I T N E S S E T H:
WHEREAS, Borrower, the Subsidiary Guarantors, Agent and Lenders have
entered into that certain Credit Agreement dated as of August 30, 1994, as
amended by a First Amendment to Credit Agreement dated as of October 1, 1995 and
a Second Amendment to Credit Agreement dated as of February 7, 1996 (as amended,
the "ORIGINAL AGREEMENT"), for the purpose and consideration therein expressed,
whereby Lenders became obligated to make and made loans to Borrower as therein
provided;
WHEREAS, Bank of America, Idaho, N.A. merged with and into Bank of America
N W, N.A. (formerly known as First-Seattle National Bank) and the Percentage
Share of the Loans and the Loan Documents previously owned by Bank of America,
Idaho, N.A. are now owned by Bank of America N W, N.A.;
WHEREAS, Borrower has agreed to execute and deliver a new promissory note
of even date herewith payable to the order of Bank of America N W, N.A. (the
"RENEWAL NOTE"), which renews the promissory notes made by Borrower and payable
to the order of Bank of America, Idaho, N.A. and Seattle-First National Bank;
WHEREAS, Borrower, the Subsidiary Guarantors, Agent and Lenders desire to
amend the Original Agreement to provide for the purposes and consideration set
forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
<PAGE> 2
ARTICLE I.
DEFINITIONS AND REFERENCES
SECTION 1.1. TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
SECTION 1.2. OTHER DEFINED TERMS. Unless the context otherwise requires,
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2.
"AMENDMENT" shall mean this Third Amendment to Credit Agreement.
"AMENDMENT DOCUMENTS" shall mean the Amendment, the Consent to Pledge,
the LLC Pledge Agreement and the Renewal Note.
"CONSENT TO PLEDGE" shall mean the Consent to Pledge of even date
herewith delivered by Borrower and accepted by the Rosebud Company, L.L.C.,
substantially in the form of Exhibit A hereto.
"CREDIT AGREEMENT" shall mean the Original Agreement as amended
hereby.
"LLC PLEDGE AGREEMENT" shall mean the LLC Pledge Agreement of even
date herewith made by Borrower in favor of Agent, substantially in the form
of Exhibit B hereto.
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT
SECTION 2.1. DEFINED TERMS. (a) The definition of "LLC" is hereby added
to Section 1.1 of the Original Agreement immediately following the definition of
"LIEN" to read as follows:
"LLC" has the meaning given to it in the LLC Pledge Agreement.
(b) The definition of "LLC AGREEMENT" is hereby added to Section 1.1 of
the Original Agreement immediately following the definition of "LLC" to read as
follows:
"LLC AGREEMENT" has the meaning given to it in the LLC Pledge
Agreement.
2
<PAGE> 3
(c) The definition of "SUBJECT PROPERTIES" is hereby added to Section 1.1
of the Original Agreement immediately following the definition of "SPREAD" to
read as follows:
"SUBJECT PROPERTIES" means all of the properties identified in
subparagraph 1.1 of Exhibit A of the LLC Agreement.
(d) The definition of "SUBORDINATION AGREEMENT" is hereby added to Section
1.1 of the Original Agreement immediately following the definition of "SUBJECT
PROPERTIES" to read as follows:
"SUBORDINATION AGREEMENT" means the Subordination Agreement by and
among Borrower, Agent, and the Surety, substantially in the form of Exhibit
H hereto.
(e) The definition of "SURETY" is hereby added to Section 1.1 of the
Original Agreement immediately following the definition of "SUBORDINATION
AGREEMENT" to read as follows:
"SURETY" means, collectively, Van American Insurance Company, United
States Fidelity & Guaranty Company and American International Company.
(f) The definition of "SURETY AGREEMENT" is hereby added to Section 1.1 of
the Original Agreement immediately following the definition of "SURETY" to read
as follows:
"SURETY AGREEMENT" means, collectively, the agreements between
Borrower and the Surety, substantially in the form of Exhibit H hereto.
SECTION 2.2. LIMITATION ON LIENS. New clauses (vii) and (viii) are hereby
added to subsection (b) of Section 5.2 of the Original Agreement to read as
follows:
(vii) Liens granted by Borrower pursuant to the Surety Agreement
in favor of the Surety on cash collateral held by the Surety in an
aggregate amount not to exceed $10,000,000 at any time, so long as the
Surety has executed and delivered the Subordination Agreement.
(viii) subordinated Liens granted by Related Persons pursuant to
the Surety Agreement in favor of the Surety, so long as the Surety has
executed and delivered the Subordination Agreement and such Related Person
has granted to Agent a first priority Lien in the property to be encumbered
by the subordinated Lien.
3
<PAGE> 4
SECTION 2.3. LIMITATION ON SALES OF PROPERTY. A new clause (iv) is hereby
added to subparagraph (d) of Section 5.2 of the Original Agreement to read as
follows:
(iv) the transfer of the Subject Properties from Borrower to the LLC.
SECTION 2.4. TANGIBLE NET WORTH. Subsection (m) of Section 5.2 of the
Original Agreement is hereby amended in its entirety to read as follows:
(m) TANGIBLE NET WORTH.
(i) Borrower's Consolidated Tangible Net Worth as of the end of any
Fiscal quarter ending after December 31, 1995 will not be less than (A) the
sum of (1) $150,000,000, plus (2) 50% of Borrower's Adjusted Consolidated
Net Income earned during the period from January 1, 1996 to the end of such
Fiscal Quarter, if positive, or zero, if negative, plus (3) 100% of the net
proceeds from the issuance of equity securities of Borrower during the
period from January 1, 1996 to the end of such Fiscal Quarter;
(ii) As used in this subsection (m), the following terms shall have
the meanings set forth below:
(A) "Additional Special Charges" means (i) the amount of the
Star Phoenix Judgment, but only for 180 days after the date that such
judgment is entered, and (ii) all reclamation or other non-cash
charges relating to the Grouse Creek Mine or the American Girl Mine
which are not Anticipated Special Charges, but only for 180 days after
the date that such deduction is recognized.
(B) "Anticipated Special Charges" means all reclamation or other
non-cash charges relating to either the Grouse Creek Mine or the
American Girl Mine that are deducted in determining Borrower's
Consolidated net income for any period, provided that (i) only such
charges relating to the Grouse Creek Mine that accrue between the
Fiscal Quarters ending June 30, 1996 and March 31, 1997 shall be
deducted and (ii) the aggregate amount of all such charges deducted
after the Fiscal Quarter ending June 30, 1996 does not exceed
$50,000,000 (meaning that all such charges deducted prior to June 30,
1996 shall not be counted for purposes of this clause (ii)).
(C) "Borrower's Adjusted Consolidated Net Income" means, for any
period, the sum of (i) Borrower's Consolidated net income for such
period, (ii) PLUS all
4
<PAGE> 5
Anticipated Special Charges, and (iii) PLUS any Additional Special
Charges.
(D) "Borrower's Consolidated Debt" means all Consolidated
liabilities and similar balance sheet items of Borrower, together with
all Funded Debt of any Related Person.
(E) "Borrower's Consolidated Tangible Net Worth" means the
remainder of (x) all Consolidated Assets of Borrower, other than
intangible assets (including without limitation as intangible assets
such assets as patents, copyrights, licenses, franchises, goodwill,
trade names, trade secrets and leases other than oil, gas or mineral
leases or leases required to be capitalized under GAAP), minus (y)
Borrower's Consolidated Debt.
(F) "Star Phoenix Judgment" means a judgment adverse to Borrower
entered by the Supreme Court of Idaho in that certain case styled STAR
PHOENIX MINING COMPANY V. HECLA MINING COMPANY, Case Nos. 29020 &
29023 (consolidated), original filed in the First Judicial District
Court in and for the county of Shoshone.
SECTION 2.5. SECURITY SCHEDULE. A new Schedule 5 is hereby added to the
Original Agreement to read as set forth in Schedule 5 attached hereto.
SECTION 2.6. FORM OF SUBORDINATION AGREEMENT. New Exhibits G and H are
hereby added to the Original Agreement to read as set forth in Exhibits G and H,
respectively, attached hereto.
ARTICLE III.
CONDITIONS OF EFFECTIVENESS
SECTION 3.1. EFFECTIVE DATE. This Amendment shall become effective as of
the date first above written upon the delivery of the following (there are no
other conditions to its effectiveness):
(a) Agent shall have received each of the Amendment Documents duly
executed and delivered by each Person which is a party thereto;
(b) Agent shall have received an amendment fee of $55,000 payable to Agent
for the account of Lenders in accordance with their Percentage Shares; and
(c) Agent shall have additionally received all of the following documents,
each document (unless otherwise indicated) being dated the date of receipt
thereof by Agent, duly authorized,
5
<PAGE> 6
executed and delivered, and in form and substance satisfactory to Agent:
(i) certificates of duly authorized officers of Borrower and each
Subsidiary Guarantor to the effect that all of the representations and
warranties set forth in Article IV hereof are true and correct at and as of
the time of such effectiveness;
(ii) certificates of the Secretaries or Assistant Secretaries of
Borrower and each Subsidiary Guarantor dated the date of the Amendment
Documents certifying that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors of such corporation
authorizing the execution, delivery and performance of the Amendment
Documents and certifying the names and true signatures of the officers of
such corporation authorized to sign the Amendment Documents;
(iii) an opinion of Borrower's General or Corporate Counsel in
form and substance satisfactory to Agent; and
(iv) such supporting documents as Agent may reasonably request.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to
induce each Lender to enter into the Amendment Documents, each of Borrower and
the Subsidiary Guarantors represents and warrants to each Lender that:
(a) The representations and warranties contained in Section 4.1 of the
Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Each of Borrower and the Subsidiary Guarantors is duly authorized to
execute and deliver the Amendment Documents and is and will continue to be duly
authorized to borrow monies and to perform its obligations under the Credit
Agreement. Each of Borrower and the Subsidiary Guarantors has duly taken all
corporate action necessary to authorize the execution and delivery of the
Amendment Documents and to authorize the performance of its obligations
hereunder.
(c) The execution and delivery by each of Borrower and the Subsidiary
Guarantors of the Amendment Documents, the performance by each of Borrower and
the Subsidiary Guarantors of its obligations thereunder and the consummation of
the transactions contemplated thereby do not and will not conflict with any
6
<PAGE> 7
provision of law, statute, rule or regulation or of the certificate or articles
of incorporation and bylaws of Borrower and each Subsidiary Guarantor, or of any
material agreement, judgment, license, order or permit applicable to or binding
upon Borrower or any Subsidiary Guarantor, or result in the creation of any
lien, charge or encumbrance upon any assets or properties of Borrower or any
Subsidiary Guarantor. Except for those which have been obtained, no consent,
approval, authorization or order of any court or governmental authority or third
party is required in connection with the execution and delivery by Borrower or
any Subsidiary Guarantor of the Amended Documents.
(d) When duly executed and delivered, each of the Amendment Documents and
the Credit Agreement will be a legal and binding obligation of each of Borrower
and the Subsidiary Guarantors, enforceable in accordance with its terms, except
as limited by bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights and by equitable principles of
general application.
(e) The audited annual Consolidated financial statements of Borrower dated
as of December 31, 1995 and the unaudited quarterly Consolidated financial
statements of Borrower dated as of June 30, 1996 fairly present the Consolidated
financial position at such dates and the Consolidated statement of operations
and the changes in Consolidated financial position for the periods ending on
such dates for Borrower. Copies of such financial statements have heretofore
been delivered to each Lender. Since June 30, 1996, no material adverse change
has occurred in the financial condition or businesses or in the Consolidated
financial condition or businesses of Borrower.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1. RATIFICATION OF AGREEMENTS. The Original Agreement as hereby
amended is hereby ratified and confirmed in all respects. The Loan Documents,
as they may be amended or affected by the various Amendment Documents, are
hereby ratified and confirmed in all respects. Any reference to the Credit
Agreement in any Loan Document shall be deemed to refer to this Amendment also
and any reference in any Loan Document to any other document or instrument
amended, renewed, extended or otherwise affected by any Amendment Document shall
also refer to such Amendment Document. The execution, delivery and
effectiveness of the other Amendment Documents shall not, except as expressly
provided herein or therein, operate as a waiver of any right, power or remedy of
Lender under the Credit Agreement or any other Loan Document nor constitute a
waiver of any provision of the Credit Agreement or any other Loan Document.
7
<PAGE> 8
SECTION 5.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Borrower herein shall survive the execution and
delivery of the Amendment Documents and the performance hereof and shall further
survive until all of the Obligations are paid in full. All statements and
agreements contained in any certificate or instrument delivered by Borrower or
any Related Person hereunder or under the Credit Agreement to any Lender shall
be deemed to constitute representations and warranties by, and/or agreements and
covenants of, Borrower under the Amendment Documents and under the Credit
Agreement.
SECTION 5.3. GOVERNING LAW. The Amendment Documents shall be governed by
and construed in accordance with the laws of the State of Texas and any
applicable laws of the United States of America in all respects, including
construction, validity and performances.
SECTION 5.4. COUNTERPARTS. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
8
<PAGE> 9
IN WITNESS HEREOF, this Amendment is executed as of the date first above
written.
HECLA MINING COMPANY, Borrower
By: /s/ John P. Stilwell
--------------------------------
John P. Stilwell
Vice President-Finance and
Treasurer
COLORADO AGGREGATE COMPANY OF NEW
MEXICO, INC., Subsidiary Guarantor
By: /s/ J. Gary Childress
--------------------------------
J. Gary Childress
Vice President
KENTUCKY-TENNESSEE CLAY COMPANY,
Subsidiary Guarantor
By: /s/ J. Gary Childress
--------------------------------
J. Gary Childress
Vice President
K-T FELDSPAR CORPORATION,
Subsidiary Guarantor
By: /s/ J. Gary Childress
--------------------------------
J. Gary Childress
Vice President
9
<PAGE> 10
MOUNTAIN WEST PRODUCTS, INC.,
Subsidiary Guarantor
By: /s/ J. Gary Childress
--------------------------------
J. Gary Childress
Vice President
NATIONSBANK OF TEXAS, N.A.,
Agent and Lender
By: /s/ David C. Rubenking
--------------------------------
David C. Rubenking
Senior Vice President
BANK OF AMERICA N W, N.A. (formerly
known as Seattle-First National
Bank), as successor by merger to
Bank of America Idaho N.A., Lender
By: /s/ Joe Poole
--------------------------------
Joe Poole
Vice President
FIRST SECURITY BANK OF IDAHO, N.A.,
Lender
By: /s/ Vicki Riga
--------------------------------
Vicki Riga
Vice President
10
<PAGE> 1
Exhibit 10.11(a)
AMENDED AND RESTATED
GOLDEN EAGLE
EARN-IN AGREEMENT
between
SANTA FE PACIFIC GOLD CORPORATION
and
HECLA MINING COMPANY
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Hecla's Representations . . . . . . . . . . . . . . . . . . . . 4
2.3 Santa Fe's Representations and Warranties . . . . . . . . . . . 7
2.4 Materiality of Representations . . . . . . . . . . . . . . . . 8
ARTICLE III - TERM OF EARN-IN AGREEMENT . . . . . . . . . . . . . . . . . 8
ARTICLE IV - RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . 8
4.1 No Partnership . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Federal Tax Elections and Allocations . . . . . . . . . . . . . 9
4.3 State Income Tax . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Other Business Opportunities . . . . . . . . . . . . . . . . . 9
4.6 Waiver of Right to Partition . . . . . . . . . . . . . . . . . 10
4.7 Transfer or Termination of Rights to Properties . . . . . . . . 10
4.8 Implied Covenants . . . . . . . . . . . . . . . . . . . . . . . 10
4.9 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V - INITIAL CONTRIBUTION . . . . . . . . . . . . . . . . . . . . 10
5.1 Initial Payment and Contributions; Earn-in Expenditures;
Feasibility Study . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Reasonable Earn-in Expenditures . . . . . . . . . . . . . . . . 11
5.3 Identification of Earn-in Expenditures Upon Presentation of
Feasibility Study . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Addition of Mineral Properties to Operating Agreement . . . . 12
ARTICLE VI - MANAGEMENT COMMITTEE . . . . . . . . . . . . . . . . . . . . 12
6.1 Organization and Composition . . . . . . . . . . . . . . . . . 12
6.2 Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII - PROGRAMS AND BUDGETS . . . . . . . . . . . . . . . . . . . 13
7.1 Preparation, Presentation and Content of Programs and Budgets . 13
(a) Content of Programs . . . . . . . . . . . . . . . . . . . 13
(b) Content of Budgets . . . . . . . . . . . . . . . . . . . . 13
7.2 Submittal and Approval of Proposed or Modified Programs and
Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII - MAINTENANCE AND ABANDONMENT OF MINERAL PROPERTIES . . . . 14
8.1 Maintenance of Mineral Properties and Underlying Agreements . . 14
8.2 Assessment Work or Fees . . . . . . . . . . . . . . . . . . . . 14
8.3 Abandonment of Mineral Properties . . . . . . . . . . . . . . . 15
ARTICLE IX - AREA OF INTEREST . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE> 3
9.1 Proposed Acquisition of Mineral Properties . . . . . . . . . . 15
9.2 Election to Acquire Mineral Properties . . . . . . . . . . . . 16
9.3 Excluded Acquisition . . . . . . . . . . . . . . . . . . . . . 16
9.4 Area of Interest Properties Owned or Controlled by Hecla . . . 16
ARTICLE X - WITHDRAWAL AND TERMINATION . . . . . . . . . . . . . . . . . 19
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.2 Santa Fe's Election to Withdraw and Terminate . . . . . . . . . 19
10.3 Termination Upon Contribution of Mineral Properties to the
Operating Agreement . . . . . . . . . . . . . . . . . . . . . . 19
10.4 Failure to Provide Feasibility Study . . . . . . . . . . . . . 20
10.5 Removal of Property . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XI - OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.1 Parameters for Santa Fe's Earn-in Activities . . . . . . . . . 20
11.2 Surface and Surface Facilities . . . . . . . . . . . . . . . . 21
11.3 Compliance With Laws and Agreements . . . . . . . . . . . . . . 22
11.4 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XII - RECLAMATION . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XIII - REPORTING, INSPECTION AND AUDIT . . . . . . . . . . . . . 26
ARTICLE XIV - MEMORANDUM . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XV - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XVI - CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . 28
16.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
16.2 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . 28
16.3 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . 29
16.4 Duration of Confidentiality . . . . . . . . . . . . . . . . . . 29
ARTICLE XVII - TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17.1 Reimbursement for Taxes . . . . . . . . . . . . . . . . . . . . 29
17.2 Provisions Concerning Taxation . . . . . . . . . . . . . . . . 29
ARTICLE XVIII - COOPERATION . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XIX - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 30
19.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
19.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
19.3 Modification . . . . . . . . . . . . . . . . . . . . . . . . . 31
19.4 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 31
19.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 32
19.6 Rule Against Perpetuities . . . . . . . . . . . . . . . . . . . 32
19.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 33
19.8 Entire Agreement; Amendments; Successors and Assigns . . . . . 33
ii
<PAGE> 4
19.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 33
19.10Paragraph Headings . . . . . . . . . . . . . . . . . . . . . . 33
EXHIBITS
EXHIBIT A: PROPERTIES TO BE CONTRIBUTED BY HECLA
EXHIBIT B: TAX MATTERS
EXHIBIT C: AREA OF INTEREST
EXHIBIT D: EXPENDITURE SCHEDULE
EXHIBIT E: SPECIAL WARRANTY DEED
EXHIBIT F: OPERATING AGREEMENT
iii
<PAGE> 5
AMENDED AND RESTATED GOLDEN EAGLE EARN-IN AGREEMENT
This Amended and Restated Earn-in Agreement is made as of September, 6,
1996 between SANTA FE PACIFIC GOLD CORPORATION, a Delaware corporation
("Santa Fe"), and HECLA MINING COMPANY, a Delaware corporation ("Hecla").
RECITALS
A. Hecla owns or controls certain lands in Ferry County, State of
Washington, as described in Exhibit A Part 1 and defined as "Hecla's
Properties" in Section 1.8. Hecla also owns and controls certain lands as
described in Exhibit A Part 2 and defined as the "Joint Properties" in
Section 1.9. Hecla desires to contribute Hecla's Properties to the purposes
of this Earn-in Agreement.
B. Santa Fe desires to immediately acquire an undivided 75% interest
in the Joint Properties described in Exhibit A Part 2, and to acquire the
right to receive conveyance of an undivided 75% interest in Hecla's
Properties, for which Santa Fe shall make payment of $2,500,000 to Hecla.
C. Santa Fe further desires to make certain expenditures on or for the
benefit of the Mineral Properties as may be reasonable or necessary to enable
Santa Fe to provide Hecla with a Feasibility Study.
D. Santa Fe and Hecla desire to enter into the Operating Agreement
attached hereto as Exhibit F, on the terms and conditions hereinafter set
forth.
In consideration of the promises set forth below, Hecla and Santa Fe
agree to the provisions of this Earn-in Agreement.
<PAGE> 6
ARTICLE I
DEFINITIONS
1.1 "Affiliate" means any person, partner, partnership, joint
venture, limited liability company, corporation or other form of enterprise
which directly or indirectly controls, is controlled by, or is under common
control with Santa Fe or Hecla. For purposes of the preceding sentence,
"control" means possession, directly or indirectly, of the power to direct or
cause direction of management and policies through ownership of voting
securities, contract, voting trust or otherwise.
1.2 "Area of Interest" means the area described in Exhibit C. The
Joint Properties shall not be deemed to be subject to this Earn-in Agreement
or part of the Area of Interest for purposes of this Earn-in Agreement.
1.3 "Earn-in Activities" means all activities on or for
the benefit of the Mineral Properties giving rise to Earn-in Expenditures.
1.4 "Earn-in Agreement" means this Amended and Restated Golden
Eagle Earn-in Agreement.
1.5 "Earn-in Expenditures" means those expenditures on or for the
benefit of the Mineral Properties as defined in Exhibit D or as specified in
the terms of this Earn-in Agreement.
1.6 "Effective Date" means the effective date of this Earn-in
Agreement, September 6, 1996.
1.7 "Feasibility Study" means a study of the feasibility of
developing and operating a mine on the Mineral Properties, or the Mineral
Properties and Joint Properties, as the case may be, including an analysis of
economic, engineering, environmental, regulatory and
2
<PAGE> 7
other considerations, and containing the level of detail customary in the
industry for a bankable feasibility study which may, if necessary, be
presented to financial institutions for the purpose of seeking and ultimately
obtaining financing for the development of a mine.
1.8 "Hecla's Properties" means those properties described in
Exhibit A Part 1.
1.9 "Joint Properties" means those properties described in Exhibit
A Part 2, in which Santa Fe shall immediately acquire an undivided 75%
interest from Hecla upon payment of $2,500,000 to Hecla hereunder.
1.10 "Mineral Properties" means Hecla's Properties and any other
interests in real property within the Area of Interest which are made subject
to the terms of this Earn-in Agreement after the Effective Date. The Joint
Properties are not Mineral Properties for purposes of this Earn-in Agreement.
1.11 "Operating Agreement" means that agreement, attached to
this Earn-in Agreement as Exhibit F, which is to be entered into immediately
between Santa Fe and Hecla for purposes of operating the Joint Properties,
and to which the Mineral Properties may be added upon Santa Fe's fulfillment
of the requirements set out in Article V of this Earn-in Agreement.
1.12 "Parties" means Hecla and Santa Fe.
1.13 "Term" means the term of this Earn-in Agreement as
defined in Article III.
ARTICLE II
REPRESENTATIONS
2.1 CAPACITY. Each of the Parties represents as follows:
3
<PAGE> 8
(a) that it is a corporation duly incorporated and in good
standing in its state or jurisdiction of incorporation and that it is
qualified to do business and is in good standing in those states or
jurisdictions where necessary in order to carry out the purposes of this
Earn-in Agreement;
(b) that it has the capacity to enter into and perform this
Earn-in Agreement and all transactions contemplated herein and that all
corporate and other actions required to authorize it to enter into and
perform this Earn-in Agreement have been properly taken;
(c) that it will not breach any other agreement or
arrangement by entering into or performing this Earn-in Agreement; and
(d) that this Earn-in Agreement has been duly executed and
delivered by it and is valid and binding upon it in accordance with its
terms.
2.2 HECLA'S REPRESENTATIONS AND WARRANTIES. Hecla represents and
warrants that to the best of its information, knowledge and belief, with
respect to Hecla's Properties and the Joint Properties:
(a) Hecla is in exclusive possession of such properties;
(b) Subject to the paramount title of the United States, (i)
the unpatented mining claims were properly laid out and monumented; (ii)
all required location work was properly performed; (iii) location
notices and certificates were properly recorded and filed with
appropriate governmental agencies; (iv) all assessment work has been
performed, or fee payments in lieu thereof made, as required to hold the
unpatented mining claims through the assessment year ending August 31,
1995; (v) all
4
<PAGE> 9
affidavits of assessment work and other filings required to maintain the
claims in good standing have been properly and timely recorded or filed
with appropriate governmental agencies; (vi) the claims are free and
clear of defects, liens or encumbrances arising by, through or under
Hecla except for those found of public record or identified on Exhibit A
hereto; (vii) there are no conflicting claims; and (viii) there are no
pending or threatened actions, suits or proceedings involving the mining
claims.
(c) Hecla's Properties and the Joint Properties are free and
clear of all defects, liens and encumbrances except for those found of
public record or identified on Exhibit A hereto and except for those
which would not have a material adverse effect on the usage contemplated
herein;
(d) there is no judgment outstanding or litigation,
proceeding or governmental investigation pending or threatened against
Hecla, its Affiliates, Hecla's Properties or the Joint Properties,
which would have a materially adverse effect on the title or interest of
Hecla in or to Hecla's Properties and the Joint Properties or Hecla's
power or right to sell, convey, transfer or assign the mineral estate
in such properties, nor has Hecla received any communication asserting
or threatening any adverse claim to any part of such properties other
than as specified herein;
(e) Hecla has made available to Santa Fe all information and
data regarding the existence of minerals within Hecla's Properties and
the Joint Properties, and all information concerning record, possessory,
legal or equitable title to such properties which is within Hecla's
knowledge, possession or control;
5
<PAGE> 10
(f) Hecla has fully informed and disclosed to Santa Fe (i)
the occurrence of, and circumstances surrounding, any release, spill,
discharge, leak, emission, escape, dumping or any material release of
any kind of any toxic or hazardous substances as defined under any
local, state or federal regulation, laws or statutes, from, on, in or
under Hecla's Properties and the Joint Properties or into any
environment surrounding such properties, except for those releases
permissible under such regulations, laws or statutes; (ii) any storage
or disposal of toxic or hazardous substances or toxic or hazardous
wastes on, at or related to such properties; and (iii) all pending or
threatened litigation or enforcement proceedings relating to such
properties or to Hecla's operations conducted at any time within the
Area of Interest.
(g) Hecla is in compliance in all material respects with all
federal, state and local laws, rules and regulations relating to or
affecting Hecla's Properties and the Joint Properties, and has obtained,
maintained in full force and effect, and operated in substantial
compliance with all authorizations, licenses, permits, easements,
consents, certificates and orders of any governmental or regulatory body
relating to or affecting such properties except as disclosed in this
Earn-in Agreement; and operations of Hecla and its agents or contractors
on, at, or related to such properties have not resulted in any
substantial violations of federal, state or local laws, rules,
regulations, ordinances or orders which would have a material adverse
effect on the usage contemplated herein;
(h) Other than as specified in Exhibit A, there are no
existing mineral production or other royalties of any kind which are
payable with respect to Hecla's Properties or the Joint Properties or
mineral substances mined therefrom;
6
<PAGE> 11
(i) neither Hecla nor any of its Affiliates is a party to or
has any knowledge of any existing oral or written agreement of any kind
which does or could have a material adverse impact on record or
possessory title to the mineral estate on Hecla's Properties, the Joint
Properties, and/or the exploration, development or mining of same;
(j) there are no existing restrictions which would have a
material adverse effect on the right to explore, develop and mine
mineral substances from Hecla's Properties or the Joint Properties,
excluding restrictions contained in applicable laws, statutes and
regulations; and
(k) Hecla is unaware of any material facts or circumstances
which have not been disclosed to Santa Fe, which should be disclosed to
Santa Fe in order to prevent the representations in this Section 2.2
from being misleading.
2.3 SANTA FE'S REPRESENTATIONS AND WARRANTIES. Santa Fe represents
and warrants that to the best of its information, knowledge and belief, with
respect to Santa Fe's activities on Hecla's Properties and the Joint
Properties prior to entry into this Earn-in Agreement, Santa Fe has been and
remains in compliance in all material respects with all federal, state and
local laws, rules and regulations relating to or affecting its activities,
and activities of Santa Fe and its agents or contractors on, at, or related
to such properties have not resulted in any substantial violations of
federal, state or local laws, rules, regulations, ordinances or orders which
would have a material adverse effect on the usage contemplated herein.
7
<PAGE> 12
2.4 MATERIALITY OF REPRESENTATIONS. All representations and
warranties made in this Article II are material to this Earn-in Agreement and
the Parties' intent in entering into it.
ARTICLE III
TERM OF EARN-IN AGREEMENT
The Term of this Earn-in Agreement shall commence as of the Effective
Date and shall terminate in accordance with Section 5.1(c) and 10.3, unless
the Earn-in Agreement is terminated earlier pursuant to Article X or extended
by amendment upon the Parties' mutual written agreement.
ARTICLE IV
RELATIONSHIP OF THE PARTIES
4.1 NO PARTNERSHIP. Nothing contained in this Earn-in Agreement
shall be deemed to constitute any Party the partner of another, nor, except
as otherwise herein expressly provided, to constitute any Party the agent or
legal representative of another, nor to create any fiduciary relationship
between or among them. It is not the intention of the Parties to create, nor
shall this Earn-in Agreement be construed to create, any mining, commercial
or other partnership other than the tax partnership referenced in Section
4.2. No Party shall have any authority to act for or to assume any
obligation or responsibility on behalf of any other Party, except as
otherwise expressly provided herein. The rights, duties, obligations and
liabilities of the Parties shall be several and not joint or collective.
Each Party shall be responsible only for its obligations as herein set out
and shall be liable only for its share of the costs and expenses as provided
herein, it being the express purpose and intention of the Parties that their
ownership of assets and the rights acquired hereunder shall be as tenants in
common. Each Party shall
8
<PAGE> 13
indemnify, defend and hold harmless each other Party, its directors,
officers, employees, agents and attorneys from and against any and all
losses, claims, damages and liabilities (including litigation costs and
attorneys' fees) arising out of any act or any assumption of liability by the
indemnifying Party, or any of its directors, officers, employees, agents and
attorneys done or undertaken, or apparently done or undertaken, on behalf of
any other Party, except pursuant to the authority expressly granted herein or
as otherwise agreed in writing among the Parties.
4.2 FEDERAL TAX ELECTIONS AND ALLOCATIONS. Without changing the
effect of Section 4.1, the Parties agree that their relationship pursuant to
this Earn-in Agreement shall constitute a tax partnership within the meaning
of Section 761(a) of the United States Internal Revenue Code of 1986, as
amended. Tax elections and allocations shall be made as set forth in Exhibit
B to this Earn-in Agreement, which is attached hereto and made a part
hereof. The tax partnership shall not survive the Term of this Earn-in
Agreement and shall continue only if unanimously agreed by the Parties to the
Operating Agreement.
4.3 STATE INCOME TAX. The Parties also agree that, to the extent
permissible under applicable law, their relationship shall be treated for
state income tax purposes in the same manner as it is for Federal income tax
purposes.
4.4 TAX RETURNS. The Tax Matters Partner, as defined in Exhibit B
to this Earn-In Agreement, shall prepare and file any tax returns or other
tax forms required.
4.5 OTHER BUSINESS OPPORTUNITIES. Except as expressly provided in
this Earn-in Agreement, each Party shall have the right independently to
engage in and receive full benefits from business activities, whether or not
competitive with the operations under this Earn-in Agreement, without
consulting any other Party. The doctrines of "corporate opportunity" or
9
<PAGE> 14
"business opportunity" shall not be applied to any other activity, venture,
or operation of any Party, and, except as otherwise provided in this Earn-in
Agreement, no Party shall have any obligation to any other with respect to
any opportunity to acquire any property at any time.
4.6 WAIVER OF RIGHT TO PARTITION. The Parties hereby waive and
release all rights of partition, or of sale in lieu thereof, or other
division of assets, including any such rights provided by statute.
4.7 TRANSFER OR TERMINATION OF RIGHTS TO PROPERTIES. Except as
otherwise provided in this Earn-in Agreement, no Party shall transfer all or
any part of its interest in the Mineral Properties or this Earn-in Agreement
or otherwise permit or cause such interests to terminate.
4.8 IMPLIED COVENANTS. There are no implied covenants contained
in this Earn-in Agreement other than those of good faith and fair dealing.
4.9 EMPLOYEES. Employees of the respective Parties are not and
shall not be employees of the other Parties or of any venture which may be
comprised of the Parties.
ARTICLE V
INITIAL CONTRIBUTION
5.1 INITIAL PAYMENT AND CONTRIBUTIONS; EARN-IN EXPENDITURES;
FEASIBILITY STUDY.
(a) Upon execution of this Earn-in Agreement, Santa Fe shall
make a nonrefundable payment of $2,500,000 to Hecla in exchange for immediate
conveyance of a 75% undivided interest in the Joint Properties by special
warranty deed (attached as Exhibit E) from Hecla, and the right to receive a
good and sufficient deed of an undivided 75% interest in Hecla's Properties
within 10 days of Santa Fe notifying Hecla (in writing) of its desire to
receive such conveyance; Hecla hereby grants Santa Fe the right to such
conveyance covering all or
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<PAGE> 15
any part of Hecla's Properties at Santa Fe's sole election, without further
exchange of consideration, which election may be made, if at all, at any time
during the term of this Earn-in Agreement.
(b) Hecla has contributed Hecla's Properties for the purposes
of this Earn-in Agreement, and Hecla need not make further contribution
during the term of this Earn-in Agreement.
(c) Subject to Santa Fe's rights under Section 10.2 of this
Earn-in Agreement, Santa Fe shall contribute such Earn-in Expenditures as
may, in its sole discretion, be reasonable or necessary in order to provide
Hecla with a Feasibility Study. Santa Fe must provide the Feasibility Study
to Hecla, if at all, on or before the sixth anniversary of the Effective
Date, subject to Santa Fe's right to withdraw under Section 10.2. At Santa
Fe's sole election, the Feasibility Study may cover any part of the Mineral
Properties, or the Joint Properties in addition to any part of the Mineral
Properties.
5.2 REASONABLE EARN-IN EXPENDITURES. Subject to the terms of
Exhibit D, Santa Fe shall determine the manner, places and means by which it
conducts Earn-in Activities and makes Earn-in Expenditures on or for the
benefit of the Mineral Properties. Such Earn-in Activities shall be
conducted reasonably in accordance with mining industry standards in the
United States.
5.3 IDENTIFICATION OF EARN-IN EXPENDITURES UPON PRESENTATION OF
FEASIBILITY STUDY. Within thirty (30) days after presenting Hecla with a
Feasibility Study, Santa Fe shall identify the amount of Earn-in Expenditures
expended since the effective date and shall provide
11
<PAGE> 16
sufficient detail and supporting documentation to permit Hecla to review and
reasonably verify the Earn-in Expenditures.
5.4 ADDITION OF MINERAL PROPERTIES TO OPERATING AGREEMENT.
Within forty-five (45) days after Santa Fe provides Hecla with a Feasibility
Study, Hecla shall execute, acknowledge and deliver to Santa Fe a good and
sufficient deed of an undivided 75% interest in Hecla's Properties, and in
any additional Mineral Properties for which Santa Fe has made an election
pursuant to Section 9.4, to the extent not previously conveyed to Santa Fe;
such conveyance shall be made without any further exchange of consideration.
Thereupon, the Mineral Properties, including Hecla's Properties, shall be
jointly contributed by the parties to the purposes of the Operating
Agreement.
ARTICLE VI
MANAGEMENT COMMITTEE
6.1 ORGANIZATION AND COMPOSITION. Santa Fe and Hecla hereby
establish a Management Committee to determine overall policies, objectives,
procedures, methods, actions and budgets under this Earn-in Agreement. The
Management Committee shall consist of two members appointed by Santa Fe and
two members appointed by Hecla. Each Participant may appoint one or more
alternates to act in the absence of a regular member. Any alternate so
acting shall be deemed a member. Appointments shall be made or changed by
notice to the other Participant prior to the meeting at which the member is
to act.
6.2 DECISIONS. Each of the Parties, acting through their
appointed members, shall have one vote on the Management Committee. If a
matter for decision does not receive
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<PAGE> 17
the approval of both Parties, and does not require unanimous approval
pursuant to this Earn-in Agreement, then the decision shall be made by Santa
Fe.
6.3 MEETINGS. Unless agreed otherwise by the Parties, the
Management Committee shall hold quarterly meetings at a place within the
continental United States to be designated by Santa Fe, or at other mutually
agreed locations. Santa Fe shall give thirty (30) days notice to Hecla of
such meetings.
ARTICLE VII
PROGRAMS AND BUDGETS
7.1 PREPARATION, PRESENTATION AND CONTENT OF PROGRAMS AND BUDGETS.
Santa Fe and Hecla agree as follows:
(a) CONTENT OF PROGRAMS. Proposed programs and budgets shall
be prepared for proposal to the Management Committee by Santa Fe. Each
program shall be accompanied by and include a corresponding budget of
Earn-in Expenditures and shall designate the location on or off the
Mineral Properties where the Earn-in Activities are to be performed,
shall describe work to be performed as Earn-in Activities, and shall
state the estimated period of time required to perform the work.
(b) CONTENT OF BUDGETS. Each budget shall be prepared in
reasonable detail, including, but not limited to, type of Earn-in
Activities to be conducted (such as drilling, blasting, assaying,
modeling, engineering, geophysics, geochemistry, hydrology, metallurgy,
metallurgical or environmental test work or other test work, permitting,
regulatory compliance, preparation of a Feasibility Study, etc.), time
frame within which the work shall be performed maps reflecting
location(s) of Earn-in Activities to be conducted on the Mineral
Properties (or identifications of where Earn-in Activities will
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be conducted off-site and, to the extent known at the time the budget is
prepared, an indication of who will be conducting such off-site
activities), and estimated cost(s) of each type of work included in the
Earn-in Activities.
7.2 SUBMITTAL AND APPROVAL OF PROPOSED OR MODIFIED PROGRAMS
AND BUDGETS. Within ten (10) working days after Santa Fe submits a
proposed or modified Program and Budget to Hecla, the Management
Committee shall meet to consider it. In the event Santa Fe and Hecla
are unable to reach agreement to approve a proposed or modified Program
and Budget, Santa Fe's Program and Budget shall prevail provided it
meets the terms and conditions specified in this Earn-in Agreement.
ARTICLE VIII
MAINTENANCE AND ABANDONMENT OF MINERAL PROPERTIES
8.1 MAINTENANCE OF MINERAL PROPERTIES AND UNDERLYING AGREEMENTS.
Santa Fe shall take all steps necessary to maintain the Mineral Properties
(and underlying agreements relating thereto) in good standing during the Term
of this Earn-in Agreement. All costs and expenses incurred by Santa Fe under
this Section 8.1 shall qualify as Earn-in Expenditures.
8.2 ASSESSMENT WORK OR FEES. Santa Fe shall conduct all required
annual assessment work and pay any and all fees on or for the unpatented
mining claims included in the Mineral Properties for the annual assessment
year beginning September 1, 1995. Thereafter, during the term of this
Earn-in Agreement, Santa Fe shall perform any annual assessment work required
to maintain such claims for any assessment year in which this Earn-in
Agreement has not expired or been terminated prior to ninety (90) days before
the end of such assessment year, and will make annual fee payments required
to maintain unpatented mining claims for any assessment year in which this
Earn-in Agreement has not expired or been terminated thirty (30)
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days prior to the fee payment due date. Santa Fe shall timely record, file
and furnish to Hecla affidavits of such performance and evidence of fee
payment. Santa Fe shall not be liable on account of holdings by any court or
governmental agency that the effects of any work elected and performed in
good faith by Santa Fe are insufficient to constitute annual assessment work
for purposes of preserving title to such claims, provided that the work so
done is of the kind generally accepted as assessment work in the mining
industry in the United States and provided that Santa Fe expended a total
amount sufficient to meet any minimum requirements during the required period
of time with respect to all such unpatented claims.
8.3 ABANDONMENT OF MINERAL PROPERTIES. Subject to Santa Fe's
right, at its sole election, to receive conveyance of Hecla's Properties
pursuant to the terms of Section 5.1, or to receive conveyance of excluded
lands pursuant to the terms of Section 9.4, if either party desires to
abandon, release or surrender its rights to a part of the Mineral Properties
at any time, it shall notify the other Party and offer to assign to the Other
Party the part of those Properties it intends to abandon, release or
surrender.
ARTICLE IX
AREA OF INTEREST
9.1 PROPOSED ACQUISITION OF MINERAL PROPERTIES. If during the
Term of this Earn-in Agreement Santa Fe or Hecla or an Affiliate of either
should acquire any interest in real property in the Area of Interest, it
shall notify the other Party (referred to in this Article IX as "Other
Party") within ten (10) days after the acquisition and shall include in the
notice a description of the interest in real property and a statement of the
total acquisition cost and any committed work expenditures. The Other Party
shall have a period of thirty (30) days from
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receipt of such notice within which to elect to subject the interest in real
property to this Earn-in Agreement.
9.2 ELECTION TO ACQUIRE MINERAL PROPERTIES. If Hecla is the Other
Party and elects to include the interest in real property acquired by Santa
Fe in this Earn-in Agreement, the total acquisition cost shall be deemed
Earn-in Expenditures expended by Santa Fe, and Santa Fe shall assign to Hecla
an undivided 25% interest in and to the acquired interest in real property by
executing, acknowledging, and delivering a good and sufficient deed or
assignment, whereupon the interest in real property shall become a part of
the Mineral Properties subject to this Earn-in Agreement. If Santa Fe is the
Other Party and elects to include the interest in real property acquired by
Hecla in this Earn-in Agreement, Santa Fe shall pay Hecla 100% of its total
acquisition cost, which shall be deemed Earn-in Expenditures expended by
Santa Fe, and Hecla shall assign an undivided 75% interest to Santa Fe in the
above-described manner, whereupon the interest in real property shall become
a part of the Mineral Properties subject to this Earn-in Agreement.
9.3 EXCLUDED ACQUISITION. If the Other Party elects not to
subject the real property or interest in real property to this Earn-in
Agreement during the thirty (30) day period referenced in Section 9.1, the
acquiring party shall hold it free and clear of this Earn-in Agreement, and
it will not be a part of the Mineral Properties or the Area of Interest.
9.4 AREA OF INTEREST PROPERTIES OWNED OR CONTROLLED BY HECLA.
(a) Certain lands that are currently owned and controlled by
Hecla within the Area of Interest are excluded from Hecla's Properties
for the purposes of this Earn-in Agreement. The excluded lands are
identified on Exhibits A and C. Santa Fe may, at
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its sole election and without further exchange of consideration, subject
the excluded lands, or any part or parts thereof, to this Earn-in
Agreement by providing written notice(s) of its election to Hecla. Such
notice(s) shall specify the excluded lands, or parts thereof, for which
the election is made. Effective upon receipt of Santa Fe's notice, the
properties specified in such notice shall become a part of the Mineral
Properties, but Santa Fe shall have no vested ownership interest in such
lands until such time as it may, at its sole option and without further
exchange of consideration, request delivery of a good and sufficient
deed or assignment of an undivided 75% interest in the formerly excluded
lands for which an election has previously been made. Within thirty
(30) days of exercising its option to receive a conveyance of any part
of the formerly excluded lands, Hecla shall execute, acknowledge and
deliver a good and sufficient deed or assignment of an undivided 75%
interest in such lands to Santa Fe.
(b) Santa Fe's election(s) to subject excluded lands to this
Earn-in Agreement under this Section 9.4 may be made at any time
commencing with the Effective Date and continuing through the earlier of
one year after Hecla hereafter notifies Santa Fe in writing that all of
the excluded lands (which remain excluded as of the time of the notice)
have become unencumbered by permitting or bonding requirements or
environmental or reclamation obligations owing to any local, state or
federal agency and are no longer the subject of any existing or
threatened governmental investigation or enforcement proceeding or
public or private litigation, or the date conveyance becomes required
pursuant to Section 5.4. Upon the expiration of such election period,
Hecla may, subject to the offer of assignment procedures described in
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Section 8.3, dispose of any portion of the excluded lands for which an
election or conveyance has not been made.
(c) Santa Fe's option to receive a conveyance of all or part
of the excluded lands which it has elected to subject to this Earn-in
Agreement under this Section 9.4 shall be exercised, if at all, within
six (6) years of the Effective Date.
(d) Santa Fe's election and option rights identified in this
Section 9.4 are not limited to a single election or option, but may be
exercised from time to time on various portions of the excluded lands.
(e) Notwithstanding any other provision of this Earn-in
Agreement, all fixtures and facilities located on the surface of either
Hecla's Properties or the excluded lands are and shall remain the sole
and separate property of Hecla, and no election by Santa Fe respecting
Hecla's Properties or the excluded lands shall create any current or
future property right in Santa Fe to such fixtures and facilities;
provided, however, Santa Fe may include in any election under this
Section such mineral-bearing materials located at or in Hecla's surface
facilities as Santa Fe may specify in making the election. Santa Fe
agrees to cooperate with Hecla to ensure Hecla has full access to such
fixtures and facilities for any purposes including, but not limited to,
the dismantling, salvaging, closure, restoration, remediation,
monitoring, maintenance or sale of all or part of such fixtures and
facilities.
(f) Notwithstanding any other provision of this Earn-in
Agreement, Hecla shall have the continuing right to access those excluded
lands which Santa Fe has elected to include in this Earn-in Agreement to
perform such sampling, testing and reclamation activities
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as Hecla in its sole discretion and judgment deems necessary or convenient in
order to perform its obligations pursuant to Section 11.4 of this Earn-in
Agreement, and Santa Fe shall not unreasonably interfere with any of Hecla's
activities associated therewith. In the event Santa Fe unreasonably
prohibits Hecla's access to and activities on any parcel of excluded lands
for which Santa Fe has made an election, Santa Fe shall thereby be deemed to
assume all of Hecla's obligations under Section 11.4 of this Earn-in
Agreement with respect to any such parcel of excluded lands.
ARTICLE X
WITHDRAWAL AND TERMINATION
10.1 TERMINATION. This Earn-in Agreement shall terminate as
expressly provided herein, unless earlier terminated by written agreement.
Withdrawal by Santa Fe in accordance with Section 10.2 shall be deemed to
terminate this Earn-in Agreement.
10.2 SANTA FE'S ELECTION TO WITHDRAW AND TERMINATE. Santa Fe may
withdraw from and terminate this Earn-in Agreement at any time and for any
reason. To withdraw, Santa Fe must provide Hecla with written notice of
withdrawal. The effective date of withdrawal shall be thirty (30) days after
the notice of withdrawal is sent to Hecla. Upon such withdrawal, this
Earn-in Agreement shall terminate, subject to any obligations arising under
Section 11.4 or Article XII.
10.3 TERMINATION UPON CONTRIBUTION OF MINERAL PROPERTIES TO THE
OPERATING AGREEMENT. If not terminated earlier, this Earn-in Agreement shall
terminate upon the parties' joint contribution of the Mineral Properties to
the purposes of the Operating Agreement pursuant to Section 5.4.
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10.4 FAILURE TO PROVIDE FEASIBILITY STUDY. Santa Fe shall have six
(6) years, up to and including the sixth anniversary of the Effective Date
hereof, within which to provide Hecla with a Feasibility Study, or this
Earn-in Agreement shall terminate, subject to any obligations arising under
Section 11.4 or Article XII.
10.5 REMOVAL OF PROPERTY. Santa Fe shall have a period of sixty
(60) days following the effective date of termination or expiration of this
Earn-in Agreement (unless the Mineral Properties are contributed to the
Operating Agreement pursuant to Section 5.4) to remove at its sole cost and
expense all or any part of equipment, machinery, fixtures, structures, or
improvements placed or erected on the Mineral Properties by Santa Fe.
ARTICLE XI
OPERATIONS
11.1 PARAMETERS FOR SANTA FE'S EARN-IN ACTIVITIES. During the Term
of this Earn-in Agreement, Santa Fe shall have reasonable control, discretion
and the right to conduct, in accordance with United States mining industry
standards, any and all Earn-in Activities for which Earn-in Expenditures may
be incurred under Exhibit D, including, without limitation, mineral
exploration, development, test mining and processing activities, drilling,
blasting, assaying, modeling, engineering, geophysics, geochemistry,
hydrology, metallurgy, metallurgical and environmental test work or other
test work, process testing, permitting, regulatory compliance, evaluation,
performance and preparation of a Feasibility Study, and all other activities
incidental to or arising therefrom, on or for the benefit of the Mineral
Properties, regardless of where such activities may be conducted. Santa Fe
may recover and process a reasonable amount of ore and other material from
the Mineral Properties for testing purposes and may conduct such testing on
or off the Mineral Properties.
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11.2 SURFACE AND SURFACE FACILITIES.
(a) Santa Fe shall have the right, at its sole election and
without further consideration, to use so much of the surface and any surface
facilities owned or controlled by Hecla on Hecla's Properties, or on lands
within the Area of Interest (other than lands excluded under Exhibit C) that
are both owned or controlled by Hecla and made subject to this Earn-in
Agreement. Santa Fe shall make any necessary utilities expenditures during
any period when Santa Fe is using Hecla's surface facilities. Santa Fe shall
have the right to make such other surface use arrangements as it deems
appropriate and may request permission to use any surface facilities owned or
controlled by Hecla on the excluded lands under Exhibit C; provided, however,
Hecla has the right to use or dispose of any of its surface facilities
(whether on Hecla's Properties or on the excluded lands) which Santa Fe has
not previously elected for use (with regard to facilities on Hecla's
Properties) or which Santa Fe has not previously been granted permission to
use (with regard to facilities on the excluded lands) by Hecla. All costs
and expenses incurred by Santa Fe relating to surface or surface facility use
on or for the benefit of the Mineral Properties shall be credited as Earn-in
Expenditures.
(b) Except on lands where Santa Fe has exercised its option
to receive a conveyance pursuant to Sections 5.1(a) or 9.4, Hecla shall
retain the right to manage, cut and remove the timber resources of
Hecla's Properties during the entire term of this Earn-in Agreement. In
the event Santa Fe desires to cut and remove any timber which may impede
Santa Fe's operations hereunder, Santa Fe shall first notify Hecla and
provide Hecla with a ninety (90) day period from the date of such notice
to remove the timber for its own account and at its own expense. If
Hecla fails to exercise its right to
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remove the timber within the ninety-day period from the date of notice,
Santa Fe may cut and remove the timber and Hecla shall have no right to
any payment for or on account of such timber removed by Santa Fe.
11.3 COMPLIANCE WITH LAWS AND AGREEMENTS. Santa Fe's Earn-in
Activities on the Mineral Properties shall be conducted in compliance with
all applicable laws, statutes, regulations, underlying agreements and this
Earn-in Agreement.
11.4 INDEMNITY. Santa Fe shall be solely responsible for and shall
indemnify, defend, and hold harmless Hecla and its directors, officers,
employees, agents, attorneys, and Affiliates from and against any and all
environmental and other liabilities, losses, claims, damages, costs, expenses
(including without limitation any remediation or reclamation expenses, fines,
penalties, judgments, litigation costs and attorney's fees), enforcement
activities and causes of action to the extent and only to the extent that
they arise from Santa Fe's Earn-in Activities on or for the benefit of the
Mineral Properties during the Term of this Earn-in Agreement; provided,
however, the amount of such indemnification, if any, shall be credited as an
Earn-in Expenditure or, if arising after entry into the Operating Agreement,
shall be credited to Santa Fe on the joint accounts. Hecla shall be solely
responsible for, and shall indemnify, defend, and hold harmless Santa Fe and
its directors, officers, employees, agents, attorneys, and Affiliates from
and against, any and all environmental and other liabilities, losses, claims,
demands, damages, costs, expenses (including without limitation any
remediation or reclamation expenses, fines, penalties, judgments, litigation
costs and attorneys' fees) enforcement activities and causes of action
(whether or not pending as of the Effective Date, and including but not
limited to those certain lawsuits known as Washington Wilderness, et al. v.
Hecla Mining Company, Cause No.
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94 CS233-FVS, Leo Orestad, et ux., et al. v. Hecla Mining Co., Cause No.
95201356-7, and William G. Harmon v. Hecla Mining Co., Cause No.
95-2-00004-9), to the extent and only to the extent that they arise from
activities conducted at any time prior to the Effective Date of this Earn-in
Agreement on the Mineral Properties or on lands owned or controlled as of the
Effective Date by Hecla within the Area of Interest (including the excluded
lands identified on Exhibit C), regardless of whether such liability, loss,
claim, demand, damage, cost, expense (including without limitation, any
remediation or reclamation expenses, fine, penalty, judgment, litigation cost
and attorneys' fees) enforcement actions and causes of action arises or
accrues before, during or after the Term of this Earn-in Agreement. The
provisions of this Section 11.4 shall survive any termination of this Earn-in
Agreement and shall be enforceable in accordance with its terms.
11.5 INSURANCE. Santa Fe shall carry and maintain at all times the
following insurance:
COVERAGE LIMITS
(i) Worker's Compensation WC - Statutory
("WC") and Employers' EL - $500,000
Liability ("EL)
Insurance, including
occupational disease.
(ii) Business automobile $1,000,000 combined
liability insurance, single limit per oc-
including all owned currence for bodily
and hired vehicles; injury and property
provided, if Santa Fe damage.
uses non-owned vehicles,
it shall first obtain
coverage for such non-
owned vehicles as part of
the automobile liability
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insurance policy or under
a rider thereto.
(iii) Commercial general $5,000,000 combined
liability insurance single limit per oc-
including blanket con- currence and in the
tractual liability, annual aggregate for
personal injury, inde- bodily injury, personal
pendent contractors. injury and property
damage.
Certificates of Insurance shall be kept in force by Santa Fe and shall name
Hecla as an additional insured. Such policies shall include Blanket
Contractual Liability Endorsements, including the provision of Section 11.4
of this Earn-in Agreement.
ARTICLE XII
RECLAMATION
Santa Fe shall comply with all applicable statutes, regulations, rules
and orders of all governmental bodies with jurisdiction over the Mineral
Properties or Santa Fe's activities on the Mineral Properties including,
without limitation, those relating to health, safety, noise, environmental
protection, reclamation, waste disposal and water and air quality. Should
Santa Fe's Earn-in Activities cause any discharge, leakage, spillage,
emission or pollution of any type upon or from the Mineral Properties or
require reclamation, Santa Fe shall remediate and reclaim the Mineral
Properties affected thereby to standards that meet the standards imposed by
the governmental body having jurisdiction over the portion of the Mineral
Properties being remediated or reclaimed. Costs and expenses of such
remediation or reclamation work (1) shall be credited as Earn-in Expenditures
if conducted during the term of this Earn-in Agreement, (2) shall be borne
solely by Santa Fe if the work is conducted after any termination of this
Earn-in Agreement to reclaim or remediate Santa Fe's Earn-in Activities, and
(3) shall be charged to the
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Parties' joint account if the costs and expenses accrue following
contribution of the Mineral Properties to the Operating Agreement pursuant to
Section 5.4. Santa Fe shall indemnify, hold harmless and defend Hecla
against all liability, loss, claim, damage, cost and expense (including
without limitation any fines, penalties, judgments, litigation costs and
attorneys' fees) incurred by Hecla as a result of Santa Fe's default or
resulting breach of this Article.
Upon the termination in accordance with Section 10.2 of this Earn-in
Agreement , and subject to Santa Fe's indemnification rights under Section
11.4, unless the Mineral Properties are jointly contributed to the Operating
Agreement pursuant to Section 5.4, Santa Fe shall surrender the Mineral
Properties pursuant to Section 10.2 of this Earn-in Agreement in compliance
with all permits, plans of operation, governmental laws, ordinances, rules,
regulations, requirements and orders relating to or arising out of the
activities of Santa Fe on the Mineral Properties including, but not limited
to, those relating to the reclamation, restoration, reconditioning or
conservation of lands and waters or to air and water quality which are in
effect or which become effective during the term of this Earn-in Agreement.
Santa Fe shall comply with all laws and regulations of the State of
Washington and the United States of America as they pertain to reclamation
obligations relating to or arising out of Santa Fe's activities on the
surface and subsurface of the Mineral Properties.
Prior to commencing any surface disturbing activities on Hecla's
Properties, Santa Fe shall panel Hecla's Properties sufficiently for
photographic orientation and shall provide Hecla with dated, pre-disturbance
aerial photography at a scale not to exceed 1" to 500'. Upon completion of
final reclamation on all or any part of Hecla's Properties, Santa Fe shall
repeat the panelling and aerial photography procedure and submit the dated
photography to Hecla with
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a request for Hecla's inspection. Hecla, at its election, may inspect the
reclamation using both the pre-disturbance and post-reclamation photography
and may provide Santa Fe with a specific request to perform any additional
work reasonably required to restore or reclaim Hecla's Properties to
standards equal to the standards identified in this Article XII. The costs
of panelling and aerial photography shall be paid by Santa Fe and credited as
Earn-in Expenditures. The cost of Hecla's inspection as provided herein
shall be borne solely by Hecla.
Nothing in this Article XII shall require or be interpreted as requiring
Santa Fe to perform any reclamation or pay any part of reclamation costs
associated with conditions resulting from any activities on the Mineral
Properties conducted by any person or entity other than Santa Fe, its
contractors, employees, Affiliates, agents and representatives, which
includes, but is not necessarily limited to, all conditions existing on the
Mineral Properties or within the Area of Interest prior to the Effective
Date. If the Mineral Properties are jointly contributed to the Operating
Agreement pursuant to Section 5.4, then the obligations of this Article XII
shall thereupon terminate, and the liability of the parties for any
subsequent reclamation or reclamation costs shall be determined in accordance
with the provisions of the Operating Agreement. If this Earn-in Agreement is
terminated pursuant to Section 10.2, then the obligations of this Article XII
shall survive such termination and shall be enforceable in accordance with
its terms.
ARTICLE XIII
REPORTING, INSPECTION AND AUDIT
Santa Fe shall keep Hecla advised of all Earn-in Activities during the
term of this Earn-in Agreement by submitting to Hecla the data and
information described in Exhibit F to the Operating Agreement within a
reasonable time but no more than sixty (60) days after such data
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and information is available to Santa Fe. In addition, subject to Santa Fe's
right to protect and withhold trade secrets relating to processing and
recovery technology, Hecla and Hecla's employees, agents and representatives
(at Hecla's sole risk and expense and subject to reasonable safety
regulations) shall have the right to inspect and to audit Santa Fe's
activities on and with respect to the Mineral Properties and all documents,
records, accounts and other data at all reasonable times, so long as Hecla,
Hecla's employees, agents and representatives do not unreasonably interfere
with Earn-in Activities. The cost of any such audit shall be borne solely by
Hecla.
ARTICLE XIV
MEMORANDUM
Hecla and Santa Fe shall execute and record a memorandum of this Earn-in
Agreement, which shall not disclose financial or other proprietary
information contained herein, in a form sufficient to constitute record
public notice of the rights granted by this Earn-in Agreement in the county
or counties in which the Mineral Properties are situated. This Earn-in
Agreement shall not be recorded.
ARTICLE XV
DEFAULT
In the event of any default by either Santa Fe or Hecla in the
performance of its obligations under this Earn-in Agreement ("Defaulting
Party"), the non-Defaulting Party shall give to the Defaulting Party written
notice specifying the default and allow thirty (30) days to cure or commence
to cure and thereafter diligently pursue the correction of any such noticed
defaults. If the default is not addressed as provided hereinabove, the
non-Defaulting Party may declare this Earn-in Agreement terminated.
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ARTICLE XVI
CONFIDENTIALITY
16.1 GENERAL. The financial terms of this Earn-in Agreement and
all geologic, metallurgical and other information obtained in connection with
the performance of it shall be the exclusive property of the Parties and,
except as provided in Section 16.2, shall not be disclosed by a Party to any
third party or the public without the prior written consent of the other
Party.
16.2 EXCEPTIONS. The consent required by Section 16.1 shall not
apply to a disclosure:
(a) To an Affiliate or a consultant, contractor or
subcontractor that has a bona fide need to be informed;
(b) To any third party to whom the disclosing Party
contemplates a transfer of all of its interest in or to this Earn-in
Agreement; or
(c) To a governmental agency or to the public which the
disclosing Party believes in good faith is required by pertinent law or
regulation or the rules of any stock exchange on which the disclosing
Party is listed.
In any case to which this Section 16.2 is applicable, the disclosing Party
shall give notice to the other Party concurrently with the making of such
disclosure. As to any disclosure pursuant to Section 16.2(a) or (b), only
such confidential information as such third party shall have a legitimate
business need to know shall be disclosed and such third party shall first
agree in writing to protect the confidential information from further
disclosure for a period of one (1) year after its receipt to the same extent
as the Parties are obligated under this Article XVI.
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16.3 PRESS RELEASES. Santa Fe and Hecla shall consult with each
other before issuing any press release or public statement on the results of
Earn-in Activities on or for the benefit of the Mineral Properties. Neither
Hecla nor Santa Fe or their Affiliates shall issue any press release or
public statement mentioning the Mineral Properties without the other Party's
prior written approval and consent, which approval and consent shall not be
unreasonably withheld.
16.4 DURATION OF CONFIDENTIALITY. The provisions of this Article
XVI shall apply during the Term of this Earn-in Agreement and shall continue
to apply to any Party who withdraws, who is deemed to have withdrawn, or who
transfers its interest in this Earn-in Agreement, for one year following the
date of such occurrence.
ARTICLE XVII
TAXES
17.1 REIMBURSEMENT FOR TAXES. All taxes levied on real estate
associated with Hecla's Properties or any improvements on it shall be paid or
reimbursed by Santa Fe to Hecla. Santa Fe shall promptly reimburse Hecla for
any such taxes upon receipt from Hecla of a paid tax statement, provided that
Santa Fe may contest the validity or lawfulness of any taxes by appropriate
legal procedures. Any payment of taxes or tax reimbursements paid by Santa
Fe shall constitute Earn-in Expenditures. Santa Fe's obligation to pay
taxes will terminate if Santa Fe withdraws from this Agreement.
17.2 PROVISIONS CONCERNING TAXATION. While this Earn-in Agreement
is in effect, all matters relating to taxation other than Section 17.1 shall
be governed by Article IV of this Earn-in Agreement and "Exhibit B" to this
Earn-in Agreement entitled "Tax Matters," which Exhibit is incorporated
herein by reference.
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ARTICLE XVIII
COOPERATION
Within ten (10) days after a request from a Party, each Party shall
provide the other Party with access to all data and information in its
possession or to which it has access relating to or affecting the Mineral
Properties including, but not limited to, title documents, legal opinions,
pertinent agreements, assays, samples of minerals, drill hole logs, test
results, historical materials relating to exploration, development, mining,
environmental matters and title, filings with governmental bodies, maps and
surveys. Both Parties shall have the right to make copies thereof, each at
its own expense.
ARTICLE XIX
GENERAL PROVISIONS
19.1 NOTICES. All notices and other required communications made
pursuant to this Earn-in Agreement (referred to in this Section 19.1 as
"Notices") to the Parties shall be in writing, and shall be addressed
respectively as follows:
To: Hecla Hecla Mining Company
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
Attn: General Counsel
To: Santa Fe Santa Fe Pacific Gold Corporation
6200 Uptown Blvd. NE, Suite 400
P. O. Box 27019
Albuquerque, New Mexico 87125
Attn: Land Department
and
Santa Fe Pacific Gold Corporation
250 South Rock Blvd., Suite 100
Reno, Nevada 89502
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All Notices shall be given (i) by personal delivery to the Party or (ii) by
electronic communication, with a confirmation sent by registered or certified
mail return receipt requested, or (iii) by registered or certified mail
return receipt requested. All Notices shall be effective and shall be deemed
delivered (i) if by personal delivery, on the date of delivery if delivered
during normal business hours, and if not delivered during normal business
hours, on the next business day following delivery, (ii) if by electronic
communication, on the next business day following receipt of the electronic
communication, and (iii) if solely by mail, on the next business day after
actual receipt. A Party may change its address by Notice to the other Party.
19.2 WAIVER. The failure of a Party to insist on the strict
performance of any provision of this Earn-in Agreement or to exercise any
right, power or remedy upon a breach hereof shall not constitute a waiver of
any provision of this Earn-in Agreement or limit the Party's right thereafter
to enforce any provision or exercise any right.
19.3 MODIFICATION. No modification of this Earn-in Agreement shall
be valid unless made in writing and duly executed by the Parties.
19.4 FORCE MAJEURE. Except for any obligation to make payments
when due hereunder, the obligations of a Party shall be suspended to the
extent and for the period that performance is prevented by any cause, beyond
its reasonable control, including, without limitation, labor disputes
(however arising and whether or not employee demands are reasonable or within
the power of the Party to grant); acts of God; laws, regulations, orders,
proclamations, instructions or requests of any government or governmental
entity; judgments or orders of any court; inability to obtain on reasonably
acceptable terms any public or private license, permit or other
authorization, including access and occupancy rights from surface owners;
curtailment
31
<PAGE> 36
or suspension of activities to the extent necessary to remedy or avoid an
actual or imminent violation of federal, state or local environmental
standards; acts of war or conditions arising out of or attributable to war,
whether declared or undeclared; riot, civil strife, insurrection or
rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or
other adverse weather conditions; delay or failure by suppliers or
transporters of materials, parts, supplies, services or equipment or by
contractors' or subcontractors' shortage of, or inability to obtain, labor,
transportation, materials, machinery, equipment, supplies, utilities or
services; accidents; breakdown of equipment, machinery or facilities; or any
other cause similar to the foregoing. The affected Party shall promptly give
notice to the other Party of the suspension of performance, stating therein
the nature of the suspension, the reasons therefor, and the expected duration
thereof. The affected Party shall resume performance as soon as reasonably
possible.
Commercial frustration, commercial impracticability or the
occurrence of unforeseen events rendering performance hereunder uneconomical
shall not constitute an excuse of performance of any obligation imposed
hereunder.
19.5 GOVERNING LAW. This Earn-in Agreement shall be governed by
and interpreted in accordance with the laws of the State of Washington,
except for its rules pertaining to conflicts of laws.
19.6 RULE AGAINST PERPETUITIES. Any right or option to acquire any
interest in real or personal property under this Earn-in Agreement must be
exercised, if at all, so as to vest such interest within twenty-one (21)
years after the Effective Date.
32
<PAGE> 37
19.7 FURTHER ASSURANCES. Each of the Parties agrees to take from
time to time such actions and execute such additional instruments as may be
reasonably necessary or convenient to implement and carry out the intent and
purpose of this Earn-in Agreement.
19.8 ENTIRE AGREEMENT; AMENDMENTS; SUCCESSORS AND ASSIGNS. This
Earn-in Agreement contains the entire understanding of the Parties and
supersedes all prior agreements and understandings between the Parties
relating to the subject matter hereof, and may be amended only by a written
agreement executed by the Parties hereto. This Earn-in Agreement shall be
binding upon and inure to the benefit of the respective successors and
permitted assigns of the Parties. Neither Hecla nor Santa Fe shall assign
any interest in this Earn-in Agreement to any Party which is not an Affiliate
without the written consent of the other Party, which consent shall not be
unreasonably withheld.
19.9 SEVERABILITY. In the event that a court of competent
jurisdiction determines that any term, part or provision of this Earn-in
Agreement is unenforceable, illegal, or in conflict with any federal, state,
or local laws, the Parties intend that the court reform that term, part or
provision within the limits permissible under law in a way as to approximate
most closely the intent of the Parties to this Earn-in Agreement; provided
that, if the court cannot make a reformation, then that term, part or
provision shall be considered severed from this Earn-in Agreement. The
remaining portions of this Earn-in Agreement shall not be affected and it
shall be construed and enforced as if it did not contain that term, part or
provision.
19.10 PARAGRAPH HEADINGS. The paragraph and other headings of
this Earn-in Agreement are inserted only for convenience and in no way
define, limit or describe the scope or intent of this Earn-in Agreement or
effect its terms and provisions.
33
<PAGE> 38
19.11 ATTORNEYS' FEES. The prevailing party in any dispute
arising under this Earn-in Agreement shall be entitled to an award of its
reasonable attorneys' fees and costs.
IN WITNESS WHEREOF, the parties hereto have executed this Earn-in
Agreement as of the date first above written.
Attest: SANTA FE PACIFIC GOLD CORPORATION
/s/ B. E. Martin By /s/ D. K. Hogan
--------------------------- ---------------------------------
Secretary Its Vice President
---------------------------------
Attest: HECLA MINING COMPANY
/s/ Michael B. White By /s/ Arthur Brown
---------------------------- ----------------------------------
Secretary Its Chairman
----------------------------------
STATE OF NEW MEXICO )
-------------------
) ss.
COUNTY OF BERNALILLO )
-------------------
The foregoing instrument was acknowledged before me this 25th day of
September, 1996, by D. K. Hogan the Vice President of Santa Fe Pacific Gold
Corporation, a Delaware corporation, on behalf of said corporation.
/s/ Bonnie L. Simmons
-----------------------------------------
Notary Public
My commission expires: September 28, 2000
-------------------
STATE OF IDAHO )
------------------
) ss.
COUNTY OF Kootenai )
------------------
The foregoing instrument was acknowledged before me this 6th day of
September, 1996, by Arthur Brown the Chairman of Hecla Mining Company, a
Delaware corporation, on behalf of said corporation.
34
<PAGE> 39
/s/ Narda Lee Anthony
----------------------------------------
Notary Public
My commission expires: 8-5-2000
------------------
35
<PAGE> 1
Exhibit 10.11(b)
GOLDEN EAGLE
OPERATING AGREEMENT
between
SANTA FE PACIFIC GOLD CORPORATION
and
HECLA MINING COMPANY
<PAGE> 2
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS;
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Capacity of Participants . . . . . . . . . . . . . . . . . . . 5
2.2 Indemnifications . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Record Title . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Joint Loss of Title . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III - NAME, PURPOSES AND TERM . . . . . . . . . . . . . . . . . . 8
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 Effective Date and Term . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV - RELATIONSHIP OF THE PARTICIPANTS . . . . . . . . . . . . . . 9
4.1 No Partnership . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Federal Tax Elections and Allocations . . . . . . . . . . . . . 10
4.3 State Income Tax . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Other Business Opportunities . . . . . . . . . . . . . . . . . 10
4.6 Waiver of Right to Partition . . . . . . . . . . . . . . . . . 10
4.7 Transfer or Termination of Rights to Properties . . . . . . . . 11
4.8 Implied Covenants . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V - CONTRIBUTIONS BY PARTICIPANTS . . . . . . . . . . . . . . . . 11
5.1 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Additional Cash Contributions . . . . . . . . . . . . . . . . . 12
ARTICLE VI - INTERESTS OF PARTICIPANTS . . . . . . . . . . . . . . . . . 12
6.1 Initial Participating Interests . . . . . . . . . . . . . . . . 12
6.2 Changes in Participating Interests . . . . . . . . . . . . . . 12
6.3 Voluntary Reduction in Participation . . . . . . . . . . . . . 14
6.4 Default in Making Contributions . . . . . . . . . . . . . . . . 15
6.5 Elimination of Minority Interest . . . . . . . . . . . . . . . 17
6.6 Continuing Liabilities Upon Adjustments of Participating
Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII - MANAGEMENT COMMITTEE . . . . . . . . . . . . . . . . . . . 19
7.1 Organization and Composition . . . . . . . . . . . . . . . . . 19
i
<PAGE> 3
7.2 Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Action Without Meeting . . . . . . . . . . . . . . . . . . . . 21
7.5 Matters Requiring Approval . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII - MANAGER . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.2 Powers and Duties of Manager . . . . . . . . . . . . . . . . . 22
8.3 Standard of Care . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Resignation; Deemed Offer to Resign . . . . . . . . . . . . . . 28
8.5 Payments to Manager . . . . . . . . . . . . . . . . . . . . . . 29
8.6 Transactions With Affiliates . . . . . . . . . . . . . . . . . 29
8.7 Review of Accounting Procedure . . . . . . . . . . . . . . . . 29
ARTICLE IX - PROGRAMS AND BUDGETS . . . . . . . . . . . . . . . . . . . . 30
9.1 Operations Pursuant to Programs and Budgets . . . . . . . . . . 30
9.2 Types of Programs . . . . . . . . . . . . . . . . . . . . . . . 30
9.3 Preparation, Presentation and Content of Programs and Budgets . 31
(a) Content of Programs . . . . . . . . . . . . . . . . . . . 31
(b) Content of Budgets . . . . . . . . . . . . . . . . . . . . 31
(c) Initial Program and Budget . . . . . . . . . . . . . . . . 31
(d) Duration . . . . . . . . . . . . . . . . . . . . . . . . . 32
(e) Review . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 Definition of Areas . . . . . . . . . . . . . . . . . . . . . . 32
9.5 Submittal and Approval of Proposed Programs and Budgets . . . . 33
(a) Preparation and Submittal of Manager's Program and Budget 33
(b) Feasibility Study . . . . . . . . . . . . . . . . . . . . 33
(c) Separate Mining Program . . . . . . . . . . . . . . . . . 34
(d) Revision of Initial Program and Budget . . . . . . . . . . 35
9.6 Election to Participate . . . . . . . . . . . . . . . . . . . . 35
(a) Deadline for Election . . . . . . . . . . . . . . . . . . 35
(b) Contributions Schedule . . . . . . . . . . . . . . . . . . 35
9.7 Subsequent Programs . . . . . . . . . . . . . . . . . . . . . . 36
9.8 Budget Overruns; Program Changes . . . . . . . . . . . . . . . 36
9.9 Emergency Expenditures . . . . . . . . . . . . . . . . . . . . 36
9.10 Interim Program and Budget. . . . . . . . . . . . . . . . . . . 37
9.11 Expenditures Following Designation of Second Production Area. . 37
ARTICLE X - ACCOUNTS AND SETTLEMENTS . . . . . . . . . . . . . . . . . . 37
10.1 Monthly Statements . . . . . . . . . . . . . . . . . . . . . . 37
10.2 Cash Calls . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.3 Failure to Meet Cash Calls . . . . . . . . . . . . . . . . . . 37
10.4 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XI - DISPOSITION OF PRODUCTION . . . . . . . . . . . . . . . . . 38
ii
<PAGE> 4
11.1 Taking in Kind . . . . . . . . . . . . . . . . . . . . . . . . 38
11.2 Failure to Take in Kind . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII - WITHDRAWAL AND TERMINATION . . . . . . . . . . . . . . . . 39
12.1 Termination by Expiration or Agreement . . . . . . . . . . . . 39
12.2 Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.3 Continuing Obligations . . . . . . . . . . . . . . . . . . . . 41
12.4 Disposition of Assets on Termination . . . . . . . . . . . . . 41
12.5 Transfer Covenants . . . . . . . . . . . . . . . . . . . . . . 42
12.6 Right to Data After Termination . . . . . . . . . . . . . . . . 42
12.7 Continuing Authority . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XIII - AREA OF INTEREST . . . . . . . . . . . . . . . . . . . . . 43
13.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Notice to Nonacquiring Participant . . . . . . . . . . . . . . 43
13.3 Option Exercised . . . . . . . . . . . . . . . . . . . . . . . 44
13.4 Option Not Exercised . . . . . . . . . . . . . . . . . . . . . 44
13.5 Lands Owned or Controlled by Hecla Within the Area of Interest 44
ARTICLE XIV - ABANDONMENT AND SURRENDER OF PROPERTIES . . . . . . . . . . 46
14.1 Surrender or Abandonment of Property . . . . . . . . . . . . . 46
14.2 Reacquisition . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE XV - TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . 47
15.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.2 Limitations on Free Transferability . . . . . . . . . . . . . . 47
15.3 Preemptive Right . . . . . . . . . . . . . . . . . . . . . . . 49
15.4 Exceptions to Preemptive Right . . . . . . . . . . . . . . . . 50
ARTICLE XVI - CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . 50
16.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
16.2 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . 51
16.3 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . 51
16.4 Duration of Confidentiality . . . . . . . . . . . . . . . . . . 52
ARTICLE XVII - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 52
17.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.3 Modification . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.4 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 54
17.6 Rule Against Perpetuities . . . . . . . . . . . . . . . . . . . 54
17.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 55
17.8 Survival of Terms and Conditions . . . . . . . . . . . . . . . 55
17.9 Entire Agreement; Successors and Assigns . . . . . . . . . . . 55
iii
<PAGE> 5
17.10 Memorandum . . . . . . . . . . . . . . . . . . . . . . . . 55
17.11 Severability . . . . . . . . . . . . . . . . . . . . . . . 55
17.12 Paragraph Headings . . . . . . . . . . . . . . . . . . . . 56
17.13 Monetary Amounts . . . . . . . . . . . . . . . . . . . . . 56
EXHIBITS
EXHIBIT A: Part I: Properties and Title Exceptions
Part II: Area of Interest
EXHIBIT B: Accounting Procedures
EXHIBIT C: Insurance
EXHIBIT D: Net Smelter Returns Definition
EXHIBIT E: Initial Exploration Program and Budget
EXHIBIT F: Reporting and Inspection
iv
<PAGE> 6
OPERATING AGREEMENT
THIS AGREEMENT is made effective as of September 6, 1996 between Santa
Fe Pacific Gold Corporation, a Delaware corporation, ("Santa Fe") and Hecla
Mining Company, a Delaware corporation ("Hecla").
RECITALS
A. Pursuant to the Earn-in Agreement dated September 6, 1996, Santa
Fe has obtained a 75% undivided interest in the Joint Properties.
B. Hecla owns a 25% undivided interest in the Joint Properties.
C. Santa Fe and Hecla wish to participate in the exploration,
evaluation, development and mining of mineral resources within the Joint
Properties, or hereafter within the Properties, all as provided in this
Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, Santa Fe and Hecla agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Accounting Procedure" means the procedures set forth in Exhibit B.
1.2 "Affiliate" means any person, partnership, joint venture, limited
liability company, corporation or other form of enterprise which directly or
indirectly controls, is controlled by, or is under common control with, a
Participant. For purposes of the preceding sentence, "control" means
possession, directly or indirectly, of the power to direct or cause direction
of management and policies through ownership of voting securities, contract,
voting trust or otherwise.
<PAGE> 7
1.3 "Agreement" means this Operating Agreement, including all
amendments and modifications thereof, and all schedules and exhibits, which
are incorporated herein by this reference.
1.4 "Area" or "Areas" shall refer to one or more of the types of Areas
as defined in Section 9.4.
1.5 "Area of Interest" means the area described in Part II of Exhibit
A.
1.6 "Assets" means the Properties, Products and all other real and
personal property, tangible and intangible, held for the benefit of the
Participants hereunder.
1.7 "Budget" means a detailed estimate of all costs to be incurred by
the Participants with respect to a Program and a schedule of cash advances to
be made by the Participants.
1.8 "Development" means preparation for the removal and recovery of
Products, including drilling, test mining, mine feasibility studies, and
other such work.
1.9 "Development Program" means that type of Program defined in Section
9.2(b).
1.10 "Earn-in Agreement" means the Amended and Restated Golden Eagle
Earn-in Agreement to which this Operating Agreement was attached .
1.11 "Effective Date" means the date set forth in the initial paragraph
of this Agreement.
1.12 "Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products.
1.13 "Exploration Area" means an area as defined in Section 9.4.
1.14 "Exploration Program" means a Program as defined in Section 9.2(a).
1.15 "Feasibility Study" means a study of the feasibility of developing
and operating a mine on the Properties, including an analysis of economic,
engineering, environmental,
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<PAGE> 8
regulatory and other considerations, and containing the level of detail
customary in the industry for a bankable feasibility study which may, if
necessary, be presented to financial institutions for the purpose of seeking
and ultimately obtaining financing for the development of a mine.
1.16 "Hecla's Properties" means the properties described in Exhibit A to
the Earn-in Agreement.
1.17 "Initial Contribution" means that contribution each Participant has
made as shown in Section 5.1.
1.18 "Initial Feasibility Study" means the Feasibility Study delivered
pursuant to Section 5.5 of the Earn-in Agreement.
1.19 "Joint Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to the
Participants.
1.20 "Joint Properties" means the Properties defined as "Joint
Properties" under the Earn-in Agreement and described in Part 1 of Exhibit A
hereto which are to be jointly contributed by the Participants on the
Effective Date hereof.
1.21 "Management Committee" means the committee established under
Article VII.
1.22 "Manager" means the person or entity appointed under Article
VIII to manage Operations, or any successor Manager.
1.23 "Mining" means the mining, extracting, producing, handling,
milling or other processing of Products.
1.24 "Mining Program" means that type of Program defined in Section
9.2(c).
1.25 "Net Smelter Returns" means certain amounts calculated as
provided in Exhibit D, which may be payable to a Participant under Sections
6.4(b)(ii) and 6.5, and which may be taken in kind in accordance with the
terms of Exhibit D.
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<PAGE> 9
1.26 "Non-Consent Program" means a Program adopted by the Management
Committee to which a Participant elects not to contribute.
1.27 "Operations" means the activities carried out under this
Agreement.
1.28 "Participant" and "Participants" mean the persons or entities
that from time to time have Participating Interests.
1.29 "Participating Interest" means the percentage interest
representing the operating interest of a Participant in Assets and all other
rights and obligations arising under this Agreement, as such interest may
from time to time be adjusted hereunder. However, following the designation
of a Production Area pursuant to Section 9.4, there shall be two measures of
Participating Interests: (1) Participating Interests in the Production Area,
and (2) Participating Interests in the Exploration Area. Both measures shall
be concurrently calculated and maintained for each Participant.
Participating Interests shall be calculated to three decimal places and
rounded to two ( E.G., 1.519% rounded to 1.52%). Decimals of .005 or more
shall be rounded up to .01, decimals of less than .005 shall be rounded down.
The initial Participating Interests of the Participants are set forth in
Section 6.1.
1.30 "Prime Rate" means the interest rate quoted as "Prime" by the
Chase Manhattan Bank, at its head office, as said rate may change from day to
day (which quoted rate may not be the lowest rate at which the Bank loans
funds).
1.31 "Production Area" means any portion of the Properties segregated
for either Mining or Development as provided in Section 9.4
1.32 "Products" means all ores, minerals and mineral resources
produced from the Properties under this Agreement.
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<PAGE> 10
1.33 "Program" means a description in reasonable detail of Operations
to be conducted and objectives to be accomplished by the Manager for a year
or any longer period.
1.34 "Properties" means those interests in real property described in
Part 1 of Exhibit A, any "Mineral Properties" as defined under the Earn-in
Agreement and jointly contributed to the purposes of this Operating Agreement
pursuant to Section 5.4 of the Earn-in Agreement, and all other interests in
real property within the Area of Interest which are made subject to this
Agreement pursuant to Article XIII.
1.35 "Separate Mining Program" means a Program as defined in Section
9.5(c).
1.36 "Transfer" means sell, grant, assign, lease, sublease, release,
encumber, pledge or otherwise commit or dispose of.
1.37 "Venture" means the business arrangement of the Participants
under this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNIFICATION
2.1 CAPACITY OF PARTICIPANTS. Each of the Participants represents and
warrants as follows:
(a) that it is a corporation duly incorporated and in good
standing in its place of incorporation and that it is qualified to do
business and is in good standing in those jurisdictions where necessary in
order to carry out the purposes of this Agreement;
(b) that it has the capacity to enter into and perform this
Agreement and all transactions contemplated herein and that all corporate and
other actions required to authorize it to enter into and perform this
Agreement have been properly taken;
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<PAGE> 11
(c) that it will not breach any other agreement or arrangement by
entering into or performing this Agreement; and
(d) that this Agreement has been duly executed and delivered by it
and is valid and binding upon it in accordance with its terms.
2.2 INDEMNIFICATIONS. Santa Fe shall be soley responsible for and
shall indemnify, defend, and hold harmless Hecla and its directors, officers,
employees, agents, attorneys, and Affiliates from and against any and all
environmental and other liabilities, losses, claims, damages, costs, expenses
(including without limitation any remediation or reclamation expenses, fine,
penalties, judgments, litigation costs and attorneys' fees), enforcement
activities and causes of action to the extent and only to the extent that
they arise from Santa Fe's Earn-in Acitivites on or for the benefit of the
Mineral Properties during the term of the Earn-in Agreement. Notwithstanding
any provision of this Agreement to the contrary, Hecla shall be solely
responsible for, and shall indemnify, defend, and hold harmless Santa Fe and
its directors, officers, employees, agents, attorneys and Affiliates from and
against, any and all environmental and other liabilities, losses, claims,
demands, damages, costs, expenses (including without limitation any
reclamation or remediation expenses, fines, penalties, judgments, litigation
costs and attorneys' fees) enforcement actions and causes of action (whether
or not pending, and including but not limited to those certain lawsuits known
as Washington Wilderness, et al. vs. Hecla Mining Company, Cause No.
95CS233-FVS, Leo Orestad, et ux., et al. v. Hecla Mining Co., Cause No.
95201356-7, and William G. Harmon v. Hecla Mining Co., Cause No.
95-2-00004-9), to the extent and only to the extent that they arise from the
activities other than activities of Santa Fe, its agents or contractors,
conducted at any time prior to the effective date of the Earn-in Agreement on
the Properties or on lands owned or controlled as of the Effective
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<PAGE> 12
Date by Hecla within the Area of Interest, or on nearby lands involved in
Hecla's Republic Unit operations, regardless of whether such liability, loss,
claim, demand, damage, cost, expense (including without limitation any
reclamation and remediation expenses, fines, penalties, judgments, litigation
costs and attorneys' fees) enforcement actions and causes of action arises or
accrues before the effective date of the Earn-in Agreement, during the term
of the Earn-in Agreement or this Agreement, or after termination or
expiration of the Term of this Agreement for any reason. Notwithstanding any
other provision of this Agreement, Hecla shall have the continuing right to
access the Mineral Properties to perform such sampling, testing and
reclamation or remediation activities as Hecla in its sole discretion and
judgment deems necessary or convenient in order to perform its obligations
pursuant to this Section 2.2. of this Agreement, and the Manager shall not
unreasonably interfere with any of Hecla's activities associated therewith.
In the event the Manager unreasonably prohibits Hecla's access to or
activities on any parcel of lands for such purposes, the Participants shall
thereby be deemed to assume, in proportion to their Participating Interests
associated with such parcel, all of Hecla's obligations under this Section
2.2 of this Agreement with respect to any such parcel of land; provided, the
Manager shall have no right to exclude Hecla from lands that are not a part
of or yet added to the Mineral Properties.
2.3 RECORD TITLE. Each Participant shall have an undivided interest in
the Properties equal to its Participating Interest as adjusted from time to
time. Title to all other Assets shall be held in the name of the Manager for
the benefit of the Participants in proportion to their Participating
Interests as adjusted from time to time.
2.4 JOINT LOSS OF TITLE. Any failure or loss of title to the Assets,
and all costs of defending title, shall be charged to the Joint Account,
except that all costs and losses arising out
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of or resulting from breach of the representations and warranties of a
Participant shall be charged to that Participant.
ARTICLE III
NAME, PURPOSES AND TERM
3.1 GENERAL. Santa Fe and Hecla hereby enter into this Agreement for
the purposes hereinafter stated, and they agree that all of their rights and
all of the Operations on or in connection with the Properties shall be
subject to and governed by this Agreement.
3.2 NAME. The name of this Venture shall be the Golden Eagle Venture.
The Manager shall accomplish any registration required by applicable assumed
or fictitious name statutes and similar statutes.
3.3 PURPOSES. This Agreement is entered into for the following
purposes and for no others, and shall serve as the exclusive means by which
the Participants, or either of them, accomplish such purposes:
(a) to conduct Exploration on the Properties.
(b) to engage in Development and Mining Operations in the
Production Area specified in the Initial Feasibility Study.
(c) to evaluate the possible Development and Mining of the
Properties,
(d) to engage in Development and Mining Operations on the
Properties,
(e) to engage in the storage, or removal and storage, of Products,
to the extent permitted by Article XI, and
(f) to perform any other activity necessary, appropriate, or
incidental to any of the foregoing.
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3.4 LIMITATION. Unless the Participants otherwise agree in writing,
the Operations shall be limited to the purposes described in Section 3.3, and
nothing in this Agreement shall be construed to enlarge such purposes.
3.5 EFFECTIVE DATE AND TERM. The term of this Agreement shall be for
twenty (20) years from the Effective Date and for so long thereafter as
Products are produced from any of the Properties, unless the Agreement is
earlier terminated as herein provided.
ARTICLE IV
RELATIONSHIP OF THE PARTICIPANTS
4.1 NO PARTNERSHIP. Nothing contained in this Agreement shall be
deemed to constitute either Participant the partner of the other, nor, except
as otherwise herein expressly provided, to constitute either Participant the
agent or legal representative of the other, nor to create any fiduciary
relationship between them. It is not the intention of the Participants to
create, nor shall this Agreement be construed to create, any mining,
commercial or other partnership. Neither Participant shall have any
authority to act for or to assume any obligation or responsibility on behalf
of the other Participant, except as otherwise expressly provided herein. The
rights, duties, obligations and liabilities of the Participants shall be
several and not joint or collective. Each Participant shall be responsible
only for its obligations as herein set out and shall be liable only for its
share of the costs and expenses as provided herein. Each Participant shall
indemnify, defend and hold harmless the other Participant, its directors,
officers, employees, agents and attorneys from and against any and all
losses, claims, damages and liabilities (including litigation costs and
attorneys' fees) arising out of any act or any assumption of liability by the
indemnifying Participant, or any of its directors, officers, employees,
agents and attorneys done or undertaken, or apparently done or undertaken, on
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behalf of the other Participant, except pursuant to the authority expressly
granted herein or as otherwise agreed in writing between the Participants.
4.2 FEDERAL TAX ELECTIONS AND ALLOCATIONS. The Participants agree that
their relationship shall not constitute a tax partnership within the meaning
of Section 761(a) of the United States Internal Revenue Code of 1986, as
amended.
4.3 STATE INCOME TAX. The Participants also agree that their
relationship shall be treated for state income tax purposes in the same
manner as it is for Federal income tax purposes.
4.4 TAX RETURNS. Each of the Parties shall prepare and file any tax
returns or other tax forms required for its interest in the Venture.
4.5 OTHER BUSINESS OPPORTUNITIES. Except as expressly provided in this
Agreement, each Participant shall have the right independently to engage in
and receive full benefits from business activities, whether or not
competitive with the Operations, without consulting the other. The doctrines
of "corporate opportunity" or "business opportunity" shall not be applied to
any other activity, venture, or operation of either Participant, and, except
as otherwise provided in Section 12.5, neither Participant shall have any
obligation to the other with respect to any opportunity to acquire any
property outside the Area of Interest at any time, or within the Area of
Interest after the termination of this Agreement. Unless otherwise agreed in
writing, no Participant shall have any obligation to mill, beneficiate or
otherwise treat any Products or any other Participant's share of Products in
any facility owned or controlled by such Participant.
4.6 WAIVER OF RIGHT TO PARTITION. The Participants hereby waive and
release all rights of partition, or of sale in lieu thereof, or other
division of Assets, including any such rights provided by statute.
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4.7 TRANSFER OR TERMINATION OF RIGHTS TO PROPERTIES. Except as
otherwise provided in this Agreement, neither Participant shall Transfer all
or any part of its interest in the Assets or this Agreement or otherwise
permit or cause such interests to terminate.
4.8 IMPLIED COVENANTS. There are no implied covenants contained in
this Agreement other than those of good faith and fair dealing.
4.9 EMPLOYEES. Employees of the Manager are not and shall not be
deemed employees of the non-managing Participant or of the Venture.
ARTICLE V
CONTRIBUTIONS BY PARTICIPANTS
5.1 CONTRIBUTIONS.
(a) Hecla, as its initial contribution, contributes its entire
interest in the Joint Properties and any Properties owned or controlled by
Hecla and made subject to this Operating Agreement after the effective date
, together with its entire interest in any Area of Interest Properties
acquired after entry into this Operating Agreement, for the purposes of
this Agreement. The value of Hecla's Initial Contribution shall be deemed to
be the amount resulting from dividing Santa Fe's deemed Initial Contribution
(as determined under Section 5.1(b)), by three (3).
(b) Santa Fe, as its initial contribution, contributes its entire
interest in the Joint Properties and any Properties owned or controlled by
Santa Fe and made subject to this Operating Agreement after the effective
date, together with its entire interest in any Area of Interest Properties
acquired after entry in this Operating Agreement, to the purposes of this
Agreement. The value of Santa Fe's initial contribution shall be deemed to
be the total of all Earn-in Expenditures made by Santa Fe, plus $2,500,000.
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5.2 ADDITIONAL CASH CONTRIBUTIONS. The Participants, subject to
Section 9.11 and any election permitted by Section 6.3, shall be obligated to
contribute funds to adopted Programs and Budgets in proportion to their
respective Participating Interests in the affected Exploration or Production
Area.
ARTICLE VI
INTERESTS OF PARTICIPANTS
6.1 INITIAL PARTICIPATING INTERESTS. The Participants shall have the
following initial Participating Interests in all Assets:
Santa Fe - 75%
Hecla - 25%
Unless changed pursuant to other provisions of this Agreement, all costs and
liabilities incurred in the Operations shall be borne and paid, and all
Assets acquired and Products mined by the Operations shall be owned by the
Participants in proportion to the above percentage Participating Interests.
6.2 CHANGES IN PARTICIPATING INTERESTS. A Participant's Participating
Interest shall be changed as follows:
(a) Upon an election by a Participant pursuant to Section 6.3 to
contribute less to an adopted Program and Budget than the percentage
reflected by its Participating Interest in the affected Exploration or
Production Area; or
(b) In the event of default by a Participant in making its
agreed-upon contribution to an adopted Program and Budget, followed by an
election by the other Participant to invoke Section 6.4(b); or
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(c) Upon reduction of Participating Interest to less than 15%
under Section 6.5; or
(d) Transfer by a Participant of less than all its Participating
Interest in accordance with Article XV; or
(e) Acquisition of less than all of the Participating Interest of
the other Participant, however arising.
The Production Area specified in the Initial Feasibility Study and any
additional Area or Areas designated as Production Area or Areas in accordance
with Section 9.4, shall be treated separately for calculation of
Participating Interests and the Participants' Participating Interests in that
Area will be designated and calculated separately from the Participating
Interests relating to the Exploration Area. The Manager hereby allocates the
Participants' Initial Contributions to the Production Area specified in the
Initial Feasibility Study. When an additional Area is initially designated
as a Production Area, the Manager shall, no later than three months after the
establishment of such Area by adoption of the Program, allocate a cost to
such Area, which cost will be approximately equal to the aggregate of the
amounts which in the reasonable opinion of the Manager have been expended on
the lands that comprise such Area. The amount allocated shall be divided
between the Participants in direct proportion to their respective
Participating Interests in that Area's lands immediately preceding the
allocation. All expenditure amounts not so allocated to the Production Area
shall be deemed allocated to the Exploration Area. A Participant's
Participating Interest in an Area designated as a Production Area shall be
determined from amounts allocated thereto and amounts thereafter contributed
pursuant to work programs and budgets for the Production Area. Participating
Interests in such Production Area shall not be affected by changes in
Participants' Participating
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Interests in the Exploration Area. A Participant's Participating Interest in
the Exploration Area shall be based upon amounts contributed or deemed
contributed to the Exploration Area, excluding amounts allocated to a
Production Area.
The Manager also shall, within three months after establishment of a
Production Area, allocate all personal property owned by the Venture (and not
previously allocated to a Production Area) to either the Production Area
specified in the Initial Feasibility Study, the newly established Production
Area or the Exploration Area, and thereafter the Participating Interests of
the Participants in such personal property shall be equal to the
Participants' respective Participating Interests in the relevant Area as
adjusted from time to time.
6.3 VOLUNTARY REDUCTION IN PARTICIPATION.
(a) Pursuant to Section 9.6, a Participant may elect to limit its
contributions to an adopted Program and Budget to some lesser amount than its
Participating Interest share of program expenditures in the affected
Exploration or Production Area, or (2) elect to make no contribution.
(b) If a Participant elects to contribute to an adopted Program
and Budget in some amount less than its Participating Interest in the
relevant Exploration or Production Area, or not to contribute at all, then
the Participating Interest of each Participant in the relevant Area shall be
recalculated at the time of election by dividing: (i) the sum of (1) the
agreed value of the Participant's initial contribution, apportioned to such
Area pursuant to Sections 5.1 and 6.2, plus (2) the total of the
Participant's prior contributions to such Area under Section 5.2 or allocated
to such Area under Section 6.2, plus (3) the amount, if any, which the
Participant has elected to contribute to the adopted Program and Budget; by
(ii) the sum of (1), (2) and (3) above for all Participants; and then
multiplying the result by one hundred.
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(c) If the consenting Participant(s) in a Non-Consent Program
fail(s) to spend at least 90% of the Budget associated with the relevant
Program, then the non-consenting Participant shall be entitled, within 30
days of being notified of completion of the reduced Program, to pay its share
of the expenditures actually made by the consenting Participant and thereby
maintain its Participating Interest in the affected Area. If the
non-consenting Participant fails to contribute within such 30 day period, its
Participating Interest shall be reduced in accordance with the foregoing
provisions.
6.4 DEFAULT IN MAKING CONTRIBUTIONS.
(a) If a Participant defaults in making a contribution or cash
call required by an adopted Program and Budget to which that Participant has
elected to contribute under Section 9.6, the non-defaulting Participant may
advance the defaulted contribution on behalf of the defaulting Participant
and treat the same, together with any accrued interest, as a demand loan
bearing interest from the date of the advance at the rate provided in
Section 10.3. The failure to repay said loan upon demand shall be a default.
Each Participant hereby grants to the other a lien upon its interest in the
Properties and a security interest in its rights under this Agreement and in
its Participating Interest in other Assets, and the proceeds therefrom, to
secure any loan made hereunder, including interest thereon, reasonable
attorneys fees and all other reasonable costs and expenses incurred in
recovering the loan with interest and in enforcing such lien or security
interest, or both. A non-defaulting Participant may elect the applicable
remedy under this Section 6.4(a) or under 6.4(b), or, to the extent a
Participant has a lien or security interest under applicable law, it shall be
entitled to its rights and remedies at law and in equity. All such remedies
shall be cumulative. The election of one or more remedies shall not
constitute a wavier of the right to elect any other remedies. At any time at
the request of either Participant,
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the Participants shall prepare, execute and deliver and file or record such
instrument or instruments as are necessary to perfect such liens and security
interests. Each Participant hereby irrevocably appoints the other its
attorney-in-fact to execute, file and record all instruments necessary to
perfect or effectuate the provisions of this Section 6.4(a).
(b) The Participants acknowledge that if a Participant defaults in
making a contribution, or a cash call, or in repaying a loan, as required
hereunder, it will be difficult to measure the damages resulting from such
default. In the event of such default, as reasonable liquidated damages, the
non-defaulting Participant may, with respect to any such default not cured
within 60 days after notice to the defaulting Participant of such default,
elect one of the following remedies by giving notice to the defaulting
Participant:
(i) For a default relating exclusively to an Exploration
Program and corresponding Budget, the non-defaulting Participant may
elect to have the defaulting Participant's Participating Interest in the
Exploration Area permanently reduced as provided in Section 6.3(b), and
further reduced by multiplying the result by 90%. Amounts treated as a
loan pursuant to Section 6.4(a) and interest thereon shall be included
in the calculation of the defaulting Participant's reduced Participating
Interest. The non-defaulting Participant's Participating Interest in
the Exploration Area shall, at such time, become the difference between
100% and the further reduced Participating Interest. Such reductions
shall be effective as of the date of the default.
(ii) For a default relating to a Development or Mining Program
and corresponding Budget, at the non-defaulting Participant's election,
the defaulting Participant shall be deemed to have withdrawn from the
relevant Production Area under Section 12.2, and its Participating
Interest in the Production Area shall be converted to
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a Net Smelter Returns ("NSR") interest based upon the appropriate NSR
interest determined pursuant to Section 6.5, except that the NSR
percentage as determined pursuant to Section 6.5 shall be reduced by
one-half (i.e., a 3% NSR shall be a 1.5% NSR and a 1% NSR shall be a
0.5% NSR), and the defaulting Participant shall have the opportunity to
receive only such NSR on Products, if any, from the Production Area as
defined at the time of the default until such time as the defaulting
Participant has received an amount equal to its contributions to such
Production Area. The defaulting Participant shall thereafter have no
further right, title or interest in the relevant Production Area.
6.5 ELIMINATION OF MINORITY INTEREST.
(a) Upon the reduction of a Participant's Participating Interest
in an Exploration Area or Production Area to less than 15%, the Participant's
Participating Interest in that Area shall be converted as follows: (1) to a
3% Net Smelter Returns interest on Products, if any, produced from Properties
in such Area that are held as an undivided fee simple estate (including
patented mining claims) with no production or other type of royalty,
overriding royalty, advance royalty or rental obligation that existed, or was
contemplated by agreement to arise in the future, as of the effective date of
the Earn-in Agreement, and/or (b) to a 1% Net Smelter Returns interest on
Products, if any, produced from all other Properties in such Area. Such
Participant shall be deemed to have transferred to the remaining Participant
its Participating Interest in the relevant Area, but this transfer will not
include its Participating Interest in the remainder of the Properties. Such
transfer will be without cost and free and clear of royalties, liens, or
other encumbrances arising by, through or under such transferring
Participant, except those royalties and other exceptions to title described
in Part 1 of Exhibit A (if any), Section 6.4, this Section 6.5, and those
other interests and exceptions to which both Participants have
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given their written consent after the date of this Agreement. The
transferring Participant shall execute and deliver all instruments as may be
necessary to effect the transfer of its Participating Interest in the
relevant Area. The transfer under this Section 6.5(a) shall not relieve the
transferring Participant of its share of liabilities to third persons
(whether such accrued before or after such transfer) arising out of
Operations conducted on the relevant Area prior to the transfer. The
transferring Participant's share of such liability shall be equal to its
Participating Interest in the relevant Area at the time such liability was
incurred.
(b) Subject to Section 15.2(k), the Net Smelter Returns interest
provided under this Section 6.5 shall be freely transferable by the
Participant receiving it notwithstanding any other provisions of this
Agreement, and it shall be binding upon and inure to the benefit of the
Participants and their respective successors and assigns.
6.6 CONTINUING LIABILITIES UPON ADJUSTMENTS OF PARTICIPATING INTERESTS.
No reduction of a Participant's Participating Interest under this Article VI
shall relieve such Participant of its share of any reclamation or other
liability arising out of Operations conducted prior to such reduction,
whether it accrues before or after such reduction, whether it was known or
unknown at that time, and whether it becomes an enforceable right before or
after such reduction. For purposes of this Article VI, such Participant's
share of such liability shall be equal to its Participating Interest in the
relevant Exploration or Production Area at the earliest time such liability,
or condition giving rise to such liability, was created or incurred. The
increased Participating Interest accruing to a Participant as a result of the
reduction of the other Participant's Participating Interest shall be free of
royalties, liens or other encumbrances arising by, through or under such
other Participant, other than those existing at the time of entry into this
Agreement or those to which both Participants have given their written
consent. An
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adjustment to a Participating Interest need not be evidenced during the term
of this Agreement by the execution and recording of appropriate instruments,
but each Participant's Participating Interest in each Exploration and
Production Area shall be shown in the books of the Manager. However, either
Participant, at any time upon the request of the other Participant, shall
execute and acknowledge instruments reasonably necessary to evidence such
adjustment, or to grant or confirm a Net Smelter Returns interest arising
under this Article VI, in form sufficient for recording in the jurisdiction
where the Properties are located.
ARTICLE VII
MANAGEMENT COMMITTEE
7.1 ORGANIZATION AND COMPOSITION. The Participants hereby establish a
Management Committee to determine overall policies, objectives, procedures,
methods and actions under this Agreement. The Management Committee shall
consist of two member(s) appointed by Hecla and two member(s) appointed by
Santa Fe. Each Participant may appoint one or more alternates to act in the
absence of a regular member. Any alternate so acting shall be deemed a
member. Appointments shall be made or changed by notice to the other
Participant prior to the meeting at which the member is to act.
7.2 DECISIONS.
(a) Each Participant, acting through its appointed members, shall
have one vote on the Management Committee. The votes shall be weighted
according to each Participant's Participating Interest in the relevant
Exploration or Production area, and decisions shall be made by a majority
vote. In case of a deadlock on a proposed Program and Budget or on any other
management matters relating to this Agreement or the Golden Eagle Venture
that
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require a majority approval of the Management Committee, the Manager shall
make the final decision.
(b) Notwithstanding the provisions of Section 7.2(a), the
following decisions shall require unanimous approval of the Participating
Interests in the relevant Exploration or Production Area.
(i) Conduct of any business unrelated to Exploration,
Mining, or Development;
(ii) Institution of litigation, arbitration or settlement of
any dispute except for disputes involving less than $200,000;
(iii) Borrowing or entering into any form of credit
arrangement which involves the pledge of all or part of non-Manager's
Participating Interest;
(iv) Acquisition or disposition of Assets valued at over
$200,000; and
(v) Cessation of or material reduction in Operations, except
as provided in Section 17.4.
(vi) Change of tax partnership status of the Venture from that
specified in Sections 4.2 and 4.3.
(vii) An increase in the capital expenditures contemplated
in the Initial Feasibility Study by more than 25%.
7.3 MEETINGS. The Management Committee shall hold regular meetings at
least quarterly at a place to be designated by the Manager, or at other
mutually agreed places. The Manager shall give 30 days notice to the
Participants of such regular meetings. Additionally, either Participant may
call a special meeting upon 15 days notice to the Manager and the other
Participant. In case of emergency, reasonable notice of a special meeting to
consider the
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emergency matter only shall suffice. There shall be a quorum if at least one
member representing each Participant is present in person or by conference
telephone; provided, however, that if a quorum is not present, those members
in attendance may adjourn the meeting to the same time and place seven days
later, and provided further that a quorum shall be deemed present at the
adjourned meeting if at least one Participant is represented. Each notice of
a regular meeting shall include an itemized agenda prepared by the Manager in
the case of a regular meeting, or by the Participant calling the meeting in
the case of a special meeting, but any matters may be considered in any type
of meeting with the consent of all Participants. The Manager shall prepare
minutes of all meetings and shall distribute copies of such minutes to the
Participants within 10 days after the meeting. The minutes, when signed by
all Participants, shall be the official record of the decisions made by the
Management Committee and shall be binding on the Manager and the
Participants. If personnel employed in Operations are required to attend a
Management Committee meeting, reasonable costs incurred in connection with
such attendance shall be a Venture cost. All other costs of attendance shall
be paid by the Participants individually.
7.4 ACTION WITHOUT MEETING. In addition to or in lieu of meetings, the
Management Committee may hold telephone conferences, so long as all decisions
are immediately confirmed in writing by the Participants.
7.5 MATTERS REQUIRING APPROVAL. Except as otherwise delegated to the
Manager in Section 8.2, the Management Committee shall have exclusive
authority to determine all management matters related to this Agreement.
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ARTICLE VIII
MANAGER
8.1 APPOINTMENT. The Participants hereby appoint Santa Fe as the
Manager with overall management responsibility for Operations. Santa Fe
hereby agrees to serve until it resigns as provided in Section 8.4.
8.2 POWERS AND DUTIES OF MANAGER. Subject to the terms and provisions
of this Agreement, the Manager shall have the following powers, duties and
obligations which shall be discharged in accordance with adopted Programs and
Budgets:
(a) The Manager shall manage, direct and control Operations and
shall prepare and present to the Management Committee proposed Programs and
Budgets as provided in Article IX.
(b) The Manager shall implement the decisions of the Management
Committee, shall make all expenditures necessary to carry out adopted
Programs, and shall promptly advise the Management Committee if it lacks
sufficient funds to carry out its responsibilities under this Agreement.
(c) The Manager shall: (i) purchase or otherwise acquire all
material, supplies, equipment, water, utility and transportation services
required for Operations, such purchases and acquisitions to be made on the
best terms available, taking into account all circumstances; (ii) obtain
such customary warranties and guarantees as are available in connection with
such purchases and acquisitions; and (iii) keep the Assets free and clear of
all liens and encumbrances, except for those existing at the time of, or
created concurrent with, the acquisition of such Assets, or mechanic's or
materialmen's liens which shall be released or
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discharged in a diligent manner, or liens and encumbrances specifically
approved by the Management Committee.
(d) The Manager shall: (i) make or arrange for all payments
required by leases, subleases, surface use agreements, licenses, permits,
contracts and other agreements related to the Assets; (ii) pay all taxes,
assessments and like charges on Operations and Assets except taxes determined
or measured by a Participant's sales revenue or net income; and (iii) do all
other acts reasonably necessary to maintain the Assets. The Manager shall
have the right to contest in the courts or otherwise, the validity or amount
of any taxes, assessments or charges if the Manager deems them to be
unlawful, unjust, unequal or excessive, or to undertake such other steps or
proceedings as the Manager may deem reasonably necessary to secure a
cancellation, reduction, readjustment or equalization thereof before the
Manager shall be required to pay them, but in no event shall the Manager
permit or allow title to the Assets to be lost as the result of the
nonpayment of any taxes, assessments or like charges.
(e) The Manager shall: (i) apply for all necessary permits,
licenses and approvals; (ii) comply with applicable federal, state and local
laws and regulations; (iii) notify promptly the Management Committee of any
allegations of substantial violation thereof; and (iv) prepare and file all
reports or notices required for Operations. Except in cases of gross
negligence or willful misconduct, the Manager shall not be in breach of this
provision if a violation has occurred, and the Manager has timely cured or
disposed of such violation through performance, or payment of fines and
penalties. Manager shall be solely responsible for fines and penalties paid
to cure or dispose of a violation caused by Manager's gross negligence or
willful misconduct.
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(f) The Manager shall prosecute and defend, but shall not initiate
without consent of the Management Committee, all litigation or administrative
proceedings arising out of Operations. The non-managing Participant shall
have the right to participate, at its own expense, in such litigation or
administrative proceedings. The non-managing Participant shall approve in
advance any settlement involving payments, commitments or obligations in
excess of $200,000 in cash or value.
(g) The Manager shall provide insurance for the benefit of the
Participants as provided in Exhibit C.
(h) The Manager may dispose of Assets, whether by
abandonment, surrender or Transfer in the ordinary course of business, except
that Properties may be abandoned or surrendered only as provided in Article
XIV. However, without prior authorization from the Management Committee, the
Manager shall not: (i) dispose of Assets in any one transaction having a
value in excess of $50,000; (ii) enter into any sales contracts or
commitments for Product; (iii) begin a liquidation of the Venture; or (iv)
dispose of all or a substantial part of the Assets necessary to achieve the
purposes of the Venture.
(i) The Manager shall have the right to carry out its
responsibilities hereunder through agents, Affiliates or independent
contractors.
(j) The Manager shall perform or cause to be performed during the
term of this Agreement all assessment and other work or pay fees or rental
payments required by law in order to maintain any unpatented mining claims
that are included in the Properties. The Manager shall have the right to
perform any assessment work pursuant to a common plan of Exploration,
Development or Mining, and continued actual occupancy of such claims and
sites shall not be required. The Manager shall not be liable on account of
any determination by any
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court or governmental agency that work performed by the Manager does not
constitute required annual assessment work or occupancy for the purposes of
preserving or maintaining ownership of the claims, provided that any work
done is in accordance with the adopted Program and Budget. The Manager shall
timely record with the appropriate county and file with the appropriate
United States agency, affidavits in proper form attesting to the performance
of assessment work or notices of intent to hold in proper form, and
allocating therein, to or for the benefit of each claim, at least any minimum
amount, if any, required by law to maintain such claim or site.
(k) If authorized by the Management Committee, the Manager may:
(i) locate, amend or relocate any unpatented mining claim or mill site or
tunnel site, (ii) locate any fractions resulting from such amendment or
relocation, (iii) apply for patents or mining leases or other forms of
mineral tenure for any such unpatented claims or sites, (iv) abandon any
unpatented mining claims for the purpose of locating mill sites or otherwise
acquiring from the United States rights to the ground covered thereby, (v)
abandon any unpatented mill sites for the purpose of locating mining claims
or otherwise acquiring from the United States rights to the ground covered
thereby, (vi) exchange with or convey to the United States any of the
Properties for the purpose of acquiring rights to the ground covered thereby
or other adjacent ground, and (vii) convert any unpatented claims or mill
sites into one or more leases or other forms of mineral tenure pursuant to
any federal law hereafter enacted.
(l) The Manager shall keep and maintain all required accounting
and financial records pursuant to the Accounting Procedure and in accordance
with customary cost accounting practices in the mining industry.
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(m) The Manager shall keep each Participant on the Management
Committee advised of all Operations by submitting to each the data and
information described in Exhibit F attached hereto within a reasonable time
after such data and information is acquired by the Manager. At all
reasonable times the Manager shall provide the Management Committee or the
representative of any Participant, upon the request of any member of the
Management Committee, access to, and the right to inspect, audit and copy all
maps, drill logs, core tests, reports, surveys, assays, analyses, production
reports, operations, technical, accounting and financial records, and other
information acquired in Operations that has not been provided pursuant to
Exhibit F; such information will be provided to the Management Committee at
the cost of the Venture and if additional copies are required by a
Participant, they will be paid for by that Participant. In addition, the
Manager shall allow the non-managing Participant, at the latter's sole risk
and expense, and subject to reasonable safety regulations, to inspect the
Assets and Operations at all reasonable times, so long as the inspecting
Participant does not unreasonably interfere with Operations.
(n) The Manager shall prepare or have prepared and submit to the
Management Committee a report containing a description and analysis of the
methods and costs and all other relevant aspects of reclaiming the Properties
pursuant to the requirements of applicable laws, rules and regulations
governing the reclamation of the Properties, the purpose of which shall be to
establish a fund to finance costs and expense anticipated to be incurred in
connection with the reclamation or reclamation bonding of the Properties.
The Management Committee shall determine, based upon the reclamation report,
the total cost, including capital budget, which the Management Committee
reasonably estimates will be required to reclaim the Properties, including a
schedule of the timing of the capital requirements for such purpose, and
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shall promptly establish a reclamation fund to meet such capital requirements
and any bonding or financial assurance requirements. The reclamation fund
shall be funded by contribution of the Participants, in proportion to their
Participating Interest in the area or areas to which the reclamation fund
relates, in such amounts and at such times as the Management Committee shall
determine. The amounts determined by the Management Committee for Purposes
of funding the reclamation fund shall be included in the applicable Programs
and Budgets for the related periods. Any unused portion of a reclamation
fund remaining after reclamation of the area or areas to which the
reclamation fund relates shall be distributed to the Participants in the same
proportion as their respective contributions to the reclamation fund;
provided, however, that a Participant's right to such distribution, if any,
shall only apply so long as the Participant retains a Participating Interest
in the area or areas to which the reclamation fund relates.
(o) The Manager may conduct environmental audits or reviews on an
annual or as needed basis, and the cost and expense of such audits or reviews
shall be charged to the joint account and shall be borne by the Participants
proportionately based on their Participating Interest at the time of the
audit or review.
(p) The Manager shall undertake all other activities reasonably
necessary to fulfill the foregoing.
The Manager shall not be in default of any duty under this Section 8.2
if its failure to perform results from the failure of the non-managing
Participant to perform acts or to contribute amounts required of it by this
Agreement.
8.3 STANDARD OF CARE. The Manager shall conduct all Operations in a
good, workmanlike and efficient manner, in accordance with sound mining and
other applicable industry standards and practices, and in accordance with the
terms and provisions of leases,
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subleases, licenses, permits, plans of operation, contracts and other
agreements pertaining to Assets. The Manager shall not be liable to the
non-managing Participant for any act or omission resulting in damage or loss
to the Venture except to the extent caused by or attributable to the
Manager's wilful misconduct or gross negligence.
8.4 RESIGNATION; DEEMED OFFER TO RESIGN. The Manager may resign upon 3
months' prior notice to the other Participant, in which case the other
Participant may elect to become the new Manager by notice to the resigning
Participant within 30 days after the notice of resignation. If any of the
following shall occur, the Manager shall be deemed to have offered to resign,
which offer shall be accepted by the other Participant, if at all, within 90
days following such deemed offer:
(a) The Participating Interest of the Manager with respect to any
Exploration Area or Production Area becomes less than that of another
Participant; or
(b) The Manager fails to perform or in good faith commence a
material obligation imposed upon it under this Agreement and action to cure
said failure is not initiated within 60 days after notice from the other
Participant demanding performance; or
(c) The Manager fails to pay or contest in good faith its bills
within 60 days after they are due; or
(d) A receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for a substantial part of its assets is
appointed and such appointment is neither made ineffective nor discharged
within 60 days after the making thereof, or such appointment is consented to,
requested by, or acquiesced in by the Manager; or
(e) The Manager commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or consents
to the entry of an
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order for relief in an involuntary case under any such law or to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of any substantial
part of its assets; or makes a general assignment for the benefit of
creditors; or fails generally to pay its or Venture debts as such debts
become due; or takes corporate or other action in furtherance of any of the
foregoing; or
(f) Entry is made against the Manager of a judgment, decree or
order for relief affecting a substantial part of its assets by a court of
competent jurisdiction in an involuntary case commenced under any applicable
bankruptcy, insolvency or other similar law of any jurisdiction now or
hereafter in effect.
8.5 PAYMENTS TO MANAGER. The Manager shall be compensated for its
services and reimbursed for its costs hereunder in accordance with the
Accounting Procedure.
8.6 TRANSACTIONS WITH AFFILIATES. If the Manager engages Affiliates to
provide services hereunder, it shall do so on terms no less favorable to the
Venture than would be the case in arm's-length transactions.
8.7 REVIEW OF ACCOUNTING PROCEDURE. It is the intent of the Manager
and the Participants that the Manager shall not lose or profit by reason of
its duties and responsibilities as Manager. The Accounting Procedure
attached as Exhibit B shall be reviewed by the Management Committee upon the
request of the Manager or any Participant to assure that the Manager
(directly or through its Affiliates) does not make a profit or suffer a loss
from serving as Manager. The Management Committee shall, in good faith,
endeavor to agree on modifications to the Accounting Procedure that will
remedy any alleged unfairness or inequity.
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ARTICLE IX
PROGRAMS AND BUDGETS
9.1 OPERATIONS PURSUANT TO PROGRAMS AND BUDGETS. Unless otherwise
provided herein, Operations shall be conducted, expenses shall be incurred,
and Assets shall be acquired only pursuant to adopted Programs and Budgets.
9.2 TYPES OF PROGRAMS. Four general types of Programs may be
proposed: Maintenance Programs, Exploration Programs, Development Programs
and Mining Programs.
(a) A "Maintenance Program" shall be a program designed to
maintain the Joint Property until such time as an Exploration Program,
Development Program or Mining Program may be proposed and adopted.
(b) An "Exploration Program" shall be a Program conducted within
an Exploration Area, and it shall include but not be limited to geological
mapping, geochemical sampling, geophysical surveys, drilling and other such
work expended to ascertain the existence, location, quantity, and quality of
deposits of Products on the Properties.
(c) A "Development Program" shall be a Program conducted within a
Production Area that shall include but not be limited to drilling, test
mining, preparing any Feasibility Study other than the Initial Feasibility
Study, and other such work in preparation for the removal and recovery of
Products on the Properties, but does not encompass, by itself, construction,
operation, maintenance, and attendant activities designed to bring a Mine on
any of the Properties into production in reasonable commercial quantities.
(d) A "Mining Program" shall be a Program conducted within a
Production Area that is designed to bring a Mine into production in
reasonable commercial quantities, and that provides for its subsequent
operation. It shall include but not be limited to engineering and
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design work, and work expended toward development of deposits of Products, as
well as construction, operation, maintenance, mine expansions and attendant
activities.
9.3 PREPARATION, PRESENTATION AND CONTENT OF PROGRAMS AND BUDGETS.
(a) CONTENT OF PROGRAMS. Proposed Programs and Budgets shall be
prepared by the Manager. Each Program shall be accompanied by and include a
corresponding Budget and shall designate precisely the area on which
Operations are to be performed, describe work to be performed, and state the
estimated period of time required to perform the work. Each Program shall
state whether it is an Exploration Program, Development Program or Mining
Program. Each Development or Mining Program shall designate the Production
Area to which it relates.
(b) CONTENT OF BUDGETS. Each Budget shall be prepared in
reasonable detail and shall set forth each expenditure of $20,000 or more for
a budgeted item which, under generally accepted accounting treatment, would
be capitalized. Each Budget for an Exploration Program, as near as is
practicable, shall show the estimated expenditures for each calendar quarter
covered by the Budget period. Each Budget for any Development or Mining
Program, as near as is practicable, shall show the estimated expenditures for
each month covered by the Budget period.
(c) INITIAL PROGRAM AND BUDGET. Any other provision of this
Agreement notwithstanding, Santa Fe shall have no obligation to propose a
Program and Budget other than for a Maintenance Program. The initial Program
and Budget proposed following contribution of the Mineral Properties shall be
(i) supplied by the Manager; (ii) based upon the Initial Feasibility Study;
(iii) propose a Development and Mining Program for the Production Area
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specified therein; (iv) commenced on the effective date of this Agreement,
and (v) incorporated herewith as Exhibit E.
(d) DURATION. A Maintenance Program need not be for any specific
duration but shall not exceed a period of six years. An Exploration Program
and Budget is anticipated to be for a period of one calendar year. A
Development or Mining Program and Budget is anticipated to extend for a
period of at least one year, but may extend for such longer period as is
reasonably necessary to complete the Program. It is anticipated that only
one Program will be carried out at a time within each Exploration or
Production Area.
(e) REVIEW. Each adopted Program and Budget, regardless of
length, shall be reviewed at least once a year at a regular meeting of the
Management Committee. During the period encompassed by any Program and
Budget, and at least 2 months prior to its expiration, a proposed Program and
Budget for the succeeding period shall be prepared by the Manager and
submitted to the Participants.
9.4 DEFINITION OF AREAS. There are two types of Areas: a single
Exploration Area and one or more Production Area. The Exploration Area shall
consist of all of the Properties that have not been designated as a
Production Area. A Production Area shall be that portion of the Properties
designated in a Feasibility Study and other portions of the Properties that
may be so designated by either a Development Program or a Mining Program. A
Production Area shall be segregated from the Exploration Area for Development
or Mining, and shall not encompass an area greater in size than is reasonably
necessary to carry out the Program. Upon designation of a Production Area,
the Manager will allocate costs and personal property to the Area pursuant to
Section 6.2 within three months. Also, such Area shall thereafter be treated
separately as to reports, accounting, expense records, and Participating
Interests; it shall be subject to this
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Agreement as a separate unit for accounting, operating, and other purposes.
No more than one Program may be adopted and concurrently carried out by the
Management Committee for all or any part of a designated Production Area.
9.5 SUBMITTAL AND APPROVAL OF PROPOSED PROGRAMS AND BUDGETS.
(a) PREPARATION AND SUBMITTAL OF MANAGER'S PROGRAM AND BUDGET. At
least two months prior to implementation of a Program and Budget, Manager
shall prepare and submit a proposed Program and Budget to the Management
Committee. Within thirty days after Manager submits a proposed Program and
Budget to the Management Committee, the non-managing Participant shall submit
to the Management Committee:
(i) Notice that the non-managing Participant approves of the
Program and Budget; or
(ii) Proposed modifications of the proposed Program and
Budget, which shall include detailed specific objections regarding the
proposed Program and Budget.
If a non-managing Participant fails to give either of the foregoing responses
within the allotted time, the failure shall be deemed a disapproval by the
non-managing Participant of the Manager's proposed Program and Budget. If a
non-managing Participant makes a timely submission to the Management
Committee pursuant to Section 9.5(a)(ii), then the Management Committee shall
within the following 30 days meet to consider the proposed Program and Budget
and proposed modifications. At that meeting, the Management Committee shall
seek to develop a Program and Budget acceptable to both the Participants. In
the event of a deadlock, the Manager shall make the final determination as to
the Program and Budget.
(b) FEASIBILITY STUDY. Any Participant may propose to the
Management Committee at any time that a Feasibility Study, in addition to the
Initial Feasibility Study,
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evaluate the feasibility of opening or expanding a mine on a particular area
of the Properties be conducted on behalf of the Venture. If the Management
Committee does not approve of the preparation of such Feasibility Study, then
the Participant proposing it may cause such Feasibility Study to be prepared
at its sole expense. Promptly upon completion of the Feasibility Study, the
Participant preparing it shall present it to the Management Committee for
evaluation. If a Separate Mining Program, as defined in Section 9.5(c), or
Mining Program is then adopted, based primarily on the Feasibility Study, any
Participant that did not contribute to the costs of preparing the Feasibility
Study, shall either reimburse the Participant who prepared the Feasibility
Study in proportion to the Participating Interest in the relevant Production
Area of the non-preparing Participant plus an additional penalty of fifteen
percent (15%) of the amount of such reimbursement, or be diluted in a like
amount in accordance with Section 6.3(b).
(c) SEPARATE MINING PROGRAM. After completion of a Feasibility
Study, if the Manager does not propose a Mining Program for the relevant
Production Area upon the expiration of the current Program, or if the Manager
proposes a Mining Program but it is not adopted in the first vote by the
Management Committee on such proposal, then the non-managing Participant may
propose a Mining Program for the relevant Production Area, to be considered
by the Participants in accordance with the procedures set forth in Section
9.5(a). If that Mining Program is not adopted by the Management Committee,
then the non-managing Participant may elect by written notice to the
Management Committee to conduct its Mining Program as a Separate Mining
Program. The other Participants (including the Manager) shall then elect
whether to contribute to the Separate Mining Program in accordance with the
procedure set forth in Section 9.6, and their respective Participating
Interests in the relevant Production Area shall be calculated in accordance
with Section 6.3.
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(d) REVISION OF INITIAL PROGRAM AND BUDGET. Following
commencement of the Initial Program and Budget associated with the Initial
Feasibility Study, Santa Fe may revise such Initial Program and Budget. If
the revision would increase the capital expenditures contemplated in the
Initial Feasibility Study by more than 25%, the revision shall be treated as
a proposal requiring a unanimous decision of the Management Committee as
provided in Section 7.2(b)(vii). If the revision would increase the capital
expenditures contemplated in the Initial Feasibility Study by 25% or less,
Hecla may elect to participate in the additional capital expenditures, or to
participate only to the extent of its participation as originally elected for
the Initial Program and Budget (in which case it shall be subject to dilution
based upon its election not to contribute to the additional capital
expenditures under the revision).
9.6 ELECTION TO PARTICIPATE.
(a) DEADLINE FOR ELECTION. By notice to the Management Committee
within 20 days after the adoption of a Program and Budget, a Participant may
elect to contribute to such Program and Budget in some lesser amount than its
Participating Interest in the relevant Area, or not to contribute at all, in
which cases its Participating Interest in the relevant area shall be
recalculated as provided in Section 6.3. If a Participant fails to make such
an election within the 20 days, the Participant shall be deemed to have
elected not to contribute to such Program and Budget in proportion to its
Participating Interest in the relevant Area as of the beginning of the period
covered by the Program and Budget.
(b) CONTRIBUTIONS SCHEDULE. Contributions for an Exploration
Program shall be made at the beginning of each calendar quarter of the Budget
period. Contributions for a Development or Mining Program shall be made at
the beginning of each month of the Budget
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period. An election to contribute to a Program may not be changed or
modified as to a Participant's percentage contribution during the course of
the Program.
9.7 SUBSEQUENT PROGRAMS. A subsequent Program relating to an Area for
which a prior Program has been adopted under the provisions of this Article
IX may be proposed and conducted pursuant to this Agreement. A Participant
may participate in any subsequent Program at the level of the Participant's
Participating Interest in that Area unless the Participant's Participating
Interest has been converted to a Net Smelter Returns Interest pursuant to
Section 6.5.
9.8 BUDGET OVERRUNS; PROGRAM CHANGES. The Manager shall immediately
notify the Management Committee of any material departure from an adopted
Program and Budget. If the Manager exceeds an adopted Budget by more than
15%, then the excess over 15%, unless directly caused by an emergency
expenditure made pursuant to Section 9.9 or unless otherwise unanimously
authorized by the Management Committee, shall be for the sole account of the
Manager and such excess shall not be included in the calculations of the
Participating Interests. Budget overruns of 15% or less shall be borne by
the Participants in proportion to their respective Participating Interests in
the affected Area as of the time the overrun occurs.
9.9 EMERGENCY EXPENDITURES. In case of emergency, the Manager may take
any reasonable action it deems necessary to protect life, limb or property,
to protect the Assets or to comply with law or government regulation. The
Manager shall promptly notify the Participants of the emergency expenditure,
and the Manager shall be reimbursed for all resulting costs by the
Participants in proportion to their respective Participating Interests in the
affected Area at the time the emergency expenditures are incurred.
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9.10 INTERIM PROGRAM AND BUDGET. If the Management Committee for any
reason has failed to have adopted a Program and Budget to succeed an expiring
or completed prior Program and Budget, the Manager shall continue operations
at levels necessary to maintain the Assets and to comply with any and all
legal obligations of the Venture.
9.11 EXPENDITURES FOLLOWING DESIGNATION OF SECOND PRODUCTION AREA.
Notwithstanding any other provision of this Agreement, after the designation
of a second Production Area, Santa Fe shall pay the first $3,000,000 of
Hecla's obligations hereunder for any Program and Budget covering such
Production Area. Santa Fe shall be entitled to recoup the entire $3,000,000
from Hecla's share of any proceeds from Products from such Production Area.
ARTICLE X
ACCOUNTS AND SETTLEMENTS
10.1 MONTHLY STATEMENTS. The Manager shall promptly submit to the
Management Committee monthly statements of accounts reflecting in reasonable
detail the charges and credits to the Joint Account during the preceding
month.
10.2 CASH CALLS. On the basis of the adopted Program and Budget, the
Manager may submit to each Participant prior to the last day of each month, a
billing for estimated cash requirements for the next month. Within 10 days
after receipt of each billing, each Participant shall advance to the Manager
its proportionate share of the estimated amount. Time is of the essence of
payment of such billings. All funds in excess of immediate cash requirements
shall be invested in interest-bearing accounts in a bank to be selected by
the Management Committee, for the benefit of the Joint Account.
10.3 FAILURE TO MEET CASH CALLS. A Participant that fails to meet cash
calls in the amount and at the times specified in Section 10.2 shall be in
default, and the amounts of the
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defaulted cash call shall bear interest from the date due at an annual rate
equal to 3 percentage points over the Prime Rate, but in no event shall said
rate of interest exceed the maximum permitted by law. The non-defaulting
Participant shall have those rights, remedies and elections specified in
Section 6.4.
10.4 AUDITS. Upon request made by any Participant within 24 months
following the end of any calendar year (or, if the Management Committee has
adopted an accounting period other than the calendar year, within 24 months
after the end of such period), the Manager shall order an audit of the
accounting and financial records for such calendar year (or other accounting
period). All written exceptions to and claims upon the Manager for
discrepancies disclosed by such audit shall be made not more than 3 months
after receipt of the audit report. Failure to make any such exception or
claim within the 3 month period shall mean the audit is correct and binding
upon the Participants. The audits shall be conducted by a firm of certified
public accountants selected by the Manager.
ARTICLE XI
DISPOSITION OF PRODUCTION
11.1 TAKING IN KIND. Unless otherwise provided herein, each Participant
hereto owning a Participating Interest shall on a monthly basis, take in kind
or separately dispose of its share of the Products produced from the
Properties. That share shall be defined by the Participant's Participating
Interest in the Production Area from which the Products are produced. Risk
of loss of any Products held for each Participant's respective account shall
be borne by such Participant, provided that such loss is not caused by the
Manager's gross negligence, intentional misconduct, or bad faith. Each
Participant shall take possession of such Products at the mine site or the
depository where held after all processing, smelting and/or refining of the
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Products is completed, and will thereafter bear the responsibilities and
costs of transportation, security and related expenses, and shall, at its own
expense, construct, operate and maintain any facilities necessary to receive,
store and dispose of its share of production.
11.2 FAILURE TO TAKE IN KIND. If a Participant fails to take in kind or
separately dispose of its share of Products as required by Section 11.1 after
10 days notice by the Manager, the Manager may either charge the delinquent
Participant 150% of the cost and expense of storing such Products or the
Manager may act as the delinquent Participant's agent to have an independent
contractor remove the Products and store them for the delinquent
Participant's account.
ARTICLE XII
WITHDRAWAL AND TERMINATION
12.1 TERMINATION BY EXPIRATION OR AGREEMENT. This Agreement shall
terminate as expressly provided in this Agreement, unless earlier terminated
by written agreement. At any time after any consecutive six year period
during which operations hereunder are conducted solely pursuant to
Maintenance Program(s) or Exploration Program(s), or a combination thereof,
as defined under Section 9.2, Santa Fe may, at its sole election and for any
reason, terminate this Agreement by providing written notice to Hecla. Upon
any termination by written agreement or any termination pursuant to the
immediately preceding sentence, the parties shall, unless otherwise agreed to
in writing as part of a termination agreement, retain undivided interests in
the Properties located within each Area in proportion to the parties'
Participating Interest in each such Area. Prior to September 6, 2002,
neither Participant shall have the right unilaterally to terminate this
Agreement; provided, however, if termination results at any time after the
Effective Date pursuant to the withdrawal provisions of Section 12.2, then
the
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withdrawing Participant shall convey its interests to the other Participant
in accordance with Section 12.2(b).
12.2 WITHDRAWAL.
(a) A Participant may withdraw as a Participant from an
Exploration or Production Area in any of three ways. First, a Participant at
any time may withdraw voluntarily by giving notice to the other Participant
of the effective date of withdrawal, which shall be the later of the end of
the then current Program and Budget for the relevant Area or at least 30 days
after the date of the notice ("voluntary withdrawal"). Second, if a
Participant fails to make a contribution under Section 6.4(b)(ii), upon
election pursuant to that Section, it will be deemed to have withdrawn from
the relevant Area. Third, if a Participant allows its Participating Interest
in an Exploration or Production Area to be reduced to less than 15% under
Section 6.5, then it will be deemed to have withdrawn from the relevant Area.
(b) Upon withdrawal from an Exploration or Production Area, this
Agreement shall terminate with respect to such Area and the withdrawing
Participant shall be deemed to have transferred to the remaining Participant
its Participating Interest in the relevant Area, without cost and free and
clear of royalties, liens or other encumbrances arising by, through or under
such withdrawing Participant, except those royalties and other exceptions to
title described in Part 1 of Exhibit A, Section 6.4(b)(ii) and Section 6.5,
and those other interests and exceptions to which both Participants have
given their written consent after the date of this Agreement. The
withdrawing Participant shall execute and deliver all instruments as may be
necessary to effect the transfer of its Participating Interest in the
relevant Area. Any withdrawal under this Section 12.2 shall not relieve the
withdrawing Participant of its share of liabilities to third persons (whether
such accrues before or after such withdrawal) arising out of Operations
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conducted hereunder within the relevant Area prior to such withdrawal. For
purposes of this Section 12.2, the withdrawing Participant's share of such
liabilities shall be equal to its Participating Interest in the relevant Area
where the liability was incurred at the earliest time such liability was
created or incurred.
12.3 CONTINUING OBLIGATIONS. On termination of this Agreement under
Section 12.1 with respect to an Area, or with respect to both Areas, as the
case may be, the Participants shall remain liable for continuing obligations
hereunder until final settlement of all accounts. Such continuing
obligations include liability for all amounts chargeable with respect to any
Budget to which the withdrawing Participant is committed, including costs
incurred pursuant to such Budget after the effective date of withdrawal but
not in excess of the most recent cost estimates committed to, or approved by,
such withdrawing Participant. The withdrawing Participant shall also remain
liable for any liability arising out of Operations conducted on the relevant
Area or Areas prior to the withdrawal, whether the liability accrues before
or after such withdrawal from the relevant Area or Areas.
12.4 DISPOSITION OF ASSETS ON TERMINATION. Promptly after termination
of this Agreement under Section 12.1 with respect to all Properties, the
Manager shall take all action necessary to wind up the activities of the
Venture, and all costs and expenses incurred in connection with the
termination of the Venture shall be expenses chargeable to the Venture. The
Assets shall first be paid, applied, or distributed in satisfaction of all
liabilities of the Venture to third parties and then to satisfy any debts,
obligations, or liabilities owed to the Participants. Before distributing
any funds or Assets to Participants, the Manager shall have the right to
segregate amounts which, in the Manager's reasonable judgment, are necessary
to discharge continuing obligations or to purchase for the account of
Participants, bonds or other securities
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for the performance of such obligations. The foregoing shall not be
construed to include the repayment of any Participant's capital contributions
or Capital Account balance. Thereafter, any remaining cash and all other
Assets shall be distributed (in undivided interests unless otherwise agreed)
to the Participants. No Participant shall receive a distribution of any
interest in Products or proceeds from the sale thereof if such Participant's
Participating Interest therein has been terminated pursuant to this
Agreement.
12.5 TRANSFER COVENANTS. A Participant that withdraws pursuant to
Section 12.2, is a "withdrawing Participant" as the term is used in this
Section. If a withdrawing Participant, or the Affiliate of a withdrawing
Participant, acquires any interest from a third party within the Area of
Interest for twelve (12) months after the effective date of withdrawal, such
withdrawing Participant or Affiliate shall be obligated to offer to convey to
the non-withdrawing Participant, without cost, any such property or interest
so acquired. Such offer shall be made in writing and can be accepted by the
non-withdrawing Participant at any time within 45 days after it receives the
offer.
12.6 RIGHT TO DATA AFTER TERMINATION. After termination of this
Agreement pursuant to Section 12.1, each Participant shall be entitled to
copies of all information acquired hereunder before the effective date of
termination not previously furnished to it, but a Participant shall not be
entitled to any such copies pertaining solely to an Area withdrawn from after
withdrawal.
12.7 CONTINUING AUTHORITY. On termination of this Agreement under
Section 12.1 with respect to all Properties or the withdrawal of a
Participant pursuant to Section 12.2 with respect to all Properties, the
Manager shall have the power and authority, subject to control of the
Management Committee, if any, to do all things on behalf of the Participants
which are reasonably necessary or convenient to: (a) wind up Operations and
(b) complete any transaction
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and satisfy any obligation, unfinished or unsatisfied, at the time of such
termination or withdrawal, if the transaction or obligation arises out of
Operations prior to such termination or withdrawal. The Manager shall have
the power and authority to grant or receive extensions of time or change the
method of payment of an already existing liability or obligation, prosecute
and defend actions on behalf of the Participants and the Venture, mortgage
Assets, and take any other reasonable action in any matter with respect to
which the former Participants continue to have, or appear or are alleged to
have, a common interest or a common liability.
ARTICLE XIII
AREA OF INTEREST
13.1 GENERAL. Any interest or right to acquire any interest in real
property within the Area of Interest acquired during the term of this
Agreement by or on behalf of a Participant or any Affiliate shall be subject
to the terms and provisions of this Agreement. Sections 13.2, 13.3 and 13.4
of this Article XIII shall only apply to acquisitions from third parties of
any interest within the Area of Interest.
13.2 NOTICE TO NONACQUIRING PARTICIPANT. Within 30 days after the
acquisition of any interest or the right to acquire any interest in real
property wholly or partially within the Area of Interest (except real
property acquired by the Manager pursuant to a Program), the acquiring
Participant shall notify the other Participant of such acquisition. The
acquiring Participant's notice shall describe in detail the acquisition, the
lands and minerals covered thereby, the cost thereof, committed work
expenditures and reclamation obligations, and the reasons why the acquiring
Participant believes that the acquisition of the interest is in the best
interests of the Participants under this Agreement. In addition to such
notice, the acquiring Participant shall provide the non-acquiring
Participants with copies of all instruments documenting the
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acquisition, and shall keep any and all other information concerning the
acquired interest available for inspection by the other Participant.
13.3 OPTION EXERCISED. If, within 30 days after receiving the acquiring
Participant's notice, the other Participant notifies the acquiring
Participant of its election to accept a proportionate interest in the
acquired interest equal to its Participating Interest in the Exploration or
Production Area of which the acquired interest would be a part, the acquiring
Participant shall convey to the other Participant, by appropriate conveyance,
such a proportionate undivided interest therein. The acquired interest shall
become a part of the Properties for all purposes of this Agreement
immediately upon the notice of such other Participant's election to accept
the proportionate interest therein. Such other Participant shall promptly
pay to the acquiring Participant its proportionate share of the latter's
actual out-of-pocket acquisition costs.
13.4 OPTION NOT EXERCISED. If the other Participant does not give such
notice within the 30 day period set forth in Section 13.3, it shall have no
interest in the acquired interest, and the acquired interest shall not be a
part of the Properties or be subject to this Agreement.
13.5 LANDS OWNED OR CONTROLLED BY HECLA WITHIN THE AREA OF INTEREST.
(a) Certain lands that are currently owned and controlled by Hecla
within the Area of Interest are excluded from Hecla's Properties for the
purposes of this Agreement. The excluded lands are identified on Exhibit A.
Santa Fe may, at its sole election and without further exchange of
consideration, subject the excluded lands, or any part or parts thereof, to
this Agreement by providing written notice(s) of its election to Hecla. Such
notice(s) shall specify the excluded lands, or parts thereof, for which the
election is made. Effective upon receipt of Santa Fe's notice, the
properties specified in such notice shall become a part of the Properties,
and Hecla shall, without further exchange of consideration, execute,
acknowledge
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and deliver a good and sufficient deed or assignment of an undivided interest
in the formerly excluded lands equal to Santa Fe's Participating Interest in
all Assets at the time the election is made.
(b) Santa Fe's election(s) to subject excluded lands to this
Agreement under this Section 13.5 may be made at any time commencing with the
Effective Date and continuing through the earlier of 21 years from the
Effective Date or one year after Hecla hereafter notifies Santa Fe in writing
that all of the excluded lands (which remain excluded as of the time of the
notice) have become unencumbered by permitting or bonding requirements or
environmental or reclamation obligations owing to any local, state or federal
agency and are no longer the subject of any existing or threatened
governmental investigation or enforcement proceeding or public or private
litigation. Upon the expiration of such election period, Hecla may dispose
of any portion of the excluded lands for which an election has not been made.
(c) Santa Fe's election rights identified in this Section 13.5 are
not limited to a single election, but may be exercised from time to time on
various portions of the excluded lands.
(d) Notwithstanding any other provision of this Agreement, all
fixtures and facilities located on the surface of either Hecla's Properties
or the excluded lands are and shall remain the sole and separate property of
Hecla, and no election by Santa Fe respecting Hecla's Properties or the
excluded lands shall create any current or future property right in Santa Fe
to such fixtures and facilities; provided, however, Santa Fe may include in
any election under this Section such mineral-bearing materials located at or
in Hecla's surface facilities as Santa Fe may specify in making the election.
Santa Fe agrees to cooperate with Hecla to ensure Hecla has full access to
such fixtures and facilities for any purposes including, but not limited to,
the
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dismantling, salvaging, closure, restoration, remediation, monitoring,
maintenance or sale of all or part of such fixtures and facilities.
ARTICLE XIV
ABANDONMENT AND SURRENDER OF PROPERTIES
14.1 SURRENDER OR ABANDONMENT OF PROPERTY. The Management Committee may
authorize the Manager to surrender or abandon part or all of the Properties.
If the Management Committee authorizes any such surrender or abandonment over
the objection of a Participant, the Participant that desires to abandon or
surrender shall transfer to the objecting Participant, by appropriate
conveyance and without cost to the surrendering Participant, all of the
surrendering Participant's interest in the property to be abandoned or
surrendered, and the abandoned or surrendered property shall cease to be part
of the Properties. If Properties to be abandoned or surrendered are included
in a mining lease or sublease, abandonment shall be conducted in accordance
with and only to the extent permitted by any appurtenant mining lease or
sublease. Any Transfer under this Section 14.1 shall not relieve the
transferring Participant of its share of liabilities to third persons arising
out of Operations conducted prior to such Transfer. Any assignment of an
interest pursuant to this Section 14.1 shall not reduce or change the
transferor's Participating Interest.
14.2 REACQUISITION. If any Properties are abandoned or surrendered
under the provisions of this Article XIV, then, unless this Agreement is
earlier terminated, neither Participant nor any Affiliate thereof shall
acquire any interest in such Properties or a right to acquire such Properties
for a period of 2 years following the date of such abandonment or surrender.
If a Participant reacquires any Properties in violation of this Section 14.2,
the other Participant may elect by notice to the reacquiring Participant
within 45 days after it has actual
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notice of such reacquisition, to have such properties made subject to the
terms of this Agreement. In the event such an election is made, the
reacquired properties shall thereafter be treated as Properties, and the
costs of reacquisition shall be borne solely by the reacquiring Participant
and shall not be included for purposes of calculating the Participants'
respective Participating Interests.
ARTICLE XV
TRANSFER OF INTEREST
15.1 GENERAL. Subject to the terms of any appurtenant leases or
subleases, a Participant shall have the right to Transfer to any third party
all or any part of its interest in or to this Agreement, its Participating
Interest in an Exploration or Production Area or the Assets solely as
provided in this Article XV.
15.2 LIMITATIONS ON FREE TRANSFERABILITY. The Transfer right of a
Participant in Section 15.1 shall be subject to the following terms and
conditions:
(a) No transferee of all or any part of the interest of a
Participant in this Agreement, any Participating Interest in an Exploration
or Production Area or the Assets shall have the rights of a Participant
unless and until the transferring Participant has provided to the other
Participant notice of the Transfer, and except as provided in Sections
15.2(g) and 15.2(h), the transferee, as of the effective date of the
Transfer, has committed in writing to be bound by this Agreement to the same
extent as the transferring Participant;
(b) No Transfer permitted by this Article XV shall relieve the
transferring Participant of its share of any liability, whether accruing
before or after such Transfer, which arises out of Operations conducted prior
to such Transfer;
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(c) The transferring Participant and the transferee shall bear all
tax consequences of the Transfer;
(d) In the event of a Transfer of less than all of a Participating
Interest in an Area, the transferring Participant and its transferee shall
act and be treated as one Participant with respect to such Area;
(e) No Participant shall Transfer any interest in this Agreement
or the Assets except by Transfer of part or all of its Participating Interest
in the Exploration or a Production Area, or both;
(f) If the Transfer is the grant of a security interest by
mortgage, deed of trust, pledge, lien or other encumbrance of any interest in
this Agreement, any Participating Interest in an Area or the Assets to secure
a loan or other indebtedness of a Participant in a bona fide transaction,
such security interest shall be subordinate to the terms of this Agreement
and the rights and interests of the other Participant hereunder. Upon any
foreclosure or other enforcement of rights in the security interest the
acquiring third party shall be deemed to have assumed the position of the
encumbering Participant with respect to this Agreement and the other
Participant, and it shall comply with and be bound by the terms and
conditions of this Agreement;
(g) If a sale or other commitment or disposition of Products or
proceeds from the sale of Products by a Participant upon distribution to it
pursuant to Article XI creates in a third party a security interest in
Products or proceeds therefrom prior to such distribution, such sales,
commitment or disposition shall be subject to the terms and conditions of
this Agreement;
(h) Only United States currency shall be used for Transfers for
consideration; and
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(i) Regardless of the number of Transfers, the total Net Smelter
Returns interest available to be divided among all non-Participants pursuant
to Section 6.4(b)(ii) or 6.5 hereof shall not exceed the Net Smelter Returns
interest percentage determined under Section 6.4(b)(ii) or 6.5 at the time of
its creation.
15.3 PREEMPTIVE RIGHT. Except as otherwise provided in Section 15.4, if
a Participant desires to Transfer all or any part of its interest in this
Agreement, any Participating Interest in an Area or Areas, the other
Participant shall have a preemptive right to acquire such interests as
provided in this Section 15.3.
(a) A Participant desiring to Transfer all or any part of its
interest in this Agreement or its Participating Interest in an Area or Areas
or the Assets shall first offer such interest to the other Participant. The
offer shall state the price and all other pertinent terms and conditions of
the desired Transfer. The other Participant shall have 60 days from the date
such offer is delivered to notify the transferring Participant whether it
elects to acquire the offered interest at the price and on the terms and
conditions set forth in the offer. If it does so elect, the Transfer shall
be consummated promptly after notice of such election is delivered to the
transferring Participant.
(b) If the other Participant fails to so elect within the period
provided for in Section 15.3(a), the transferring Participant shall have 120
days following the expiration of such period to market and ultimately
consummate a Transfer at a price and on terms no less favorable than those
offered by the transferring Participant to the other Participant in the
notice required in Section 15.3(a).
(c) If the transferring Participant fails to consummate a Transfer
within the period set forth in Section 15.3(b), the preemptive right of the
other Participant in such offered
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interest shall be deemed to be revived. Any subsequent efforts to Transfer
such interest shall be conducted in accordance with all of the procedures set
forth in this Section 15.3.
15.4 EXCEPTIONS TO PREEMPTIVE RIGHT. Section 15.3 shall not apply to
the following:
(a) Transfer by a Participant of all or any part of its
Participating Interest to an Affiliate of Hecla or Santa Fe, provided that if
the transferee ceases to be an Affiliate of Hecla or Santa Fe, it shall be
required to offer to sell such Participating Interest to the other
Participant in accordance with Section 15.3 at a price equal to the fair
market value of such Participating Interest as determined by an independent
appraiser agreed to by the Participants;
(b) Incorporation of a Participant, or corporate merger,
consolidation, amalgamation or reorganization of a Participant by which the
surviving entity shall possess substantially all of the stock, or all of the
property rights and interests, and be subject to substantially all of the
liabilities and obligations of that Participant;
(c) The grant by a Participant of a security interest in any
interest in this Agreement, any Participating Interest, or the Assets by
mortgage, deed of trust, pledge, lien or other encumbrance;
(d) A sale or other commitment or disposition of Products or
proceeds from sale of Products by a Participant upon distribution to it
pursuant to Article XI; or
(e) Transfer of all or any portion of the capital stock of a
Participant, provided that the Participating Interest or Interests of such
Participant do not constitute more than 80% of the total assets owned by such
Participant.
ARTICLE XVI
CONFIDENTIALITY
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16.1 GENERAL. The financial terms of this Agreement and all information
obtained in connection with the performance of this Agreement shall be the
exclusive property of the Participants and, except as provided in Section
16.2, shall not be disclosed to any third party or the public without the
prior written consent of the other Participant, which consent shall not be
unreasonably withheld.
16.2 EXCEPTIONS. The consent required by Section 16.1 shall not apply
to a disclosure:
(a) To an Affiliate, consultant, contractor or subcontractor that
has a bona fide need to be informed;
(b) To any third party to whom the disclosing Participant
contemplates a Transfer of all or any part of its interest in or to this
Agreement, its Participating Interest, or the Assets; or
(c) To a governmental agency or to the public which the disclosing
Participant believes in good faith is required by pertinent law or regulation
or the rules of any stock exchange.
In any case to which this Section 16.2 is applicable, the disclosing
Participant shall give notice to the other Participant concurrently with the
making of such disclosure. As to any disclosure pursuant to Section 16.2(a)
or (b), only such confidential information as such third party shall have a
legitimate business need to know shall be disclosed and such third party
shall first agree in writing to protect the confidential information from
further disclosure to the same extent as the Participants are obligated under
this Article XVI.
16.3 PRESS RELEASES. Santa Fe and Hecla shall consult with each other
before issuing any press release or public statement on the results of
exploration activities on the Mining Properties. Neither Hecla or Santa Fe
or Affiliates shall issue any press release or public
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statement mentioning the Properties without the other Participant's prior
written approval and consent (which approval and consent shall not be
unreasonably withheld) except as required on advice of counsel, by any law or
by the rules of any exchange on which the securities of such party are
listed.
16.4 DURATION OF CONFIDENTIALITY. The provisions of this Article XVI
shall apply during the term of this Agreement and for two years following
termination of this Agreement pursuant to Section 12.1, and shall continue to
apply to any Participant who withdraws, who is deemed to have withdrawn, or
who Transfers its Participating Interest, for two years following the date of
such occurrence.
ARTICLE XVII
GENERAL PROVISIONS
17.1 NOTICES. All notices, waivers, payments and other required
communications ("Notices") to the Participants shall be in writing, and shall
be addressed respectively as follows:
To: Santa Fe Santa Fe Pacific Gold Corporation
6200 Uptown Blvd. NE, Ste. 400
P.O. Box 27019
Albuquerque, New Mexico 87125
Attn: Land Department
and
Santa Fe Pacific Gold Corporation
6200 Uptown Blvd. NE, Ste. 400
P. O. Box 27019
Albuquerque, New Mexico 87125
Attn: Engineering and Development
To: Hecla Hecla Mining Company
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
Attn: General Counsel
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All Notices shall be given (i) by personal delivery to the Participant if
delivered during normal business hours, or (ii) by electronic communication,
with a confirmation sent by registered or certified mail return receipt
requested, or (iii) by registered or certified mail return receipt requested.
All Notices shall be effective and shall be deemed delivered (i) if by
personal delivery on the date of delivery if delivered during normal business
hours, and, if not delivered during normal business hours, on the next
business day following delivery, (ii) if by electronic communication on the
next business day following receipt of the electronic communication, and
(iii) if solely by mail on the next business day after actual receipt. A
Participant may change its address by Notice to the other Participant.
17.2 WAIVER. The failure of a Participant to insist on the strict
performance of any provision of this Agreement or to exercise any right,
power or remedy upon a breach hereof shall not constitute a waiver of any
provision of this Agreement or limit the Participant's right thereafter to
enforce any provision or exercise any right.
17.3 MODIFICATION. No modification of this Agreement shall be valid
unless made in writing and duly executed by the Participants.
17.4 FORCE MAJEURE. Except for any obligation to make payments when due
hereunder, the obligations of a Participant shall be suspended to the extent
and for the period that performance is prevented by any cause beyond its
reasonable control, including, without limitation, labor disputes (however
arising and whether or not employee demands are reasonable or within the
power of the party to grant); acts of God; laws, regulations, orders,
proclamations, instructions or requests of any government or governmental
entity; judgments or orders of any court; inability to obtain on reasonably
acceptable terms any public or private license, permit or other
authorization, including access and occupancy rights from surface owners,
curtailment
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<PAGE> 59
or suspension of activities to remedy or avoid an actual or alleged, present
or prospective violation of federal, state or local environmental standards;
acts of war or conditions arising out of or attributable to war, whether
declared or undeclared; riot, civil strife, insurrection or rebellion; fire,
explosion, earthquake, storm, flood, sink holes, drought or other adverse
weather conditions; delay or failure by suppliers or transporters of
materials, parts, supplies, services or equipment or by contractors' or
subcontractors' shortage of, or inability to obtain, labor, transportation,
materials, machinery, equipment, supplies, utilities or services; accidents;
breakdown of equipment, machinery or facilities; or any other cause whether
similar or dissimilar to the foregoing. The affected Participant shall
promptly give notice to the other Participant of the suspension of
performance, stating therein the nature of the suspension, the reasons
therefor, and the expected duration thereof. The affected Participant shall
resume performance as soon as reasonably possible.
Commercial frustration, commercial impracticability or the occurrence of
unforeseen events rendering performance hereunder uneconomical shall not
constitute an excuse of performance of any obligation imposed hereunder.
17.5 GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Washington, except for its rules
pertaining to conflicts of laws.
17.6 RULE AGAINST PERPETUITIES. Any right or option to acquire any
interest in real or personal property under this Agreement must be exercised,
if at all, so as to vest such interest in the acquirer within 21 years after
the effective date of this Agreement.
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17.7 FURTHER ASSURANCES. Each of the Participants agrees to take from
time to time such actions and execute such additional instruments as may be
reasonably necessary or convenient to implement and carry out the intent and
purpose of this Agreement.
17.8 SURVIVAL OF TERMS AND CONDITIONS. All provisions of this Agreement
shall survive the termination of this Agreement to the full extent necessary
for their enforcement and the protection of the Participant in whose favor
they run.
17.9 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. Except as otherwise
provided in the Earn-in Agreement, this Agreement contains the entire
understanding of the Participants and supersedes all prior agreements and
understandings between the Participants relating to the subject matter
hereof. This Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of the Participants. In the
event of any conflict between this Agreement and any Exhibit attached hereto,
the terms of this Agreement shall be controlling.
17.10 MEMORANDUM. At the request of either Participant, a
Memorandum or short form of this Agreement, as appropriate, which shall not
disclose financial information contained herein, shall be prepared and
recorded by Manager. This Agreement shall not be recorded.
17.11 SEVERABILITY. In the event that a court of competent
jurisdiction determines that any term, part or provision of this Agreement is
unenforceable, illegal, or in conflict with any federal, state, or local
laws, the Participants intend that the court reform that term, part or
provision within the limits permissible under law in a way as to approximate
most closely the intent of the Participants to this Agreement; provided that,
if the court cannot make a reformation, then that term, part or provision
shall be considered severed from this Agreement.
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The remaining portions of this Agreement shall not be affected and it shall
be construed and enforced as if it did not contain that term, part or
provision.
17.12 PARAGRAPH HEADINGS. The paragraph and other headings of this
Agreement are inserted only for convenience and in no way define, limit or
describe the scope or intent of this Agreement or effect its terms and
provisions.
17.13 MONETARY AMOUNTS. All references to monetary amounts in this
Agreement refer to United States dollars.
17.14 ATTORNEYS' FEES. The prevailing party in any dispute arising
under this Agreement shall be entitled to an aware of its reasonable
attorneys' fees and costs.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATTEST: SANTA FE PACIFIC GOLD CORPORATION
/s/ B. E. Martin By /s/ D. K. Hogan
--------------------------- ----------------------------------
Secretary Vice President
HECLA MINING COMPANY
ATTEST:
/s/ Michael B. White By /s/ Arthur Brown
--------------------------- ----------------------------------
Secretary Title Chairman
----------------------------------
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STATE OF New Mexico )
---------------------
) ss.
COUNTY OF Bernalillo )
---------------------
The foregoing instrument was acknowledged before me this ___ day of
September, 1996 by D. K. Hogan the Vice President of Santa Fe Pacific Gold
Corporation, a Delaware corporation, on behalf of said corporation.
/s/ Bonnie L. Simmons
------------------------------
Notary Public
My commission expires:
September 28, 2000
-----------------------------
STATE OF IDAHO )
) ss.
COUNTY OF Kootenai )
The foregoing instrument was acknowledged before me this 6th day of
September, 1996, by Arthur Brown the Chairman of Hecla Mining Company, a
Delaware corporation, on behalf of said corporation.
/s/ Narda L. Anthony
------------------------------
Notary Public
My commission expires:
8-5-2000
-----------------------------
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<PAGE> 1
Exhibit 10.12
LIMITED LIABILITY COMPANY AGREEMENT
OF
THE ROSEBUD MINING COMPANY, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
EFFECTIVE AS OF September 6, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Cross References . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FORMATION OF COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Principal Place of Business . . . . . . . . . . . . . . . . . . 10
2.4 Registered Office and Registered Agent . . . . . . . . . . . . 10
ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PURPOSES AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Implied Covenants . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 No Third Party Beneficiary Rights . . . . . . . . . . . . . . . 11
ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS . . . . . . . . . . . . . 12
4.1 Representations and Warranties of Both Members . . . . . . . . 12
4.2 Representations and Warranties of Hecla . . . . . . . . . . . . 12
4.3 Representations and Warranties of SFPG . . . . . . . . . . . . 14
4.4 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Record Title . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Loss of Title . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 Payment of Royalties . . . . . . . . . . . . . . . . . . . 16
4.8 Indemnity Concerning the Twin Creeks Plant . . . . . . . . . . 16
4.9 Indemnity Concerning the Euro-Nevada Option Agreement . . . . . 16
4.10 Indemnities/Limitation of Liability . . . . . . . . . . . . . . 17
ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CONTRIBUTIONS BY MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Members' Initial Contributions . . . . . . . . . . . . . . . . 18
5.2 Funding of Operations . . . . . . . . . . . . . . . . . . . . . 18
5.3 Processing of Ores . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INTERESTS OF MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Initial Ownership Interests . . . . . . . . . . . . . . . . . . 20
6.2 Changes in Ownership Interests . . . . . . . . . . . . . . . . 20
6.3 Voluntary Reduction in Ownership . . . . . . . . . . . . . . . 21
6.4 Conversion of Minority Interest . . . . . . . . . . . . . . . . 24
<PAGE> 3
6.5 Continuing Liabilities Upon Adjustments of Ownership Interests 24
6.6 Grant of Security Interests . . . . . . . . . . . . . . . . . . 25
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Management Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Organization and Composition of the Management Board . . . . . 26
7.3 Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Action Without Meeting . . . . . . . . . . . . . . . . . . . . 27
7.6 Matters Requiring Special Approval of Management Board . . . . 27
7.7 Activities During Deadlock . . . . . . . . . . . . . . . . . . 28
7.8 Financial Audits . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
POWERS AND DUTIES OF MANAGERS . . . . . . . . . . . . . . . . . . . . . . 28
8.1 Powers and Duties of Manager for Mining . . . . . . . . . . . . 28
8.2 Powers and Duties of Manager for Processing . . . . . . . . . . 32
8.3 Powers and Duties of Manager for Exploration . . . . . . . . . 34
8.4 Cash Calls . . . . . . . . . . . . . . . . . . . . . . . . 36
8.5 Limited Authority To Bind Company . . . . . . . . . . . . . . . 36
8.6 Liability for Certain Acts, Indemnities . . . . . . . . . . . . 36
8.7 Managers and Members Have No Exclusive Duty to Company . . . . 37
8.8 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.9 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.10 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.11 Vacancies and Replacements . . . . . . . . . . . . . . . . . . 38
8.12 Compensation, Reimbursement, Organization Expenses. . . . . . . 38
8.13 Right to Rely on the Managers . . . . . . . . . . . . . . . . . 39
ARTICLE 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
RIGHTS AND OBLIGATIONS OF MEMBERS . . . . . . . . . . . . . . . . . . . . 39
9.1 Limitation of Liability . . . . . . . . . . . . . . . . . . . . 39
9.2 List of Members . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3 Approval of Sale of All Assets . . . . . . . . . . . . . . . . 39
9.4 Company Books . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.5 Priority and Return of Capital . . . . . . . . . . . . . . . . 40
9.6 Rights on Failure of a Member to Pay a Cash Call . . . . . 40
9.7 Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
PROGRAMS AND BUDGETS . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.1 Initial Programs and Budgets . . . . . . . . . . . . . . . . . 42
ii
<PAGE> 4
10.2 Operations Pursuant to Programs and Budgets . . . . . . . . . . 42
10.3 Preparation and Presentation of Programs and Budgets . . . . . 42
10.4 Review and Approval of Proposed Programs and Budgets . . . . . 43
10.5 Deadlock on Proposed Programs and Budgets . . . . . . . . . . . 43
10.6 Election to Participate . . . . . . . . . . . . . . . . . . . . 44
10.7 Budget Overruns; Program Changes . . . . . . . . . . . . . . . 44
10.8 Emergency or Unexpected Expenditures . . . . . . . . . . . . . 44
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS . . . . . . 45
11.1 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.2 Allocations to Members . . . . . . . . . . . . . . . . . . . . 45
11.3 Agreement Not to Cause a Tax Termination . . . . . . . . . . . 48
11.4 Special Allocations. . . . . . . . . . . . . . . . . . . . . . 48
11.5 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.6 Limitation Upon Distributions . . . . . . . . . . . . . . . . . 49
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.7 Interest On and Return of Capital Contributions . . . . . . . . 50
11.8 Loans to Company . . . . . . . . . . . . . . . . . . . . . . . 50
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.9 Records, Audits and Reports . . . . . . . . . . . . . . . . . . 50
11.10 Returns and Other Elections . . . . . . . . . . . . . . . . . 50
11.11 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . 50
11.12 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ACQUISITIONS WITHIN AREA OF INTEREST . . . . . . . . . . . . . . . . . . 52
12.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.2 Notice to Nonacquiring Member . . . . . . . . . . . . . . . . . 52
12.3 Option Exercised . . . . . . . . . . . . . . . . . . . . . . . 52
12.4 Option Not Exercised . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ABANDONMENT AND SURRENDER OF PROPERTIES . . . . . . . . . . . . . . . . . 53
13.1 Surrender or Abandonment of Property . . . . . . . . . . . . . 53
13.2 Reacquisition . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.2 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.3 Duration of Confidentiality . . . . . . . . . . . . . . . . . . 54
ARTICLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
15.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
15.2 Preemptive Right . . . . . . . . . . . . . . . . . . . . . . . 55
iii
<PAGE> 5
15.3 Exceptions to Preemptive Right . . . . . . . . . . . . . . . . 55
15.4 Consent to Transfer . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ADDITIONAL MEMBERS, SEPARATE OPERATING AREAS . . . . . . . . . . . . . . 56
16.1 Additional Members . . . . . . . . . . . . . . . . . . . . . . 56
16.2 Separate Operating Areas . . . . . . . . . . . . . . . . . . . 57
ARTICLE 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
DISSOLUTION, WINDING UP AND CANCELLATION . . . . . . . . . . . . . . . . 57
17.1 Dissolution and Withdrawal . . . . . . . . . . . . . . . . . . 57
17.2 Winding Up, Liquidation and Distribution of Assets. . . . . . . 58
17.3 Non-Compete Covenants . . . . . . . . . . . . . . . . . . . . . 59
17.4 Certificate of Cancellation . . . . . . . . . . . . . . . . . . 60
17.5 Return of Contribution Nonrecourse to Other Members . . . . . . 60
ARTICLE 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.1 Resolution of Disputes . . . . . . . . . . . . . . . . . . . . 60
18.2 General Provisions Concerning Arbitration . . . . . . . . . . 60
18.3 Special Arbitration Procedures for Matters Arising Under
Subsection 10.5(b) . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 62
19.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.2 Application of Delaware Law . . . . . . . . . . . . . . . . . . 63
19.3 Waiver of Action for Partition . . . . . . . . . . . . . . . . 63
19.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 63
19.5 Execution of Additional Instruments . . . . . . . . . . . . . . 63
19.6 Construction . . . . . . . . . . . . . . . . . . . . . . . . . 63
19.7 Headings and Pronouns . . . . . . . . . . . . . . . . . . . . . 63
19.8 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.9 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . 64
19.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.11 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 64
19.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.13 Force Majeure . . . . . . . . . . . . . . . . . . . . . . 64
19.14 Rule Against Perpetuities . . . . . . . . . . . . . . . . . . 65
19.15 Investment Representations . . . . . . . . . . . . . . . . . . 65
iv
<PAGE> 6
LIMITED LIABILITY COMPANY AGREEMENT
This Limited Liability Company Agreement ("Agreement") is made and
entered into as of this 6th day of September, 1996, by and between Santa Fe
Pacific Gold Corporation, a Delaware corporation ("SFPG")" and Hecla Mining
Company, a Delaware corporation (Hecla").
RECITALS:
Hecla owns and operates the Hecla Properties (as herein defined). Hecla
has caused plans and budgets to be prepared for the development, construction
and life-of-mine operation of the Rosebud Mine (as herein defined) and SFPG
has reviewed such plans and budgets. Hecla and SFPG desire to jointly
develop and operate the Rosebud Mine.
SFPG owns and operates the Twin Creeks Plant (as herein defined). SFPG
has caused plans and budgets to be prepared for processing ores from the
Rosebud Mine at the Twin Creeks Plant and Hecla has reviewed such plans and
budgets. Hecla and SFPG desire to arrange with SFPG to process ores from the
Rosebud Mine at the Twin Creeks Plant or another processing facility owned by
SFPG in the State of Nevada.
SFPG also owns and operates the SFPG Properties (as herein defined).
Hecla and SFPG desire jointly to explore, and, if warranted, jointly to
develop and operate the SFPG Properties and those portions of the Hecla
Properties not included within the Rosebud Mine.
SFPG and Hecla formed The Rosebud Mining Company, L.L.C. (the "Company")
to develop and operate the Rosebud Mine, to arrange for the processing of
ores produced therefrom, to explore other properties within the Area of
Interest (as herein defined); and to acquire, own, explore, manage, operate,
and dispose of other assets.
A certificate of formation for the Company was filed with the Secretary
of State of Delaware on August 21, 1996.
AGREEMENT:
Hecla and SFPG agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The following terms used in this Agreement shall
have the meanings assigned to them in this Article (unless otherwise
expressly provided herein);
<PAGE> 7
(a) "ACT" shall mean the Delaware Limited Liability Company Act,
as amended from time to time, or any corresponding provisions of succeeding
law.
(b) "ACCOUNTING PROCEDURE" shall mean the document attached hereto
as Exhibit N.
(c) "ACTUAL CASH PROCESSING COSTS" shall mean all costs of the
types set forth in set forth in Exhibit M, actually incurred or accrued by
SFPG in Processing the Rosebud Ores and Other Ores, during the relevant
accounting period.
(d) "ADOPTED PROGRAM AND BUDGET" shall mean a Program and Budget
adopted by the Management Board pursuant to Section 10.4, approved by the
Members pursuant to Section 10.5(a), or determined by arbitration pursuant to
Section 10.5(b) and Article 18, and includes the Mine Construction Program
and Budget, the Plant Construction Program and Budget and the initial
Exploration Program and Budget referred to in Section 10.1(b). An Adopted
Program and Budget may include both Investment Costs and Operational Costs.
(e) "AFFILIATE" shall mean, with respect to any Person, (i) any
other Person directly or indirectly controlling, controlled by, or under
common control with such Person, or (ii) any Person owning or controlling
thirty percent (30%) or more of the outstanding voting interests of such
Person. For purposes of this definition, the term "controls," "is controlled
by," or "is under common control with" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities,
by contract or otherwise.
(f) "AGREEMENT" shall mean this Limited Liability Company
Agreement, including all amendments and modifications thereof, and all
exhibits attached hereto, which are incorporated herein by this reference.
(g) "ALTERNATE PROCESSING PLANT" shall mean any ore processing
facility located in Humboldt County, Nevada, now or hereafter owned or
controlled by SFPG or an Affiliate of SFPG.
(h) "AREA OF INTEREST" shall mean the area described in Exhibit C.
(i) "ASSETS" shall mean the Properties, Products and all other
real and personal property, tangible and intangible, held by or for the
benefit of the Company.
2
<PAGE> 8
(j) "AVAILABLE PLANT CAPACITY" shall mean the capacity of the Twin
Creeks Plant, measured in Tons Per Day and determined monthly in advance,
determined in accordance with the following formula: APC = 1000 - R; where
"APC" equals the Available Plant Capacity, and "R" equals the Tons Per Day of
Rosebud Ores projected to be available for Processing in such month in
accordance with the Adopted Programs and Budgets.
(k) "BUDGET" shall mean a detailed estimate of all costs to be
incurred by the Company with respect to a Program and a schedule of cash
advances to be made by the Members.
(l) "CAPITAL ACCOUNT" as of any given date shall mean the Capital
Contribution to the Company by a Member as adjusted up to the date in
question pursuant to Section 11.12.
(m) "CAPITAL CONTRIBUTION" shall mean any contribution to the
capital of the Company in cash or property by a Member whenever made.
(n) "CASH CALL" shall have the meaning set forth in Section 8.4.
(o) "CASH MARGIN" shall have the meaning set forth in Exhibit L.
(p) "CERTIFICATE" shall mean the Certificate of Formation of The
Rosebud Mining Company, L.L.C. as filed with the Secretary of State of
Delaware, as the same may be amended from time to time.
(q) "CODE" shall mean the Internal Revenue Code of 1986 or
corresponding provisions of any subsequent, superseding federal revenue laws.
(r) "COMPANY" shall mean The Rosebud Mining Company, L.L.C.
(s) "COMPANY LIABILITY" shall mean all costs, expenses and
liabilities of every type and nature for which the Company is or becomes
liable, but for which, under the Act, the Members are not personally liable.
(t) "CONTINUING OBLIGATIONS" shall mean any obligations, costs,
responsibilities or liabilities, that are reasonably expected to continue or
arise after Operations on a particular area of the Properties have ceased or
are suspended, such as future monitoring, stabilization, or Environmental
Compliance.
(u) "COVER PAYMENT" shall mean the amount, if any, a non-
defaulting Member advances pursuant to Section 9.6(a) on behalf of a Member
that has defaulted in making a Cash Call.
3
<PAGE> 9
(v) "DEVELOPMENT" shall mean, with respect to any portion of the
Properties, all activities subsequent to and other than Exploration necessary
to allow the classification of a Mineral Resource as a Mineral Reserve,
including the preparation of feasibility studies, and all preparation for the
removal and recovery of Rosebud Ores and Other Ores, including the
construction or installation of any improvements to be used for the Mining,
of such ores.
(w) "DILUTING MEMBER" shall have the meaning set forth in Section
6.3(a).
(x) "DILUTION BASE" shall have the meaning set forth in Section
6.3(a).
(y) "DISTRIBUTABLE CASH" shall mean all cash, revenues and funds
received by the Company, less the sum of the following to the extent paid or
set aside by the Company: (i) all principal and interest payments on
indebtedness of the Company and all other sums paid to lenders; (ii) all cash
expenditures incurred incident to the normal operation of the Company's
business; and (iii) such Financial Reserves as the Management Board
reasonably deems necessary to the proper operation of the Company's business.
(z) "DISTRIBUTIONS" shall mean all distributions in cash, Products
or other property.
(aa) "ENCUMBRANCE" shall mean any mortgage, deed of trust, security
interest, pledge, lien, royalty, overriding royalty interest, or other burden
or liability of any nature.
(ab) "ENTITY" shall mean any general partnership, limited
partnership, limited liability partnership, limited liability company,
corporation, joint venture, trust, business trust, cooperative or association
or any foreign trust or foreign business organization.
(ac) "ENVIRONMENTAL COMPLIANCE" shall mean actions performed during
or after Operations to comply with the requirements of Environmental Laws or
with contractual commitments or obligations relating to the reclamation of
lands affected by Operations or compliance with Environmental Laws.
(ad) "ENVIRONMENTAL DAMAGE" shall mean damage or threatened damage
to the air, soil, surface waters, groundwater, or other natural resources on,
above, under or in the general vicinity of the Properties.
(ae) "ENVIRONMENTAL LAWS" shall mean Laws aimed at the reclamation
of mined or disturbed lands; abatement of pollution; protection of the
environment; ensuring public safety from environmental hazards; management,
storage or control of hazardous
4
<PAGE> 10
materials and substances; releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances as
wastes into the environment, including without limitation, ambient air,
surface water and groundwater; and all other Laws relating to the
manufacturing, processing, distribution, use, treatment, storage, disposal,
handling or transport of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
(af) "EXPLORATION" shall mean, with respect to any portion of the
Properties, all activities, prior to and other than Development, directed
toward ascertaining the existence, location, quantity, quality or commercial
value of deposits of minerals and establishing the existence of a Mineral
Resource.
(ag) "FINANCIAL RESERVES" shall mean, with respect to any fiscal
period, funds set aside or amounts allocated during such period to reserves
which shall be maintained in amounts deemed sufficient by the Managers for
working capital and to pay taxes, insurance, debt service or other costs or
expenses incident to the ownership or operation of the Company's business.
(ah) "FISCAL YEAR" shall mean the Company's fiscal year, which
shall be the calendar year.
(ai) "FORCE MAJEURE" shall have the meaning set forth in Section
19.13.
(aj) "HECLA" shall mean Hecla Mining Company, a Delaware
corporation.
(ak) "HECLA PROPERTIES" shall mean the Properties identified in
Subparagraph 1.1 of Exhibit A.
(al) "INVESTMENT COSTS" shall mean costs which relate to the
incurrence of expenditures for the acquisition or replacement of capital
assets, and require a contribution therefor by the Members.
(am) "KNOWLEDGE" shall mean, with respect to a representation and
warranty of a Member, actual knowledge on the part of the officers, employees
and agents of the Member or of facts that would reasonably lead to the
indicated conclusions.
(an) "LAW" or "LAWS" shall mean all applicable federal, state and
local laws (statutory or common), rules, ordinances, regulations, orders,
directives, judgments, decrees, and other governmental restrictions,
including permits and other similar requirements, whether legislative,
municipal, administrative or judicial in nature, including Environmental
Laws.
5
<PAGE> 11
(ao) "MAJORITY INTEREST" shall mean one or more interests of
Members which taken together exceed 50% of the aggregate of all Voting
Interests.
(ap) "MANAGEMENT BOARD" shall mean the Board established under
Article 7.
(aq) "MANAGER" shall mean one or more of the managers.
Specifically, "MANAGER FOR MINING" shall mean Hecla or any Member that
succeeds it in that capacity, and "MANAGER FOR PROCESSING" and "MANAGER FOR
EXPLORATION" shall mean SFPG or any Member that succeeds it in that capacity.
(ar) "MATERIAL LOSS" shall have the meaning set forth in Section
4.10(a).
(as) "MEMBER" shall mean each of the parties who executes a
counterpart of this Agreement as a Member and each of the parties who may
hereafter become a Member.
(at) "MEMBER LIABILITY" shall mean any obligation, responsibility,
cost or liability for which a Member becomes personally liable as a result of
Operations of the Company, but excludes Company Liability.
(au) "MINE COMPLETION TEST" shall mean the criteria for the
construction and completion of the Rosebud Mine specified in Exhibit O.
(av) "MINE CONSTRUCTION PROGRAM AND BUDGET" shall mean the Program
and Budget for (i) the Development of the Rosebud Mine and (ii) for Mining at
the Rosebud Mine from the commencement of Mining through December 31, 1997,
attached as Exhibit I, together with any revisions thereto or modifications
thereof adopted as herein provided.
(aw) "MINERAL RESERVE" shall have the meaning set forth on Exhibit
R.
(ax) "MINERAL RESOURCE" shall have the meaning set forth on Exhibit
R.
(ay) "MINING" shall mean the mining, extracting, producing, and
handling of Rosebud Ores and Other Ores, but shall exclude Processing.
(az) "NET RETURNS" shall mean certain amounts calculated as
provided in Exhibit D, which may be payable to a withdrawn Member under
Section 9.6(c)(ii).
6
<PAGE> 12
(ba) "NET RETURNS ROYALTY" shall mean a royalty interest,
calculated as provided in Exhibit D, which shall be conveyed to a withdrawn
Member under the circumstances set forth in Section 6.4.
(bb) "NOTICE" shall have the meaning set forth in Section 19.1.
(bc) "OPERATIONAL COSTS" shall mean costs which relate to normal
ongoing Operations for Development, Mining or Processing (but not for
Exploration), and require a contribution therefor by the Members.
(bd) "OPERATIONS" shall mean the activities carried out by or for
the Company under this Agreement.
(be) "OWNERSHIP INTEREST" shall mean a Member's interest in the
Company as such interest may from time to time be adjusted hereunder.
Ownership Interests shall be calculated to five decimal places and rounded to
four decimal places as follows: Decimals of .00005 or more shall be rounded
up (e.g., 1.55519% rounded to 1.5552%); decimals of less than .00005 shall be
rounded down (e.g., 1.55514% rounded to 1.5551%).
(bf) "OTHER ORES" shall mean all ores, other than Rosebud Ores,
produced from the Properties, (including any such ores from a Separate
Operating Area designated under Section 16.2) which can be mined by and
Processed for the Company, during the Processing Period, at any positive Cash
Margin, which are of a grade, mineralogy and amenability to treatment similar
to the Mineral Reserves and Mineral Resources of the Rosebud Mine known to
exist as of the date of this Agreement, but shall exclude ores which are to
be Processed by heap leaching or similar processes not involving grinding of
the ores.
(bg) "PERSON" shall mean any individual or Entity, and shall
include the heirs, executors, administrators, legal representatives,
successors, and assigns of such Person where the context so permits.
(bh) "PLANT COMPLETION TEST" shall mean the criteria for the
modification of the Twin Creeks Plant specified in Exhibit P.
(bi) "PLANT CONSTRUCTION PROGRAM AND BUDGET" shall mean the Program
and Budget for (i) the modification of the Twin Creeks Plant and (ii) for
Processing of Rosebud Ores from the commencement of Processing through
December 31, 1997, attached as Exhibit J, together with any revisions thereto
or modifications thereof adopted as herein provided.
(bj) "PRIME RATE" shall mean the interest rate quoted and published
as "Prime" as published in The Wall Street Journal, under the heading "Money
Rate," as the rate may change from day to day.
7
<PAGE> 13
(bk) "PROCESSING" shall mean the transportation of Rosebud Ores and
Other Ores from the Properties to the Twin Creeks Plant or to an Alternate
Processing Plant and the treatment, processing, beneficiation, and refining
of such ores to produce a dore bullion and "PROCESS" shall mean to so
transport, treat, process, beneficiate, and refine Rosebud Ores and Other
Ores.
(bl) "PROCESSING PERIOD" shall have the meaning set forth in
Exhibit L.
(bm) "PRODUCTS" shall mean all Rosebud Ores and Other Ores and all
upgraded or refined materials produced by or for the Company from such ores,
including dore produced by Processing and refined bullion produced by third
party refineries from such dore.
(bn) "PROGRAM" shall mean a description in reasonable detail of
Operations to be conducted and objectives to be accomplished by the Managers
for a Fiscal Year, or, if directed by the Management Board for any longer
period; provided that the Mine Construction Program and Budget and the Plant
Construction Program and Budget shall be for the durations therein provided.
(bo) "PROPERTIES" shall mean the Hecla Properties, the SFPG
Properties, and all other interests in real property within the Area of
Interest which are acquired and held by the Company.
(bp) "RECLAMATION ACCOUNT" shall have the meaning set forth in
Section 8.8.
(bq) "ROAD COMPLETION TEST" shall mean the criteria for the
improvement and construction of roads specified in Exhibit Q.
(br) "ROSEBUD MINE" shall mean the mine to be developed and
constructed in accordance with the Mine Construction Program and Budget.
(bs) "ROSEBUD ORES" shall mean all ores produced by the Company
from the Mineral Reserves and Mineral Resources of the Rosebud Mine known to
exist as of the date of this Agreement and from any extensions thereof or
additions thereto which are of a grade, mineralogy and amenability to
treatment similar to the Mineral Reserves and Mineral Resources of the
Rosebud Mine known to exist as of the date of this Agreement, but shall
exclude ores which are to be Processed by heap leaching or similar processes
not involving grinding of the ores.
(bt) "ROSEBUD PROJECT ASSETS" shall mean (1) the Hecla Properties,
(2) all fixtures, shafts, tunnels, workings, wells, improvements and
equipment located thereon, including without limitation those items
identified in Exhibit E, (3) all information, reports, data, studies,
analyses, interpretations, maps, core, samples or other materials relating
thereto in the
8
<PAGE> 14
possession or control of Hecla on the date of this Agreement, and (4) all
permits, approvals, licenses or authorizations from any governmental agency
or authority relating to or affecting the Hecla Properties or the Rosebud
Mine.
(bu) "SFPG" shall mean Santa Fe Pacific Gold Corporation, a
Delaware corporation.
(bv) "SFPG PROPERTIES" shall mean the Properties identified in
Subparagraph 2.1 of Exhibit A.
(bw) "SECURITY AGREEMENTS" shall have the meaning set forth in
Section 6.6.
(bx) "SELLING MEMBER" shall mean any Member which Transfers for
consideration all or any portion of its Ownership Interest.
(by) "TONS PER DAY" shall mean an average number of short tons of
ores calculated over a period of thirty (30) days.
(bz) "TRANSFER" shall mean, when used as a verb, to sell, grant,
assign, create an Encumbrance, or otherwise convey, or dispose of or commit
to do any of the foregoing or to arrange for substitute performance by an
Affiliate or third party, either directly or indirectly; and, when used as a
noun, shall mean a sale, grant, Encumbrance, other disposition or
substitution of performance.
(ca) "TREASURY REGULATIONS" shall include proposed, temporary and
final regulations promulgated under the Code in effect as of the date of
filing the Certificate and the corresponding sections of any regulations
subsequently issued that amend or supersede such regulations.
(cb) "TWIN CREEKS PLANT" shall mean the ore processing facilities
identified in Subparagraph 1.1 of Exhibit B.
(cc) "VOTING INTEREST" shall mean the right of a Member to vote
hereunder which shall be proportionate to a Member's Ownership Interest at
the time the vote is taken.
1.2 CROSS REFERENCES. References to "Articles" refer to Articles
of this Agreement. References to "Sections" and "Subsections" refer to
sections and subsections of this Agreement. References to "Paragraphs" and
"Subparagraphs" refer to paragraphs and subparagraphs of the referenced
Exhibits to this Agreement.
9
<PAGE> 15
ARTICLE 2
FORMATION OF COMPANY
2.1 FORMATION. On August 21, 1996, SFPG and Hecla organized a
Delaware Limited Liability Company by executing and filing the Certificate
with the Delaware Secretary of State in accordance with and pursuant to the
Act.
2.2 NAME. The name of the Company is The Rosebud Mining Company,
L.L.C.
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of business
of the Company within the State of Nevada shall be in Winnemucca, Nevada.
The Company may locate its places of business and registered office at any
other place or places as the Management Board may from time to time deem
advisable.
2.4 REGISTERED OFFICE AND REGISTERED AGENT. The Company's initial
registered office and the name of the registered agent at such address shall
be as set forth in the Certificate. The registered office and registered
agent may be changed from time to time at the direction of the Management
Board by filing the address of the new registered office and/or the name of
the new registered agent with the Secretaries of State of Nevada and Delaware
pursuant to the Act.
ARTICLE 3
PURPOSES AND TERM
3.1 GENERAL. SFPG and Hecla formed the Company and are entering
this Agreement because each believes it is the best available alternative for
realizing their mutual goal of reducing the total costs of Exploring the
Properties, and of Developing, Mining and Processing Rosebud Ores and Other
Ores. Hecla and SFPG intend that the Company economically and efficiently
conduct Exploration, Development and Mining and that SFPG economically and
efficiently conduct Processing, in a manner consistent with industry practice
and with the primary objective of maximizing the economic value of the
Company's Assets, with due regard for environmental, health and safety
considerations and compliance with applicable Laws. In furtherance of the
foregoing, SFPG and Hecla hereby enter into this Agreement for the purposes
hereinafter stated. All of the rights and obligations of SFPG and Hecla with
respect to the Company and all Operations on or in connection with the
Properties or in the Area of Interest shall be subject to and governed by
this Agreement. If there is any inconsistency between this Agreement and any
non-mandatory provision of the Act, the terms and conditions of this
Agreement shall govern.
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3.2 PURPOSES. This Agreement is entered into for the following
purposes and for no others, and shall serve as the exclusive means by which
the Members, or either of them, or the Company accomplish such purposes:
(a) to conduct the Development and Mining of the Rosebud Mine,
(b) to provide for the processing of Rosebud Ores and Other Ores
by SFPG at the Twin Creeks Plant or at an Alternate Processing Plant,
(c) to conduct Exploration at the Rosebud Mine and elsewhere
within the Area of Interest,
(d) to acquire additional Properties within the Area of Interest,
(e) to evaluate the possible Development of portions of the
Properties, in addition to the Rosebud Mine,
(f) to engage in Development and Mining Operations on portions of
the Properties, in addition to the Rosebud Mine,
(g) to conduct and complete all necessary Environmental Compliance
with respect to the Properties,
(h) to preserve and continue the existence of the Company, and
(i) to perform any other activity necessary, appropriate, or
incidental to any of the foregoing.
3.3 LIMITATION. Unless the Members otherwise agree in writing,
Operations shall be limited to the purposes described in Section 3.2, and
nothing in this Agreement shall be construed to enlarge such purposes.
3.4 TERM. The Company shall commence on the date of filing of the
Certificate and shall have perpetual existence and continue until it is
dissolved, wound up and liquidated, as provided in Article 17.
3.5 IMPLIED COVENANTS. No covenants shall be implied in respect
to this Agreement or its performance, other than those of good faith and fair
dealing.
3.6 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement shall be
construed to benefit the Members and their respective successors and assigns
only, and shall not be construed to create third party beneficiary rights in
any other party or in any governmental organization or agency.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS
4.1 REPRESENTATIONS AND WARRANTIES OF BOTH MEMBERS. Each of the
Members represents and warrants to the other as of the date of this Agreement
as follows:
(a) that it is a corporation duly incorporated and in good
standing in its state of incorporation and that it is qualified to do
business and is in good standing in those states where necessary in order to
carry out the purposes of this Agreement;
(b) that it has the capacity to enter into and perform this
Agreement and all transactions contemplated herein and that all corporate and
other actions required to authorize it to enter into and perform this
Agreement have been properly taken;
(c) it is not subject to any governmental order, judgment, decree,
order, sanction or Law that would preclude the permitting or implementation
of Operations under this Agreement;
(d) that it will not breach any other agreement or arrangement by
entering into or performing this Agreement; and
(e) that this Agreement has been duly executed and delivered by it
and is valid and binding upon it in accordance with its terms.
4.2 REPRESENTATIONS AND WARRANTIES OF HECLA. Hecla represents and
warrants to SFPG, effective as of the date of this Agreement:
(a) With respect to those Hecla Properties in which Hecla holds an
interest under leases or other contracts: (i) Hecla is in exclusive
possession of the Hecla Properties; (ii) Hecla has not received any notice of
default of any of the terms or provisions of such leases or other contracts;
(iii) Hecla has the authority under such leases or other contracts to perform
fully its obligations under this Agreement; (iv) to Hecla's Knowledge, such
leases and other contracts are valid and are in good standing; (v) Hecla has
no Knowledge of any act or omission or any condition on the Properties which
could be considered or construed as a default under any such lease or other
contract; and (vi) to Hecla's Knowledge, the Properties covered thereby are
free and clear of all Encumbrances or defects in title except for those
specifically identified in Subparagraph 1.2 of Exhibit A.
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(b) Hecla has delivered or made available by written notice to
SFPG all information in its possession or control concerning title to and the
mineral potential of the Hecla Properties, including but not limited to true
and correct copies of all leases or other contracts relating to the Hecla
Properties.
(c) With respect to unpatented mining claims located by Hecla that
are included within the Hecla Properties, except as provided in Subparagraph
1.2 of Exhibit A and subject to the paramount title of the United States:
(i) the unpatented mining claims were properly laid out and monumented;
(ii) all required location and validation work was properly performed;
(iii) location notices and certificates were properly recorded and filed with
appropriate governmental agencies; (iv) all assessment work, location fees,
mining claim rental fees, or mining claim maintenance fees required to hold
the unpatented mining claims have been performed or have been paid in a
manner consistent with that required of the Manager for Mining pursuant to
Section 8.1 through the assessment year ending September 1, 1996; (v) all
affidavits of assessment work and other filings required to maintain the
claims in good standing have been properly and timely recorded or filed with
appropriate governmental agencies; (vi) the claims are free and clear of
Encumbrances or defects in title; and (vii) Hecla has no Knowledge of
conflicting mining claims. Nothing in this Subsection, however, shall be
deemed to be a representation or a warranty that any of the unpatented mining
claims contains a deposit of valuable minerals.
(d) With respect to unpatented mining claims not located by Hecla
but which are included within the Hecla Properties, except as provided in
Subparagraph 1.2 of Exhibit A and subject to the paramount title of the
United States, to Hecla's Knowledge: (i) all assessment work, location fees,
mining claim rental fees, or mining claim maintenance fees required to hold
the unpatented mining claims have been performed or have been paid in a
manner consistent with that required of the Manager for Mining pursuant to
Section 8.1 through the assessment year ending September 1, 1996; (ii) all
affidavits of assessment work and other filings required to maintain the
claims in good standing have been properly and timely recorded or filed with
appropriate governmental agencies; (iii) the claims are free and clear of
Encumbrances or defects in title; and (iv) Hecla has no Knowledge of
conflicting mining claims. Nothing in this Subsection, however, shall be
deemed to be a representation or a warranty that any of the unpatented mining
claims contains a deposit of valuable minerals.
(e) With respect to the Hecla Properties, to Hecla's Knowledge,
there are no pending or threatened actions, suits, claims or proceedings, and
there have been no previous transactions affecting its interests in the Hecla
Properties which have not been for fair consideration.
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(f) Except as to matters identified in Subparagraph 1.3 Exhibit A,
(i) to Hecla's Knowledge, the conditions existing on or with
respect to the Hecla Properties and its ownership and operation of
the Hecla Properties are not (a) in violation of any Laws,
including without limitation any Environmental Laws, nor (b)
causing or permitting any damage, including Environmental Damage,
or impairment to the health, safety, comfort or enjoyment of any
person at or on the Hecla Properties or in the general vicinity of
the Hecla Properties, which damage is a violation of any Law;
(ii) to Hecla's Knowledge, there have been no past violations by it
or by any of its predecessors in title of any Environmental Laws or
other Laws affecting or pertaining to the Hecla Properties, nor any
past creation of Environmental Damages; and
(iii) Hecla has not received inquiry from or notice of a pending
investigation from any governmental agency or of any administrative
or judicial proceeding concerning the violation of any Laws
relating to its operation or ownership of the Hecla Properties.
The representations and warranties set forth above shall survive
the execution and delivery of any documents of Transfer provided under this
Agreement.
4.3 REPRESENTATIONS AND WARRANTIES OF SFPG. SFPG represents and
warrants to Hecla, effective as of the date of this Agreement:
(a) With respect to the SFPG Properties: (i) SFPG is in exclusive
possession of such Properties, subject to the rights reserved to others by
the laws of the United States; (ii) SFPG has not received any notice of
default of any of the terms or provisions of leases or other contracts under
which it holds its interest in the SFPG Properties; (iii) SFPG has the
authority under such leases or other contracts to perform fully its
obligations under this Agreement; (iv) to SFPG's Knowledge, such leases and
other contracts are valid and are in good standing; (v) SFPG has no Knowledge
of any act or omission or any condition on the Properties which could be
considered or construed as a default under any such lease or other contract;
and (vi) to SFPG's Knowledge, the Properties covered thereby are free and
clear of all Encumbrances or defects in title except for those specifically
identified in Subparagraph 2.2 of Exhibit A.
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(b) SFPG has delivered or made available by written notice to
Hecla all information in its possession or control concerning title to and
the mineral potential of the SFPG Properties, including but not limited to
true and correct copies of all leases or other contracts relating to the SFPG
Properties.
(c) With respect to the SFPG Properties, to SFPG's Knowledge,
there are no pending or threatened actions, suits, claims or proceedings, and
there have been no previous transactions affecting its interests in the SFPG
Properties which have not been for fair consideration.
(d) With respect to the Twin Creeks Plant: (i) SFPG owns the Twin
Creeks Plant, subject only to the Encumbrances identified in Subparagraph 1.2
of Exhibit B; (ii) SFPG has full right, authority and power to operate the
Twin Creeks Plant to Process Rosebud Ores and Other Ores as contemplated by
this Agreement, subject to its obtaining all governmental authorizations
necessary for it to conduct the Plant Construction Program and to satisfy the
Plant Completion Test; (iii) SFPG is not subject to any governmental order,
judgment, decree, order, sanction or Law that would preclude the permitting
or implementation of Processing as contemplated by this Agreement; and (iv)
SFPG will not breach any other agreement or arrangement by entering into or
performing Processing of Rosebud Ores and Other Ores under this Agreement.
(e) Except as to matters set forth in Subparagraph 1.3 of Exhibit
B,
(i) to SFPG's Knowledge, the conditions existing on or with respect
to the SFPG Properties and the Twin Creeks Plant and its ownership
and operation of the SFPG Properties and the Twin Creeks Plant are
not (a) in violation of any Laws, including without limitation any
Environmental Laws, nor (b) causing or permitting any damage,
including Environmental Damage, or impairment to the health,
safety, comfort or enjoyment of any person at or on the SFPG
Properties or the Twin Creeks Plant or in the general vicinity of
the SFPG Properties or the Twin Creeks Plant, which damage is a
violation of any Law;
(ii) to SFPG's Knowledge, there have been no past violations by it
or by any of its predecessors in title of any Environmental Laws or
other Laws affecting or pertaining to the SFPG Properties or the
Twin Creeks Plant, nor any past creation of Environmental Damages;
and
(iii) SFPG has not received inquiry from or notice of a pending
investigation from any governmental agency or of any administrative
or judicial proceeding concerning the
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violation of any Laws relating to its operation or ownership of the
SFPG Properties or the Twin Creeks Plant.
The representations and warranties set forth above shall survive
the execution and delivery of any documents of Transfer provided under this
Agreement.
4.4 DISCLOSURES. Each of the Members represents and warrants that
it has no Knowledge of any material facts or circumstances which have not
been disclosed in this Agreement, which should be disclosed to the other
Member in order to prevent the representations in this Article 4 from being
materially misleading.
4.5 RECORD TITLE. Title to the Assets shall be held by the
Company.
4.6 LOSS OF TITLE. Any failure or loss of title to the Assets,
and all costs of defending title, shall be borne by the Company and therefore
by the Members in accordance with their Ownership Interests, except that all
costs and losses arising out of or resulting from breach of the
representations and warranties of Hecla or SFPG shall be borne by Hecla or
SFPG, as the case may be.
4.7 PAYMENT OF ROYALTIES. Each Member shall be responsible for
all required payments of royalties to third parties following disposition of
Products to that Member pursuant to Section 11.5(b). Each Member shall make
such payments timely in accordance with the terms of any applicable
agreements and indemnify the Company and the other Member from and against
all costs, claims and liabilities arising from or relating to any failure or
alleged failure by such Member to make such payments in accordance with the
terms of any applicable agreement.
4.8 INDEMNITY CONCERNING THE TWIN CREEKS PLANT. SFPG shall be
solely responsible for and shall indemnify, in accordance with the procedures
set forth in Subsection 4.10(b), the Company and Hecla, and their officers,
directors, agents, employees and Affiliates from and against all costs,
expenses, damages or liabilities, including attorneys' fees and other costs
of litigation (either threatened or pending) arising out of or resulting from
any activities conducted by SFPG at the Twin Creeks Plant (or at an Alternate
Processing Plant, if Rosebud Ores or Other Ores are Processed at an Alternate
Processing Plant) in connection with Processing, including without limitation
any such liability or cost arising under Environmental Laws.
4.9 INDEMNITY CONCERNING THE EURO-NEVADA OPTION AGREEMENT. Hecla
is the successor in interest to Equinox Resources Inc. under that certain
Option Agreement For An Additional 1 1/2% Net Smelter Return Rosebud
Royalty, dated July 30, 1993, by and between
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Equinox Resources Inc. and Euro-Nevada Mining Corporation, Inc. (the "Euro-
Nevada Option Agreement"). Hecla shall, in accordance with the procedures
set forth in Subsection 4.10(b), indemnify the Company and SFPG, and their
officers, directors, agents, employees and Affiliates from and against all
costs, expenses, damages or liabilities, including attorneys' fees and other
costs of litigation (either threatened or pending) arising out of or
resulting from any dispute between Hecla and Euro-Nevada Mining Corporation,
Inc. ("Euro-Nevada") relating to Euro-Nevada's exercise of or right to
exercise the Euro-Nevada Option Agreement.
4.10 INDEMNITIES/LIMITATION OF LIABILITY.
(a) In addition to the indemnities set forth in Sections 4.8 and
4.9, each Member shall indemnify the other Member, its officers, directors,
agents, employees and its Affiliates (collectively the "Indemnified Member")
from and against any Material Loss. "Material Loss" shall mean all costs,
expenses, damages or liabilities, including attorneys' fees and other costs
of litigation (either threatened or pending) arising out of or based on a
breach by a Member (the "Indemnifying Member") of any representation,
warranty or covenant contained in this Agreement. A Material Loss shall be
deemed to have occurred if, in the aggregate, an Indemnified Member incurs
losses, costs, damages or liabilities in excess of One Hundred Thousand
Dollars ($100,000) resulting from the breach of one or more of the warranties
and representations contained in this Agreement, or losses, costs, damages or
liabilities in any amount resulting from the breach of any covenant contained
in this Agreement.
(b) If any claim or demand is asserted against an Indemnified
Member in respect of which such Indemnified Member may be entitled to
indemnification under this Agreement, Notice of such claim or demand shall
promptly be given to the Indemnifying Member. The Indemnifying Member shall
have the right, by notifying the Indemnified Member within thirty (30) days
after its receipt of the Notice of the claim or demand, to assume the entire
control of (subject to the right of the Indemnified Member to participate, at
the Indemnified Member's expense and with counsel of the Indemnified Member's
choice, in) the defense, compromise, or settlement of the matter, including,
at the Indemnifying Member's expense, employment of counsel of the
Indemnifying Member's choice. Any damages to the assets or business of the
Indemnified Member caused by a failure by the Indemnifying Member to defend,
compromise, or settle a claim or demand in a reasonable and expeditious
manner, after the Indemnifying Member has given Notice that it will assume
control of the defense, compromise, or settlement of the matter, shall be
included in the damages for which the Indemnifying Member shall be obligated
to indemnify the Indemnified Member. Any settlement or compromise of a
matter by the Indemnifying Member shall include a full release of claims
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against the Indemnified Member which have arisen out of the claim or demand
for which indemnification is sought.
ARTICLE 5
CONTRIBUTIONS BY MEMBERS
5.1 MEMBERS' INITIAL CONTRIBUTIONS. Hecla hereby contributes the
Rosebud Project Assets to the Company and the Company hereby accepts such
contribution. Promptly after the execution of this Agreement, Hecla shall
execute and deliver to the Company a Special Warranty Deed in the form and
substance of Exhibit F and an Assignment, Bill of Sale and Assumption
Agreement, in the form and substance of Exhibit G, conveying the Rosebud
Project Assets to the Company. SFPG hereby contributes the SFPG Properties
to the Company and the Company hereby accepts such contribution. Promptly
after the execution of this Agreement, SFPG shall execute and deliver to the
Company a Sublease, in the form and substance of Exhibit H, subleasing the
SFPG Properties to the Company.
5.2 FUNDING OF OPERATIONS. Subject to the provisions of this
Section and any election permitted by Section 10.6, each Member shall fund
Adopted Programs and Budgets and all other costs which it is committed to pay
under this Agreement associated with Exploration, Development, Mining,
Processing and other Operations in proportion to its respective Ownership
Interest. Notwithstanding the foregoing:
(a) SFPG shall contribute to the Company, pursuant to Cash Calls
made in accordance with Section 8.4, the first Twelve Million Five Hundred
Thousand Dollars ($12,500,000): (i) expended by Hecla consistent with the
Mine Construction Program and Budget during the period commencing on June 1,
1996 and ending on the effective date of this Agreement, and (ii) required to
be expended by the Company, after the effective date of this Agreement, to
satisfy the Mine Completion Test, which funds shall be expended by the
Manager for Mining in accordance with the Mine Construction Program and
Budget.
(b) Hecla shall contribute to the Company, pursuant to Cash Calls
made in accordance with Section 8.4, all funds in excess of Twelve Million
Five Hundred Thousand Dollars ($12,500,000) required to be expended by the
Company to satisfy the Mine Completion Test, which funds shall be expended by
the Manager for Mining in accordance with the Mine Construction Program and
Budget.
(c) SFPG shall contribute to the Company, pursuant to Cash Calls
made in accordance with Section 8.4, the first One Million Dollars
($1,000,000) required to fund Adopted Programs and Budgets for Exploration of
the Properties, including the Program
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and Budget adopted by the Members pursuant to Section 10.1(b). Thereafter
SFPG shall contribute two thirds and Hecla shall contribute one third of all
amounts required to fund Adopted Programs and Budgets for Exploration of the
Properties. Adopted Programs and Budgets for Exploration shall not include
underground infill or definition drilling at the Rosebud Mine.
Notwithstanding any other provision of this Agreement, all expenses incurred
by SFPG for Exploration of the Properties in accordance with the August 28,
1996 letter from Dennis V. Cole, Director - Land Department, SFPG, to
Nathaniel Adams, Corporate Counsel, Hecla shall be credited against SFPG's
obligation set forth in the first sentence of this Subsection.
(d) In addition to the foregoing contributions to the Company,
SFPG shall, in accordance with the Plant Construction Program and Budget,
conduct all activities and pay all costs required to satisfy (i) the Road
Completion Test, and (ii) the Plant Completion Test; provided, however, that
the Company shall bear Two Hundred Fifty Thousand Dollars ($250,000) of such
costs, which shall be paid by the Members pursuant to a Cash Call made upon
SFPG's satisfaction of the Plant Completion Test.
5.3 PROCESSING OF ORES. Subject to Section 19.14, during the
Processing Period, SFPG as Manager for Processing shall cause to be
Processed, pursuant to Adopted Programs and Budgets for Processing, at the
Twin Creeks Plant or an Alternate Processing Plant, on the terms and
conditions set forth in this Section, (x) all Rosebud Ores up to a maximum of
one thousand (1000) Tons Per Day, and (y) to the extent, but only to the
extent, there is Available Plant Capacity, all Other Ores produced by the
Company. During the Processing Period the Company shall make available to
SFPG for Processing, on the terms and conditions set forth in this Agreement,
all Rosebud Ores and, to the extent SFPG is obligated to Process Other Ores
by the terms of this Agreement, Other Ores.
(a) The Manager for Mining, in accordance with Adopted Programs
and Budgets for Mining, shall cause Rosebud Ores and Other Ores to be
extracted and prepared for shipment to the Twin Creeks Plant and shall notify
SFPG as such ores are ready for shipment. SFPG shall arrange for the timely
transportation of such ores to the Twin Creeks Plant, consistent with its
obligations to Process such ores.
(b) SFPG will batch process the Rosebud Ores and Other Ores at the
Twin Creeks Plant. SFPG will commence such Processing when a sufficient
quantity of such ores has been delivered to the Twin Creeks Plant to allow
SFPG, in its reasonable, good faith judgment, to Process such ores in an
efficient and economically and technologically sound manner, given the other
operations of the Twin Creeks Plant. Notwithstanding the foregoing, SFPG
shall conduct Processing so as not to allow more than twenty-seven
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thousand (27,000) tons of Rosebud Ores to accumulate in stockpiles at the
Twin Creeks Plant.
(c) SFPG may, from time to time, with the prior approval of the
Management Board, Process one or more batches of Rosebud Ores or Other Ores
at an Alternate Processing Plant.
(d) SFPG will cause the dore bullion produced by such Processing
to be shipped to a third party refinery approved by the Management Board
within ten (10) days after its production.
(e) The Company shall pay SFPG for all Processing of Rosebud Ores
or Other Ores SFPG's Actual Cash Processing Costs.
(f) Nothing in this Agreement shall be deemed to grant the Company
or Hecla any ownership of, lien on, or other interest in, the Twin Creeks
Plant or any Alternate Processing Plant. Subject to SFPG's obligations (i)
under the Plant Construction Program and Budget, (ii) under Adopted Programs
and Budgets for Processing, and (iii) to conduct Processing in accordance
with the practices and procedures set forth in this Section 5.3 and in
Exhibit S, SFPG shall retain sole discretion concerning the operation of the
Twin Creeks Plant and all facilities, processes and equipment to be used
therein, and nothing in this Agreement shall be deemed to obligate SFPG as
Manager for Processing to achieve any specific recovery rate or efficiencies
of operation in Processing of Rosebud Ores or Other Ores.
(g) Notwithstanding any other provision of this Agreement, SFPG's
obligation to Process Rosebud Ores and Other Ores during the Processing
Period as set forth in this Section 5.3 shall survive any withdrawal by SFPG
as a Member, the dissolution of the Company, or the Transfer of SFPG's
Ownership Interest.
ARTICLE 6
INTERESTS OF MEMBERS
6.1 INITIAL OWNERSHIP INTERESTS. The Members shall have the
following initial Ownership Interests:
SFPG - 50.0000%
Hecla - 50.0000%
6.2 CHANGES IN OWNERSHIP INTERESTS. A Member's Ownership Interest
shall be changed as follows:
(a) If a Member makes an election provided in Sections 6.3(a) and
10.6;
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(b) If a Member defaults in making its agreed-upon contribution to
an Adopted Program and Budget, followed by an election by the other Member to
invoke Section 9.6(b) or (c);
(c) If a Member's Ownership Interest is converted to a Net Returns
Royalty pursuant to Section 6.4;
(d) Transfer by a Member of less than all its Ownership Interest
in accordance with Article 15; or
(e) Acquisition of less than all of the Ownership Interest of the
other Member, however arising.
6.3 VOLUNTARY REDUCTION IN OWNERSHIP. A Member may elect,
consistent with and limited by Section 10.6, not to contribute to or to
contribute less than the percentage reflected by its Ownership Interest to:
(x) the Investment Costs component of an Adopted Program and Budget for
Development and Mining and the Investment Costs component of an Adopted
Program and Budget for Processing, or (y) an Adopted Program and Budget for
Exploration. Any such election must be made in the same percentage with
respect to the Investment Costs in the Budget for Development and Mining and
in the Budget for Processing.
(a) If a Member (a "Diluting Member") elects not to contribute to
or to contribute a lesser amount than in proportion to its respective
Ownership Interest for (i) the Investment Costs included in the Budget of an
Adopted Program and Budget for Development and Mining and for the Investment
Costs included in the Budget of an Adopted Program and Budget for Processing,
or (ii) to an Adopted Program and Budget for Exploration, and the other
Member elects to fund its proportionate share and all or any part of the
Diluting Member's share of such costs, the Ownership Interest of the Diluting
Member shall be provisionally recalculated as of the effective date of the
Adopted Program and Budget, according to the following formula:
R = DB(M) x 100%
------
DB(AM)
Where:
R =
The recalculated Ownership Interest of the Diluting Member.
DB(M) =
The Dilution Base of each Member, which shall be Twenty-Nine
Million Dollars ($29,000,000) plus the amounts of cash contributed
to the Company by the Member for Investment Costs (but not for
Operational Costs) and for Exploration, but excluding all amounts
contributed to the
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Company or expended by the Member to satisfy its obligations under
Section 5.2, with adjustments to such amounts by crediting to the
contribution by Hecla and deducting from the contributions by SFPG
(solely for the purpose of this calculation) fifty percent (50%) of
the first One Million Dollars ($1,000,000) that SFPG contributes
for Exploration pursuant to Section 5.2(c) and thereafter twenty-
five percent (25%) of all monies SFPG contributes for Exploration,
and as adjusted for anticipated contributions for Investment Costs
based on the Adopted Programs and Budgets and the Diluting Member's
election as to contributions.
DB(AM) =
The Dilution Base of all Members, which shall be Fifty Eight
Million Dollars ($58,000,000) plus the amounts contributed to the
Company by all Members for Investment Costs (but not for
Operational Costs) and for Exploration, but excluding all amounts
contributed to the Company or expended by the Members to satisfy
their obligations under Section 5.2, with adjustments to such
amount by crediting to the contributions by Hecla and deducting
from the contributions by SFPG (solely for the purpose of this
calculation) fifty percent (50%) of the first One Million Dollars
($1,000,000) that SFPG contributes for Exploration pursuant to
Section 5.2(c) and thereafter twenty-five percent (25%) of all
monies SFPG contributes for Exploration, and as adjusted for
anticipated contributions for Investment Costs and for Exploration
based on the Adopted Program and Budget and all Members' elections
as to contributions.
The Ownership Interest of the non-Diluting Member shall be
provisionally increased by the amount of the reduction in the Ownership
Interest of the Diluting Member. The recalculations made under this Section
shall be provisional and subject to the final adjustments provided for under
Subsection 6.3(c) and (d). If the other Member elects not to fund any
portion of the Diluting Member's deficiency, the Ownership Interests of the
Members shall not be recalculated, and the Manager having control over such
Adopted Program and Budget shall prepare and submit to the Manager for Mining
for presentation to the Management Board in accordance with the procedures
specified in Section 10.3 a revised proposed Program and Budget. If the other
Member elects to fund a portion, but not the entire amount, of the Diluting
Member's deficiency, the Ownership Interests of the Members shall be
provisionally recalculated, and the Manager having control over such Adopted
Program and Budget shall reduce the relevant Program and Budget to reflect
the funds available.
(b) Within thirty (30) days after the conclusion of an Adopted
Program and Budget with respect to which a Member's
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Ownership Interest was provisionally reduced under Section 6.3(a), the
Manager having control over such Adopted Program and Budget shall report to
the Diluting Member the total amount of money expended and accrued by the
Manager for such Adopted Program and Budget upon which the Diluting Member
made the election under Section 6.3(a).
(c) Unless Section 6.3(d) is applicable, the Members' Ownership
Interests shall be recalculated pursuant to Section 6.3(a), by substituting
each Member's actual contribution to such Adopted Program and Budget for and
in lieu of the Members' estimated contributions at the time of the Diluting
Member's election under Section 6.3(a). Recalculation of the Members'
Ownership Interests shall be effective as of the date of commencement of the
relevant Adopted Program and Budget.
(d) If the Manager expended or incurred obligations of less than
seventy-five percent (75%) of (i) the Investment Costs included in the
Budgets of an Adopted Program and Budget for Development and Mining and in an
Adopted Program and Budget for Processing, or (ii) the Budget of a Program
and Budget for Exploration, as the case may be, with respect to which a
Diluting Member made an election under Sections 6.3(a) and 10.6 to reduce its
contribution, within ten (10) days of receiving the Manager's report on
expenditures, as provided in Section 6.3(b) the Diluting Member may notify
the other Member of its election to restore its Ownership Interest to its
amount prior to such election. If the Diluting Member makes the election
provided for in the first sentence of this Subsection and the Net
Reimbursement Amount is a positive number, it shall within ten (10) days
thereafter pay to the other Member the Net Reimbursement Amount. If the
Diluting Member makes the election provided for in the first sentence of this
Section and the Net Reimbursement Amount is a negative number, the other
Member shall within ten (10) days thereafter pay to the Diluting Member the
Net Reimbursement Amount.
The "Net Reimbursement Amount" shall mean:
the difference between the Diluting Member's proportionate share
(at the Diluting Member's former Ownership Interest before the
current period's election under Sections 6.3(a) and 10.6 was made)
of the actual amount expended or accrued for such Investment Costs
or to Adopted Program and Budget for Exploration, as the case may
be, and the amount actually contributed by the Diluting Member for
such Investment Costs or to the Program and Budget for Exploration,
as the case may be, plus interest accruing thereon at the Prime
Rate from the date of contribution by the other Member,
less
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the difference between the Diluting Member's proportionate share
(at the Diluting Member's former Ownership Interest before the
current period's election under Sections 6.3(a) and 10.6 was made)
of the value of any distributions (the "Value of Distributions")
resulting from Operations conducted pursuant to the relevant
Program and Budget and the Value of Distributions actually received
by the Diluting Member resulting from Operations conducted pursuant
to the relevant Program and Budget.
"Value of Distributions" shall mean the sum of the Value of
Products, cash and the fair market value of any other Distributions resulting
from the Operations conducted pursuant to the Adopted Program and Budget.
For purposes of this Subsection, the amount of the Budget against
which the seventy-five (75%) criterion is applied shall be reduced to the
extent that the non-Diluting Member elected to fund less than the entire
deficiency of the Diluting Member. Reimbursement of the other Member
pursuant to this Subsection shall restore the Ownership Interest of the
Diluting Member to its position prior to the election under Sections 6.3(a)
and 10.6. Restoration of the Diluting Member's Ownership Interest shall be
effective as of the date of the Diluting Member's payment of the Net
Reimbursement Amount to the other Member and shall not effect the Members'
Capital Accounts under Section 11.12.
6.4 CONVERSION OF MINORITY INTEREST. If a Member's Ownership
Interest is reduced to fifteen percent (15%) or less, such Member shall be
deemed to have withdrawn as a Member from the Company and shall Transfer to
the other Member or its designee the withdrawn Member's entire Ownership
Interest, free and clear of any Encumbrances arising by, through or under
such Member, except any such Encumbrances listed in Subparagraphs 1.2 or 2.2
of Exhibit A. Upon the withdrawal of a Member pursuant to this Section, the
Company shall convey to the withdrawn Member a two percent (2%) Net Returns
Royalty, calculated and payable as provided in Exhibit D.
6.5 CONTINUING LIABILITIES UPON ADJUSTMENTS OF OWNERSHIP
INTERESTS. No reduction or elimination of a Member's Ownership Interest
under this Article 6 or the withdrawal of a Member under Section 17.1(b)
shall relieve such Member of its share of any Company Liability or Member
Liability, including, without limitation, liability for Continuing
Obligations, Environmental Liabilities and Environmental Compliance, whether
arising before or after such reduction, elimination or withdrawal, out of
acts, omissions or circumstances occurring prior to this Agreement or out of
Operations conducted during the term of this Agreement but prior to such
reduction, elimination or withdrawal, regardless of when any funds may be
expended to satisfy such liability, taking into account the limited liability
provided by the Act. For purposes of
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this Article 6, such Member's share of such liability, if any, shall be equal
to its Ownership Interest at the time the act, omission or circumstance
giving rise to such liability occurred (or, as to such liability for acts,
omissions or circumstances prior to the effective date of this Agreement,
such Member's initial Ownership Interest). Should the cumulative cost of
satisfying Continuing Obligations be in excess of cumulative amounts accrued
in the Reclamation Account, each Member shall be liable for its proportionate
share (i.e., its Ownership Interest at the time act, omission or circumstance
giving rise to such liability occurred) of the cost of satisfying such
obligations, whether or not one or more Members has previously withdrawn,
reduced its interest or had its interest converted to a Net Returns Royalty.
6.6 GRANT OF SECURITY INTERESTS. Immediately following the
execution of this Agreement and the completion of the contributions provided
for in Section 5.1, the Members shall cause the Company to execute the Deed
of Trust attached hereto a Exhibit T and the Security Agreement attached
hereto as Exhibit U and each Member shall execute a Pledge and Security
Agreement attached hereto as Exhibit V (collectively, the "Security
Agreements"). The Manager for Mining shall promptly record the Deed of Trust
in the real property records of Humboldt and Pershing Counties, Nevada, and
make all filings and take such other actions as are necessary to perfect and
maintain the security interests created by the Security Agreements and shall
furnish evidence of such actions to the Members.
ARTICLE 7
MANAGEMENT BOARD
7.1 MANAGEMENT. The Members shall act through the Management
Board, and all acts and meetings of the Management Board shall constitute the
acts and meetings of the Members. The ultimate responsibility for management
of the business and affairs of the Company shall reside in the Management
Board, the Company shall be regarded as managed by its Members for all
purposes of the Act, and no statutory managers shall be deemed appointed
under the Act. Except as otherwise delegated to the Managers, the Management
Board shall have exclusive authority to determine all matters related to this
Agreement. Although the Mangers have day-to-day responsibility for the
matters described in this Section 7.1, the ultimate control of all matters
shall be within the absolute control of the Management Board.
Notwithstanding the foregoing, but subject to the limitation that
no statutory manager shall be deemed appointed under the Act, the day-to-day
responsibility for the Company's Operations relating to Development and
Mining shall reside with
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Hecla, as Manager for Mining, and the day-to-day responsibility for the
Company's Operations relating to Processing and Exploration shall reside with
SFPG, as Manager for Processing and Manager for Exploration. In addition,
the Manager for Mining shall have the additional responsibilities for the
Company's administration and for the coordination of the activities of the
Manager for Exploration set forth in Article 8. Except for situations in
which the approval of the Management Board or the Members is expressly
required by this Agreement or by nonwaivable provisions of applicable Law or
is otherwise provided for in this Agreement, but subject to the limitation
that no statutory manager shall be deemed appointed under the Act, each of
the Managers shall, with respect to its areas of responsibility, have full
and complete authority, power and discretion to manage and control the
business, affairs and properties of the Company, to make all decisions
regarding those matters and to perform any and all other acts or activities
customary or incident to the management of the Company's business.
7.2 ORGANIZATION AND COMPOSITION OF THE MANAGEMENT BOARD. The
Members hereby establish a Management Board to determine, except to the
extent such powers are expressly reserved to the Members in Article 9,
overall policies, objectives, procedures, methods and actions under this
Agreement. The Management Board shall consist of two (2) representatives
appointed by SFPG and two (2) representatives appointed by Hecla. Each
Member may appoint one or more alternates to act in the absence of a regular
Management Board representative. Any alternate so acting shall be deemed a
member of the Management Board. Appointments of Management Board
representatives by a Member shall be made or changed by Notice to the other
Member.
7.3 DECISIONS. Other than as provided in Section 7.6, each
Member, acting through its appointed Management Board representatives in
attendance at the meeting, shall have the number of votes on the Management
Board equal to its Voting Interest. Unless otherwise provided in this
Agreement, a majority vote of the Management Board shall be required for all
decisions of the Management Board.
7.4 MEETINGS.
(a) The Management Board shall hold regular meetings at least
quarterly in Winnemucca, Nevada, or at other agreed places. Members of the
Management Board may participate in such meetings by telephone. The Manager
for Mining shall give thirty (30) days Notice to the Members of such regular
meetings. Additionally, either Member may call a special meeting upon ten
(10) days Notice to the other Member. In case of an emergency, reasonable
notice of a special meeting shall suffice. There shall be a quorum if at
least one member representing each Member is present; provided, however, that
if a Member fails to attend two (2) consecutive properly called meetings,
then a quorum shall exist if the other
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Member is represented by its appointed member, and a vote of such Member
shall be considered a majority vote for the purposes of the conduct of all
business properly noticed and not requiring a unanimous vote.
(b) If business cannot be conducted at a regular or special
meeting due to the lack of a quorum, any Member may call the next meeting
upon ten (10) days Notice to the other Member.
(c) Each Notice of a meeting shall include an itemized agenda
prepared by the Manager for Mining in the case of a regular meeting, or by
the Member calling the meeting in the case of a special meeting, but any
matters may be considered if a Member adds the matter to the agenda at least
two (2) business days before the meeting or with the consent of the other
Member. The Manager for Mining shall prepare minutes of all meetings and
shall distribute copies of such minutes to the Members within ten (10) days
after the meeting. The other Member shall sign and return or object to the
minutes prepared by the Manager for Mining within thirty (30) days after
receipt, and failure to do either shall be deemed acceptance of the minutes
as prepared by the Manager for Mining. The minutes, when signed or deemed
accepted by all Members, shall be the official record of the decisions made
by the Management Board. Decisions made at a Management Board meeting shall
be implemented in accordance with Adopted Programs and Budgets. If a Member
timely objects to minutes proposed by the Manager for Mining, the
representatives of the Management Board shall seek, for a period not to
exceed thirty (30) days after receipt by the Manager for Mining of Notice of
the objections, to agree upon minutes acceptable to all Members. If the
Management Board does not reach agreement on the minutes of the meeting
within such thirty (30) day period, the minutes of the meeting as prepared by
the Manager for Mining together with the other Member's proposed changes
shall collectively constitute the record of the meeting. If personnel
employed in Operations are required to attend a Management Board meeting,
reasonable costs incurred in connection with such attendance shall be charged
to the Company. All other costs shall be paid by the Members individually.
7.5 ACTION WITHOUT MEETING. With the consent of all of the
Members' representatives on the Management Board, the Management Board may
hold meetings by telephone, provided all decisions are immediately confirmed
in writing by the representatives.
7.6 MATTERS REQUIRING SPECIAL APPROVAL OF MANAGEMENT BOARD.
Notwithstanding any other provision of this Agreement, the following matters
shall require the approval of seventy percent (70%) of all votes of the
Management Board:
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(a) any Program and Budget for Development and Mining or for
Processing which includes Investment Costs exceeding Six Million Dollars
($6,000,000);
(b) any Program and Budget for Development and Mining which
includes costs for Development exceeding Three Million Dollars ($3,000,000);
(c) any Program and Budget for Exploration exceeding Three Million
Dollars ($3,000,000);
(d) any decision to temporarily (except as a result of Force
Majeure or an emergency) or permanently close the Rosebud Mine;
(e) any decision to change the place at which the Rosebud Ores or
Other Ores are Processed from the Twin Creeks Plant to an Alternate
Processing Plant; or
(f) any decision to temporarily (except as a result of Force
Majeure or an emergency) or permanently close the Twin Creeks Plant prior to
the expiration of the Processing Period.
7.7 ACTIVITIES DURING DEADLOCK. If the Management Board for any
reason fails to adopt a Program and Budget, the Managers shall continue
Operations at levels comparable with the last Adopted Program and Budget
until a new Program and Budget is adopted pursuant to Articles 10 or 18. For
purposes of determining the required contributions of the Members and their
respective Ownership Interests, the last Adopted Program and Budget shall be
deemed extended.
7.8 FINANCIAL AUDITS. The Management Board shall select a
nationally recognized firm of independent certified public accountants to
conduct, at the Company's expense, an annual audit of the Company's accounts,
books and records. Any other work conducted by the auditors which is
authorized by the Management Board shall be performed at the Company's
expense. Until the Management Board determines otherwise, the annual audit
referred to in this Section 7.8 shall be performed by the firm of Coopers &
Lybrand.
ARTICLE 8
POWERS AND DUTIES OF MANAGERS
8.1 POWERS AND DUTIES OF MANAGER FOR MINING. Subject to the terms
and provisions of this Agreement, including the provisions granting the
Management Board control over all Operations, the Manager for Mining shall
have the following powers
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and duties relating to Development and Mining, which shall be discharged in
accordance with Adopted Programs and Budgets:
(a) The Manager for Mining shall manage, direct and control
Development and Mining.
(b) The Manager for Mining shall be responsible for reviewing the
proposed Programs and Budgets prepared by the Manager for Exploration and by
the Manager for Processing and for coordinating each of its proposed Programs
and Budgets for Development and Mining with the proposed Programs and Budgets
prepared by the other Managers.
(c) The Manager for Mining shall make all expenditures necessary
to carry out each Adopted Program for Development and Mining, in accordance
with the Budget therefor.
(d) The Manager for Mining shall: (i) purchase or otherwise
acquire all materials, supplies, equipment, water, and
utility, transportation and other necessary services required for Operations,
such purchases and acquisitions to be made on the best terms available,
taking into account all of the circumstances; (ii) obtain such customary
warranties and guarantees as are available in connection with such purchases
and acquisitions; and (iii) keep the Assets free and clear of all liens and
encumbrances, except for those existing at the time of, or created concurrent
with, the acquisition of such Assets, or mechanic's or materialmen's liens
which shall be released or discharged in a diligent manner.
(e) The Manager for Mining shall conduct such title examinations
and cure such title defects to the Properties as may be advisable in the
reasonable judgment of the Management Board.
(f) The Manager for Mining shall: (i) make or arrange for all
payments required by leases, licenses, permits, contracts and other
agreements related to the Assets, except for the payment of royalties due on
mineral production (which shall be paid by the Members as provide in Section
4.7); (ii) pay all taxes (other than income taxes), assessments and like
charges on Operations and the Assets. The Manager for Mining shall have the
right to contest in the courts or otherwise, the validity or amount of any
taxes, assessments or charges if the Manager for Mining deems them to be
unlawful, unjust, unequal or excessive, or to undertake such other steps or
proceedings as the Manager for Mining may deem reasonably necessary to secure
a cancellation, reduction, readjustment or equalization thereof before the
Manager for Mining shall be required to pay them, but in no event shall the
Manager for Mining permit or allow title to the Assets to be lost as the
result of the nonpayment of any taxes, assessments or like charges; and (iii)
perform all other acts reasonably necessary to maintain the Assets.
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(g) The Manager for Mining shall: (i) apply for and maintain in
the name of the Company all necessary permits, licenses and approvals for
Development and Mining; (ii) comply with applicable Laws concerning
Development and Mining; (iii) notify promptly the Members of any allegations
of violation thereof; (iv) prepare and file all reports or notices required
for Development and Mining; and (vi) conduct at least annually a safety and
environmental audit pursuant to practices determined by the Management Board.
The Manager for Mining shall not be in breach of this provision if a
violation has occurred in spite of good faith efforts to comply, and the
Manager for Mining has timely cured or disposed of such violation through
performance, or payment of fines and penalties.
(h) The Manager for Mining shall prosecute and defend all
litigation or administrative proceedings arising out of Development and
Mining.
(i) The Manager for Mining shall provide insurance for the benefit
of the Company for Development and Mining.
(j) The Manager for Mining may dispose of Assets, whether by
abandonment, surrender or transfer in the ordinary course of business, except
that Properties may be abandoned or surrendered only as provided in Article
13. However, without prior authorization from the Management Board, the
Manager for Mining shall not: (i) dispose of Assets in any one transaction
having a value in excess of Twenty-Five Thousand Dollars ($25,000); (ii)
enter into any sales contracts or commitments for Products, it being the
intention that all Products will be distributed to the Members in kind after
Processing and refining pursuant to Section 11.5(b); (iii) begin a
liquidation of the Company; (iv) dispose of all or a substantial part of the
Assets necessary to achieve the purposes of the Company; or (v) incur any
debt or capitalized lease obligations in the name of the Company.
(k) The Manager for Mining shall perform or cause to be performed
all assessment and other work, and shall pay all rental fees or mining claim
maintenance fees, required by Law in order to maintain the unpatented mining
claims included within the Properties. The Manager for Mining shall have the
right to perform the assessment work required hereunder pursuant to a common
plan of exploration and continued actual occupancy of such claims and sites
shall not be required. The Manager for Mining shall not be liable on account
of any determination by any court or governmental agency that the work
performed by Manager does not constitute the required annual assessment work
or occupancy for the purposes of preserving or maintaining ownership of the
claims, provided that the work done is in accordance with the Adopted Program
and Budget. The Manager for Mining shall timely record with the appropriate
county and file with the appropriate United States agency, affidavits in
proper form attesting to the payment of rental fees and maintenance fees
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and the performance of assessment work or notices of intent to hold in proper
form, and allocating therein, to or for the benefit of each claim, at least
the minimum amount required by Law to maintain such claim or site.
(l) If authorized by the Management Board, the Manager for Mining
may: (i) locate, amend or relocate any unpatented mining claim or mill site
or tunnel site, (ii) locate any fractions resulting from such amendment or
relocation, (iii) apply for patents or mining leases or other forms of
mineral tenure for any such unpatented claims or sites, (iv) abandon any
unpatented mining claims for the purpose of locating mill sites or otherwise
acquiring from the United States rights to the ground covered thereby, (v)
abandon any unpatented mill sites for the purpose of locating mining claims
or otherwise acquiring from the United States rights to the ground covered
thereby, (vi) exchange with or convey to the United States any of the
Properties for the purpose of acquiring rights to the ground covered thereby
or other adjacent ground, and (vii) convert any unpatented claims or mill
sites into one or more leases or other forms of mineral tenure pursuant to
any federal law hereafter enacted.
(m) The Manager for Mining shall keep and maintain current (on a
monthly basis) all required accounting and financial records pursuant to the
Accounting Procedure and in accordance with customary cost accounting
practices in the mining industry, and shall have the primary responsibility
for producing all financial and accounting records for the Company, with the
cooperation and input of the Manager for Processing and the Manager for
Exploration.
(n) The Manager for Mining shall prepare an Environmental
Compliance Plan for all Development and Mining Operations consistent with the
requirements of any applicable Laws or contractual obligations and shall
include in each Program and Budget which it prepares sufficient funding to
implement the Environmental Compliance Plan and to satisfy the financial
assurance requirements of any applicable Law or contractual obligation
pertaining to Environmental Compliance. To the extent practical, the
Environmental Compliance Plan shall incorporate concurrent reclamation of
Properties disturbed by Development and Mining.
(o) The Manager for Mining shall keep the Members advised of all
Operations it conducts by submitting in writing to the Members: (i) monthly
progress reports concerning Development and Mining, which reports shall
include statements of expenditures and comparisons of such expenditures to
the Adopted Budget on a monthly, quarterly and year-to-date basis, within
twenty (20) days after the end of the relevant month; (ii) no later than the
fifth (5th) business day of each month, preliminary accounting and financial
data for the preceding month; (iii) periodic summaries of
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data acquired; (iv) copies of reports concerning Development and Mining; and
(v) such other reports as the Members may reasonably request. At all
reasonable times the Manager for Mining shall provide the Members, upon the
request of any Member, access to, and the right to inspect and copy all maps,
drill logs, core tests, reports, surveys, assays, analyses, production
reports, operations, technical, accounting and financial records, and other
information acquired in Operations or otherwise in the Company's possession
or control. In addition, the Manager for Mining shall allow any Member, at
such Member's sole risk and expense, and subject to reasonable safety
regulations, to inspect the Assets and Operations at all reasonable times, so
long as the inspecting Member does not unreasonably interfere with
Operations.
(p) The Manager for Mining shall arrange for annual audits of the
Mineral Reserves of the Company by an independent consulting firm selected by
the Management Board.
(q) The Manager for Mining shall have the right to carry out its
responsibilities hereunder through agents, Affiliates or independent
contractors; but the Manager for Mining shall discharge its responsibilities
principally through the use of its own officers and employees.
(r) The Manager for Mining shall prepare and submit all statements
to the Company for costs and expenses it makes or accrues for Development or
Mining, whether for use in the preparation of Cash Calls, for reporting
purposes, or otherwise, strictly in accordance with the Accounting Procedure.
(s) The Manager for Mining shall undertake all other activities
reasonably necessary to fulfill the foregoing and its other responsibilities
under this Agreement.
8.2 POWERS AND DUTIES OF MANAGER FOR PROCESSING. Subject to the
terms and provisions of this Agreement, including the provisions granting the
Management Board control over all Operations, the Manager for Processing
shall have the following powers and duties relating to Processing, which
shall be discharged in accordance with Adopted Programs and Budgets:
(a) The Manager for Processing shall manage, direct and control
Processing.
(b) The Manager for Processing shall make all expenditures
necessary to carry out each Adopted Program for Processing, including
expenditures for transportation which may be incurred as a portion of
transportation costs incurred by SFPG under a contract involving other mines,
and for which SFPG as Manager for Processing will bill the Company as
specified in Exhibit M.
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(c) The Manager for Processing shall: (i) apply for and maintain
all necessary permits, licenses and approvals for Processing; (ii) comply
with applicable Laws and regulations regarding Processing; (iii) notify
promptly the Members of any allegations of violation thereof; (iv) prepare
and file all reports or notices required for Processing; and (v) conduct at
least annually a safety and environmental audit pursuant to practices
determined by the Management Board. The Manager for Processing shall not be
in breach of this provision if a violation has occurred in spite of its good
faith efforts to comply, and the Manager for Processing has timely cured or
disposed of such violation through performance, or payment of fines and
penalties.
(d) The Manager for Processing shall prosecute and defend all
litigation or administrative proceedings arising out of Processing.
(e) The Manager for Processing shall keep the Members advised of
all Operations it conducts by submitting in writing to the Manager for
Mining, who shall promptly forward to the Members: (i) monthly progress
reports concerning Processing, which reports shall include statements of
expenditures and comparisons of such expenditures to the Adopted Budget on a
monthly and year-to-date basis, within fifteen (15) days after the end of the
relevant month; (ii) no later than the third (3rd) business day of each
month, preliminary accounting and financial data for the preceding month;
(iii) periodic summaries of data acquired relative to Processing; (iv) copies
of any reports produced by or for SFPG concerning Processing; and (v) such
other reports as the Members may reasonably request. At all reasonable times
the Manager for Processing shall provide the Members, upon the request of any
Member, access to, and the right to inspect and copy all reports, assays,
analyses, operations, technical, accounting and financial records, and other
information relating to or acquired in Processing. In addition, the Manager
for Processing shall allow any Member, at the latter's sole risk and expense,
and subject to reasonable safety regulations, to inspect the Twin Creeks
Plant at all reasonable times, so long as the inspecting Member does not
unreasonably interfere with operations at the plant.
(f) The Manager for Processing shall provide insurance for the
benefit of the Company regarding Processing.
(g) The Manager for Processing shall keep and maintain current (on
a monthly basis) all required accounting and financial records pursuant to,
and shall prepare and submit to the Company all statements for costs and
expenses it makes or accrues for Processing, whether for use in the
preparation of Cash Calls, for reporting purposes, or otherwise, strictly in
accordance with, Exhibits M and the Accounting Procedure and in accordance
with customary cost accounting practices in the mining industry. The
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Manager for Processing shall support the Manager for Mining in connection
with the latter's responsibilities under Section 8.1(m).
(h) The Manager for Processing shall undertake all other
activities reasonably necessary to fulfill the foregoing and its other
responsibilities under this Agreement.
8.3 POWERS AND DUTIES OF MANAGER FOR EXPLORATION. Subject to the
terms and provisions of this Agreement, including the provisions granting the
Management Board control over all Operations, the Manager for Exploration
shall have the following powers and duties relating to Exploration, which
shall be discharged in accordance with Adopted Programs and Budgets:
(a) The Manager for Exploration shall manage, direct and control
Exploration within the Area of Interest. The Manager for Exploration shall
(i) keep the Manager for Mining informed with respect to the conduct and
results of Exploration and shall consider all suggestions with respect to
Exploration made by the Manager for Mining, (ii) coordinate its activities
with the Manager for Mining, and (iii) conduct Exploration so as not to
interfere with Development and Mining.
(b) The Manager for Exploration shall make all expenditures
necessary to carry out each Adopted Program for Exploration.
(c) The Manager for Exploration shall: (i) apply for, in the name
of the Company, all necessary permits, licenses and approvals for
Exploration; provided that the Manager for Exploration shall first afford the
Manager for Mining the opportunity to apply for and maintain such permits,
licenses and approvals; (ii) comply with applicable Laws regarding
Exploration; (iii) notify promptly the Members of any allegations of
violation thereof; (iv) prepare and file all reports or notices required for
Exploration; and (v) conduct at least annually a safety and environmental
audit pursuant to practices determined by the Management Board. The Manager
for Exploration shall not be in breach of this provision if a violation has
occurred in spite of its good faith efforts to comply, and the Manager for
Exploration has timely cured or disposed of such violation through
performance, or payment of fines and penalties.
(d) The Manager for Exploration shall prosecute and defend all
litigation or administrative proceedings arising out of Exploration.
(e) The Manager for Exploration shall provide insurance for the
benefit of the Company regarding Exploration.
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(f) The Manager for Exploration shall prepare an Environmental
Compliance Plan for all Exploration Operations consistent with the
requirements of any applicable Laws or contractual obligations and shall
include in each Program and Budget which it prepares sufficient funding to
implement the Environmental Compliance Plan and to satisfy the financial
assurance requirements of any applicable Law or contractual obligation
pertaining to Environmental Compliance. To the extent practical, the
Environmental Compliance Plan shall incorporate concurrent reclamation of
Properties disturbed by Exploration.
(g) The Manager for Exploration shall keep the Members advised of
all Operations it conducts by submitting in writing to the Manager for
Mining, who shall promptly forward to the Members: (i) monthly progress
reports concerning Exploration, which reports shall include statements of
expenditures and comparisons of such expenditures to the Adopted Budget on a
monthly, quarterly and year-to-date basis, within fifteen (15) days after the
end of the relevant month; (ii) no later than the third (3rd) business day of
each month, preliminary accounting and financial data for the preceding
month; (iii) periodic summaries of data acquired; (iv) copies of reports
concerning Exploration; and (v) such other reports as the Members may
reasonably request.
(h) The Manager for Exploration shall keep and maintain current
(on a monthly basis) all required accounting and financial records pursuant
to the Accounting Procedure and in accordance with customary cost accounting
practices in the mining industry and shall support the Manager for Mining in
connection with its duties under Section 8.1(m). The Manager for Exploration
shall prepare and submit to the Company all statements for costs and expenses
it makes or accrues for Exploration, whether for use in the preparation of
Cash Calls, for reporting purposes, or otherwise, strictly in accordance with
the Accounting Procedure and in accordance with customary cost accounting
practices in the mining industry. The Manager for Exploration shall support
the Manager for Mining in connection with the latter's responsibilities under
Section 8.1(m).
(i) The Manager for Exploration shall have the right to carry out
its responsibilities hereunder through agents, Affiliates or independent
contractors; but the Manager for Exploration shall discharge its
responsibilities principally through the use of its own officers and
employees.
(j) The Manager for Exploration shall undertake all other
activities reasonably necessary to fulfill the foregoing and its other
responsibilities under this Agreement.
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8.4 CASH CALLS.
(a) On the basis of the relevant Adopted Programs and Budgets and
any supplemental information provided by the other Managers relating to
expenditures made pursuant to Sections 10.7 and 10.8, the Manager for Mining
shall submit to the Members prior to the last day of each month, a
consolidated billing (a "Cash Call") for the estimated cash requirements for
Exploration, Development, Mining and Processing for the next month. Within
ten (10) days after receipt of each billing, each Member shall contribute to
the Company its proportionate share of the Cash Call. The Manager for Mining
shall at all times maintain a cash balance approximately equal to the rate of
the Company's anticipated disbursement for up to thirty (30) days.
(b) If a Member fails to meet Cash Calls in the amount and within
the time specified in Section 8.4(a), the amount not timely contributed to
the Company shall bear interest from the date due at an annual rate equal to
the Prime Rate, but in no event shall such rate of interest exceed the
maximum permitted by Law. Interest accruing shall accrue to the benefit of
the Company, and shall be deemed as amounts contributed by the non-defaulting
Member if the other member elects to invoke Section 9.6(c). The Manager for
Mining shall immediately notify both Members if either Member fails to timely
pay a Cash Call and the other Member shall have those other rights, remedies,
and elections specified in Sections 9.6 and 9.7.
8.5 LIMITED AUTHORITY TO BIND COMPANY. Unless authorized to do so
by this Agreement or by the Management Board, no attorney-in-fact, employee
or other agent of the Company shall have any power or authority to bind the
Company in any way, to pledge its credit or to render it liable pecuniarily
for any purpose. No Member shall have any power or authority to bind the
Company unless the Member has been authorized by the Managers to act as an
agent of the Company in accordance with the previous sentence.
8.6 LIABILITY FOR CERTAIN ACTS, INDEMNITIES.
(a) The Managers do not, in any way, guarantee the return of the
Members' Capital Contributions or a profit for the Members from Operations.
Subject to the provisions of Sections 4.6, through 4.10 and Section 10.7, the
Managers shall not be liable to the Company or to any Member for any loss or
damage sustained by the Company or any Member, unless the loss or damage
shall have been the result of such Manager's fraud, deceit, gross negligence
or willful misconduct.
(b) Subject to the provisions of Section 8.6(a), the Company shall
indemnify the Managers and their officers, directors, employees and agents
for, and hold them harmless from, any
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liability, whether civil or criminal, and any loss, damage, or expense,
including reasonable attorneys' fees, when acting for or on behalf of the
Company. In connection with such indemnification, the Company shall make
advances for expenses to the maximum extent permitted under the Act. The
Company shall similarly indemnify its employees and other agents who are not
Managers to the fullest extent permitted by Law. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent shall not of itself create a
presumption that indemnification is not available hereunder. The obligation
of the Company to indemnify any Manager hereunder shall be satisfied out of
the Assets only, and if the Assets are insufficient to satisfy its obligation
to indemnify any Manager, such Manager shall not be entitled to contribution
from any Member.
8.7 MANAGERS AND MEMBERS HAVE NO EXCLUSIVE DUTY TO COMPANY. To
the extent permitted under the Act, the Managers shall not be required to
manage the Company as their sole and exclusive function and they may have
other business interests and may engage in other activities in addition to
those relating to the Company. Neither the Company nor any Member shall have
any right, by virtue of this Agreement, to share or participate in such other
investments or activities of any Manager or Member or to the income or
proceeds derived therefrom. Neither the Managers nor any Member shall incur
any liability to the Company or to any of the Members as a result of engaging
in any other business or venture. Notwithstanding the foregoing the conduct
of or involvement in other business by a Member (i) shall be conducted in a
manner such that it does not interfere with the performance of this
Agreement; and (ii) shall not excuse any breach of this Agreement
8.8 BANK ACCOUNTS. The Manager for Mining may from time to time
open bank accounts in the name of the Company, and the Manager for Mining
shall be the sole signatory thereon, unless the Management Board determines
otherwise. Notwithstanding the foregoing, the Manager for Mining shall
establish a separate interest bearing account into which all funds
contributed by the Members for reclamation (other than funds used in
concurrent reclamation activities) shall be deposited (the "Reclamation
Account"). The authorization of all Members, which shall not be withheld
unreasonably, shall be required for withdrawals from the Reclamation Account.
8.9 RESIGNATION. The Manager for Mining and the Manager for
Exploration may resign at any time by giving Notice to the Members. The
Manager for Processing may resign at any time after the end of the Processing
Period by giving Notice to the Members. The resignation of any Manager shall
take effect thirty (30) days after receipt of Notice thereof or at such later
time as shall be specified in such Notice; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
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it effective. The resignation of a Manager who is also a Member shall not
affect the resigning Manager's rights or status as a Member and shall not
constitute a withdrawal of a Member. If a Manager commits any Event of
Default, other than the failure to pay timely a Cash Call or to repay a Cover
Payment Loan on demand the Manager shall be deemed to have resigned as a
Manager.
8.10 REMOVAL. At a special meeting of the Management Board called
expressly for that purpose, any Manager may be removed at any time for a
material breach of its responsibilities as Manager under this Agreement, if
such breach remains uncured at the time of the meeting, by the affirmative
vote of Members holding a majority of the Voting Interests including any
Voting Interest held by the Manager or an Affiliate of the affected Manager.
The removal of a Manager who is also a Member shall not affect the removed
Manager's rights or status as a Member and shall not constitute a withdrawal
of a Member. If SFPG is removed as Manager for Processing as provided
herein, the Company shall have no right to have Rosebud Ores or Other Ores
Processed at the Twin Creeks Plant or at any Alternate Processing Plant and
all obligations of SFPG with respect to Processing under this Agreement shall
be terminated by such removal; but SFPG shall remain liable to the Company
for any and all damages caused by the unavailability of the Twin Creeks Plant
or an Alternative Processing Plant to Process Rosebud Ores or Other Ores to
the extent that Section 5.3 of this Agreement requires SFPG to Process such
ores.
8.11 VACANCIES AND REPLACEMENTS. Any vacancy occurring for any
reason in the office of the Manager for Mining, the Manager for Processing or
the Manager for Exploration shall be filled by the affirmative vote of
Members holding a majority of the Voting Interest (determined without regard
to any Voting Interest owned by a Manager who resigned or was removed during
the preceding twenty-four (24) month period). Notwithstanding the foregoing,
(a) if the Ownership Interest of Hecla declines to thirty percent (30%) or
less, SFPG shall, in its sole discretion, have the right to replace Hecla as
Manager for Mining by designating itself as the Manager for Mining; and (b)
if the Ownership Interest of SFPG declines to thirty percent (30%) or less,
Hecla shall, in its sole discretion, have the right to replace SFPG as
Manager for Exploration by designating itself as the Manager for Exploration.
8.12 COMPENSATION, REIMBURSEMENT, ORGANIZATION EXPENSES.
(a) The compensation of the Managers, if any, shall be fixed from
time to time by the Management Board.
(b) The Managers shall cause the Company to make an appropriate
election to treat the expenses incurred by the Company in connection with the
formation and organization of the Company to be amortized under the sixty
(60) month period beginning with the month in which the Company begins
business to the extent that such
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expenses constitute "organizational expenses" of the Company within the
meaning of Section 709(b)(2) of the Code.
8.13 RIGHT TO RELY ON THE MANAGERS. Any Person dealing with the
Company may rely (without duty of further inquiry) upon a certificate signed
by any Manager as to:
(a) The identity of any Manager or Member;
(b) The existence or nonexistence of any fact or facts which
constitute a condition precedent to acts on behalf of the Company by any
Manager or which are in any other manner germane to the affairs of the
Company;
(c) The Persons who are authorized to execute and deliver any
instrument or document of the Company; or
(d) Any act or failure to act by the Company or any other matter
whatsoever involving the Company or any Member.
ARTICLE 9
RIGHTS AND OBLIGATIONS OF MEMBERS
9.1 LIMITATION OF LIABILITY. Except as provided by the
nonwaivable provisions of the Act and by this Agreement, no Member shall be
liable for an obligation of the Company solely by reason of being or acting
as a Member.
9.2 LIST OF MEMBERS. Upon written request of any Member, the
Management Board shall provide a list showing the names, addresses and
Ownership Interests of all Members.
9.3 APPROVAL OF SALE OF ALL ASSETS. The affirmative vote of one
hundred percent (100%) of Voting Interests of all Members shall be required
to approve the sale, exchange or other disposition of all, or substantially
all, of the Company's assets (other than in the ordinary course of the
Company's business) which is to occur as part of a single transaction or
plan.
9.4 COMPANY BOOKS. The Manager for Mining shall have overall
responsibility for maintaining the Company's books and records and for
providing accounting services to it. The Managers shall maintain and
preserve, during the term of the Company, and for five (5) years thereafter,
all accounts, books, and other relevant Company documents related to
financial, environmental, regulatory, operational and other matters. Each
Member shall have the right to request in writing that all accounts, books,
and other relevant Company documents be maintained for a longer period at the
requesting Member's cost. Upon reasonable request, each Member
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shall have the right, during ordinary business hours, to inspect and copy
such Company documents at the requesting Member's expense.
9.5 PRIORITY AND RETURN OF CAPITAL. No Member shall have priority
over any other Member, either as to the return of Capital Contributions or as
to net profits, net losses or distributions; provided that this Section 9.5
shall not apply to loans (as distinguished from Capital Contributions) which
a Member has made to the Company.
9.6 RIGHTS ON FAILURE OF A MEMBER TO PAY A CASH CALL.
(a) If a Member fails to pay a Cash Call within the period
specified in Section 8.4:
(i) The other Member may make, but shall not be obligated to make,
a Cover Payment on behalf of the Member failing to pay the Cash
Call. Each and every Cover Payment will constitute a demand loan
bearing interest from the date of the advance at the rate provided
in Section 8.4(b) (a "Cover Payment Loan"). If more than one Cover
Payment is made, the Cover Payments shall be aggregated and the
rights and remedies described herein pertaining to an individual
Cover Payment shall apply to the aggregated Cover Payments.
(ii) The right of the Member to take and receive a Distribution of
Products in kind pursuant to Section 11.5(b) shall be suspended.
If the other Member has made a Cover Payment Loan with respect to
the defaulted Cash Call, it shall have the right to sell the
defaulting Member's share of Products in any reasonable manner,
subject to the obligation to pay any royalty due thereon, and apply
the net proceeds of such sale to the balance due under the Cover
Payment Loan, including interest and costs. The right of a Member
that has defaulted with respect to a Cash Call to take and receive
a Distribution of Products in kind shall be reinstated, if at all,
when all amounts due with respect to the defaulted Cash Call and
Cover Payment Loan and any interest or other costs due with respect
thereto have been discharged. If a Member exercises its right to
take and receive another Member's Distribution of Products, the
Member originally entitled to such Products shall be treated as
having taken such Products and sold them, with the proceeds of such
sale being used to repay the Cover Payment Loan.
(b) If a Member fails to timely pay a Cash Call or fails to pay a
Cover Payment Loan on demand, and the defaulting Member has not cured the
default by paying the Cash Call and/or the Cover Payment Loan, (including
through the application of the proceeds of any sales of Products made
pursuant to Subsection 9.6(a)(i)) within ninety (90) days after the date on
which the Cash Call or Cover
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Payment Loan was due, the other Member may elect, on not less than ten (10)
days Notice to the defaulting Member, one of the following:
(i) To have the defaulting Member deemed to have resigned from
the Company and to have automatically made a Transfer of its
Ownership Interest to the non-defaulting Member or its designee,
but such defaulting Member shall remain liable for its Member
Liability, if any; provided, however, the defaulting Member shall
have the right to receive only from two percent (2%) of Net Returns
thereafter received by the Company, if any, and not from any other
source, an amount equal to seventy-five percent (75%) of the
defaulting Member's Dilution Base as of the date of the default.
Upon receipt of such amount, the withdrawn Member shall thereafter
have no further rights or interests with respect to the Company.
(ii) To purchase all the Ownership Interest of the defaulting
Member at a purchase price equal to eighty percent (80%) of the
fair market value thereof (without regard to any Member Liability)
as determined by a qualified independent appraiser appointed by the
non-defaulting Member (or, if the defaulting Member objects to the
person so appointed within ten (10) days of receiving Notice
thereof, then by an independent and qualified appraiser appointed
by the joint action of the appraiser appointed by the non-
defaulting Member and a qualified independent appraiser appointed
by the defaulting Member; provided, however, that if the defaulting
Member fails to designate a qualified independent appraiser for
such purpose within ten (10) days of such objection, then the
person originally designated by the non-defaulting Member shall
serve as the appraiser; provided further, that if the appraisers
appointed by each of the Members fail to appoint a third qualified
independent appraiser within five (5) days of the appointment of
the last of them, then an appraiser shall be appointed by a judge
of a court of competent jurisdiction in the State of Nevada upon
the application of either Member). There shall be withheld from
the purchase price payable, upon Transfer of the defaulting
Member's Ownership Interest, the amount of indebtedness of the
defaulting Member owing to the non-defaulting Member and to the
Company together with unpaid interest accrued thereon to the date
of such transfer; provided further, that the purchase price
determined by the appraiser shall not take into account any
minority or marketability discounts.
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(c) Upon the deemed resignation of a Member or the purchase of its
Ownership Interest pursuant to Section 9.6(b), the defaulting Member shall
remain liable for any Member Liability, including without limitation any such
liability arising from Environmental Liabilities, Continuing Obligations and
Environmental Compliance. In addition to the rights provided in Article 9,
if a Member fails timely to pay a Cash Call or to pay a Cover Payment Loan
on demand, or comments any material breach of this Agreement not cured within
any cure period herein provided, the non-defaulting Member may also exercise
any other rights and remedies available to it under Section 9.7 or under Law.
9.7 DEFAULTS AND REMEDIES.
(a) The circumstances constituting an "Event of Default" under the
Pledge and Security Agreement, Exhibit V, shall also constitute an Event of
Default under this Agreement.
(b) Upon the occurrence of an Event of Default, the non-defaulting
Member shall have all of the rights and remedies available to it under the
Security Agreements.
ARTICLE 10
PROGRAMS AND BUDGETS
10.1 INITIAL PROGRAMS AND BUDGETS. The Members hereby adopt:
(a) The Mine Construction Program and Budget (but only for the
period through December 31, 1997 insofar as it covers Mining), which was
prepared by the Manager for Mining, a copy of which is attached as Exhibit I;
(b) The initial Program and Budget for Exploration, which was
prepared by the Manager for Exploration, a copy of which is attached as
Exhibit K; and
(c) The Plant Construction Program and Budget (but only for the
period through December 31, 1997 insofar as it covers Processing), which was
prepared by the Manager for Processing, a copy of which is attached as
Exhibit J.
10.2 OPERATIONS PURSUANT TO PROGRAMS AND BUDGETS. Except as
otherwise provided in Sections 10.7 and 10.8, Operations shall be conducted,
expenses shall be incurred, and Assets shall be acquired only pursuant to
Adopted Programs and Budgets.
10.3 PREPARATION AND PRESENTATION OF PROGRAMS AND BUDGETS.
Annually, on or before October 1, the Manager for Mining shall prepare a
proposed Program and Budget for Development and
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Mining, the Manager for Processing shall prepare a proposed Program and
Budget for Processing, and the Manager for Exploration shall prepare a
proposed Program and Budget for Exploration. In preparing each proposed
Program and Budget for Exploration, the Manager for Exploration shall consult
with a knowledgeable geologist concerning the Rosebud Mine whom is designated
by the Manager for Mining. Each proposed Program and Budget for Development
and Mining and each proposed Program and Budget for Exploration shall include
a cash accrual for all reasonably anticipated reclamation costs. In
preparing the proposed Budgets, the Manager for Mining and the Manager for
Processing shall confer concerning their respective proposed Programs and
Budgets so that timing and nature of production of Rosebud Ores and Other
Ores and the availability of Processing capacity at the Twin Creeks Plant are
reasonably coordinated. Each Program and Budget for Processing or for
Development and Mining shall specifically identify those elements thereof
which are Operational Costs and those elements thereof which are Investment
Costs. Each of the Managers shall present to the Management Board a proposed
Program and Budget for the ensuing year on or before October 15.
10.4 REVIEW AND APPROVAL OF PROPOSED PROGRAMS AND BUDGETS. Within
fifteen (15) days after submission of a proposed Program and Budget, the
Management Board shall meet to consider the proposed Program and Budget and
to vote on its adoption. The Management Board shall vote separately with
respect to the adoption of the proposed Program and Budget for Development
and Mining, the proposed Program and Budget for Processing, and the proposed
Program and Budget for Exploration.
10.5 DEADLOCK ON PROPOSED PROGRAMS AND BUDGETS. If the Members,
acting through their representatives on the Management Board, fail to approve
a Program and Budget for Development and Mining (including any such Program
and Budget subject to Subsection 7.6 (a) or (b)), a Program and Budget for
Processing, or a Program and Budget for Exploration (including any such
Program and Budget subject to Subsection 7.6 (c), on or before the beginning
of the period to which the proposed Program and Budget applies, the following
procedures shall be followed:
(a) The matter shall be referred to the Presidents of each of the
Members, who shall meet personally, within ten (10) days after such referral
to attempt to reach agreement concerning the proposed Program and Budget. If
the Presidents of the Members reach agreement with respect to a Program and
Budget, the Program and Budget thus agreed to shall be the Adopted Program
and Budget.
(b) If the Presidents of the Members cannot agree with respect to
a Program and Budget within five (5) days after the meeting held pursuant to
Subsection 10.5(a), either Member may refer the matter to arbitration in
accordance with Article 18 and
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the Program and Budget determined by arbitration shall be the Adopted Program
and Budget.
10.6 ELECTION TO PARTICIPATE. By Notice to the Management Board
within twenty (20) days after establishment of any Adopted Program and
Budget (other than the Mine Construction Program and Budget, the Plant
Construction Program and Budget and the initial Program and Budget for
Exploration referred to in Subsection 10.1(b)) a Member may elect, by Notice
to the Management Board, to contribute to the Investment Costs of such a
Program and Budget or to a Program and Budget for Exploration in some lesser
proportion than its respective Ownership Interest, or not at all, in which
cases its Ownership Interest shall be recalculated as provided in Article 6.
If a Member fails to so notify the Management Board, the Member shall be
deemed to have elected to contribute to such Program and Budget in proportion
to its respective Ownership Interest as of the beginning of the period
covered by the Program and Budget. No Member shall be entitled to make the
election provided for in this Section with respect to the Operational Costs
of any Adopted Program and Budget for Development and Mining or of any
Adopted Program and Budget for Processing.
10.7 BUDGET OVERRUNS; PROGRAM CHANGES. The Manager having
responsibility for an Adopted Program and Budget shall, within twenty (20)
days after the start of each quarter, provide the Management Board with
quarterly forecasts comparing anticipated performance with the Adopted
Program and Budget and shall immediately notify the Members of any material
departure from an Adopted Program and Budget. If the total expenses for an
Adopted Program and Budget (other than the Mine Construction Program and
Budget or the Plant Construction Program and Budget) exceed the Budget by
more than twenty percent (20%), then the Manager responsible for such Program
and Budget shall be solely liable for all such excess over twenty percent
(20%), unless directly caused by an emergency or unexpected expenditure made
pursuant to Section 10.8 or unless otherwise authorized by the Management
Board and such excess shall not be included in the calculations of the
Ownership Interests.
10.8 EMERGENCY OR UNEXPECTED EXPENDITURES. In case of emergency, a
Manager may take any reasonable action it deems necessary to protect life,
limb or property, to protect the Assets or to comply with law or government
regulation. The Manager may also make reasonable expenditures for unexpected
events which are beyond its reasonable control and which do not result from a
breach by it of its standard of care. The Managers shall promptly notify the
Members of the emergency or unexpected expenditure, and the Managers shall be
reimbursed for all resulting costs by the Members in proportion to their
respective Ownership Interests at the time the emergency or unexpected
expenditures are incurred.
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ARTICLE 11
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS
11.1 TAX ELECTIONS. The Company shall make the following elections
for purposes of all Company income tax returns:
(a) To use the accrual method of accounting.
(b) Pursuant to the provisions at Section 706(b)(1) of the
Code, to use as its taxable year the calendar year.
(c) To deduct currently all development expenses to the
extent possible under Sections 616 and 291 of the Code.
(d) Unless the Management Board unanimously agrees otherwise,
to compute the allowance for depreciation in respect of all depreciable
Assets using the maximum accelerated tax depreciation method and the shortest
life permissible.
(e) To treat advance royalties as deductions from gross
income for the year paid or accrued to the extent permitted by law.
(f) To adjust the basis of Company property under Section 754
of the Code at the request of any Member;
(g) To amortize over the shortest permissible period all
organizational expenditures and business start-up expenses under Sections 195
and 709 of the Code;
(h) To aggregate or disaggregate mineral interests under
Section 614(c)(1) of the Code in a manner the Management Board determines
will be in the best interest of the Members;
(i) To make any other election required or permitted
specifically under Section 703(b) of the Code, or generally under any other
Section of the Code, as determined by the Management Board to be in the best
interest of the Members.
(j) Any other election required or permitted under the Code
or any state tax law shall be made as determined by the Management Board.
Each Member shall elect under Section 617(a) of the Code to deduct currently
all exploration expenses to the extent possible.
11.2 ALLOCATIONS TO MEMBERS. Except as provided in Section
11.5(b), allocations for tax purposes shall be in accordance with the
following:
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(a) If the right to take in kind is interpreted to mean only
that a Member is authorized to direct the disposition of its share of
Products by the Company, all income, gains, losses, deductions or tax
attributes realized by the Company from any disposition of Products shall be
allocated to such Member, and any deductions arising from expenditures
incurred by such Member in connection with such disposition (to the extent
they are attributed to the Company) shall also be allocated to such Member.
If, pursuant to Section 11.5(b), a Manager purchases a Member's share of
Products for its own account, or sells such share of Products, the net
profits or losses from such sale (computed after taking into account the
reasonable expenses incurred) shall be allocated to the Member.
(b) Exploration expenses and development cost deductions
shall be allocated among the Members in accordance with their respective
contributions to such expenses and costs.
(c) Subject to Section 11.2(l), depreciation and loss
deductions with respect to a depreciable Asset shall be allocated among the
Members in accordance with their respective contributions to the adjusted
basis of the Asset which gives rise to the depreciation or loss deduction.
(d) Production and operating cost deductions shall be
allocated among the Members in accordance with their respective contributions
to such costs.
(e) Subject to Section 11.2(l), cost depletion and any loss
deduction with respect to a depletable property (as defined in Section 614 of
the Code) shall be allocated to the Members in accordance with their
respective contributions to the adjusted basis of the depletable property.
Percentage depletion under Section 613 of the Code shall be allocated
(i) first in the same manner as cost depletion to the extent it does not
exceed cost depletion and (ii) second, to the extent percentage depletion
exceeds cost depletion, to the Members in the same proportion as their
distributive share of gross income from the depletable property (as
determined under Section 613(c) of the Code) for the year in which such
depletion is allowable.
(f) All deductions and losses which are not described in
Subsections 11.2(a) through (e), shall be allocated among the Members in
accordance with their respective contributions to the costs producing each
such deduction or the adjusted basis of the Asset producing each such loss.
(g) Subject to Section 11.2(l), any gain recognized on the
sale or other disposition of a depreciable Asset shall be allocated
(i) first, to the extent such gain does not exceed the amount of depreciation
claimed with respect to such Asset, to the Members in proportion to the
amount of such depreciation previously
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allocated to, or claimed by, them; and (ii) second, to the Members in
accordance with their Ownership Interests.
(h) Subject to Section 11.2(l), any gain recognized on the
sale or other disposition of a depletable property (as defined in Section 614
of the Code) shall be allocated (i) first, to the extent such gain does not
exceed the total Recapturable Deductions (as defined below) with respect to
such Property, to the Members in proportion to the total Recapturable
Deductions previously allocated to, or claimed by, them with respect to such
property (adjusted for any recapture of such deductions previously allocated
to, or recognized by, the Members), and (ii) second, to the Members in
accordance with their Ownership Interests. As used in the previous sentence,
"Recapturable Deductions" shall mean depletion deductions (to the extent
reflected in the capital accounts of the Members), exploration expense
deductions, and development expense deductions attributable to a depletable
property, reduced (but not below zero) by any prior recapture of such
deductions.
(i) Subject to Section 11.2(l), any recapture of exploration
expenses under Section 617(b)(1)(A) of the Code, and any increase in taxable
income realized by reason of the disallowance of depletion under Section
617(b)(1)(B) of the Code, shall be allocated to the Members in the same
manner as the related exploration expenses were allocated to, or claimed by,
them.
(j) Subject to Section 11.2(l), all other items of income and
gain shall be allocated to the Members in accordance with their Ownership
Interests.
(k) All tax credits shall be allocated to the Members in
proportion to the allocation of the item of income, gain, loss or deduction
generated by the receipt or expenditure giving rise to the credit. Any
credit recapture shall be allocated to the Members in the same proportion as
the related credit was allocated.
(l) Notwithstanding the foregoing, in the event all or
substantially all the Assets or Properties (by value) are sold or otherwise
disposed of, any gain or loss recognized by the Company shall be allocated
among the Members so that, to the extent possible, the Members' resulting
Capital Account balances are in proportion to the Members' Ownership
Interests. Any recapture for tax purposes of mining exploration and
development expenditures, depreciation deductions and depletion deductions
arising by reason of such a sale or other disposition shall be allocated, to
the extent consistent with the allocation of gain giving rise to such
recapture, to the Member which was originally allocated, or which originally
claimed, the recaptured deduction.
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(m) Notwithstanding the foregoing, allocations required by
Section 704(c) of the Code or applicable Treasury Regulations under Section
704(b) shall take precedence over the foregoing allocations, but only to the
extent required by the Code or the Treasury Regulations.
(n) Notwithstanding the foregoing, any required allocation
under Section 482 of the Code shall be accompanied by a corresponding
allocations so that, to the extent possible, the overall allocation to the
Members, are consistent with the allocation that would have been made to each
of them without regard to any allocation under Section 482 of the Code.
(o) For purposes of maintaining the Capital Accounts, items
of income, gain, loss, depletion and deduction shall be allocated to the
extent possible in the same manner as such items are allocated for tax
purposes (as described above), but taking into account the Capital Accounting
rules as specified in the Treasury Regulations under Section 704(b) of the
Code, as reflected in Section 11.12.
11.3 AGREEMENT NOT TO CAUSE A TAX TERMINATION. The Members agree
that if any one of them makes a sale or assignment of its Ownership Interest
under this Agreement, such sale or assignment shall be structured so as not
to cause a termination under Section 708(b) (1)(B) of the Code. If a Section
708(b) (1)(B) termination is caused, the Member causing the termination shall
indemnify the other Member and save it harmless for any increase in taxes,
interest, and penalties to the other Member caused by the termination of the
tax partnership created hereunder. The indemnification, if any, shall be
computed in a cash flow basis taking into consideration the liability for tax
on any indemnification proceeds received by the Member not causing the
termination.
11.4 SPECIAL ALLOCATIONS. Notwithstanding the foregoing,the
Members agree that SFPG, in recognition of its funding obligations, will
benefit to the extent of its Capital Account balance under Section 11.12 from
a special allocation of all tax deductions during the period of -four (24)
months beginning with the month of first commercial production. Likewise,
Hecla, after a twelve (12) month break between SFPG's special allocation will
receive, in recognition of its contribution of the Hecla Properties, a
special allocation of tax deductions for the next twenty-four (24) month
period, but only up to the dollar value of SFPG's special allocation. After
the SFPG and Hecla special allocations, the Members shall be subject to the
allocation provisions of Sections 11.2 or 11.5.
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11.5 DISTRIBUTIONS. Except as provided in Section 17.3, relating
to Distributions in connection with the liquidation of the Company, all
Distributions of Distributable Cash shall be made to the Members as follows:
(a) Except as provided in Section 11.5(b) and except for
Distributions in liquidation of the Company, from time to time, the
Management Board shall determine in its reasonable judgment to what extent,
if any, the Company's cash on hand exceeds the current and anticipated needs,
including, without limitation, needs for operating expenses, debt service,
acquisitions, reserves, and mandatory Distributions, if any. To the extent
such excess exists (as determined by the Management Board), the Manager for
Mining shall make Distributions to the Members in accordance with their
Ownership Interests at the time of the Distribution. Such Distributions
shall be in cash or property (which need not be distributed proportionately)
or partly in both, as determined by the Management Board.
(b) Notwithstanding Section 11.5(a) and except as otherwise
provided in Article 17.3 (relating to Distributions in liquidation of the
Company), each Member shall take and receive a distribution in kind of its
share (in accordance with its Ownership Interest) of all refined bullion and
other Products produced from the dore shipped by the Manager for Processing
to a third party refinery pursuant to Section 5.3. Any expenditure incurred
following the Distribution in kind to a Member of its proportionate share of
such Products shall be borne by such Member. The Manager for Processing
shall give the Members advance Notice of the anticipated delivery date upon
which their respective shares of such Products will be available. If a
Member fails to take its share of such Products in kind, the other Member
shall have the right, but not the obligation, to purchase the Member's share
for its own account or to sell such share as agent for the Member at not less
than the prevailing market price in the area. Subject to the terms of any
such contracts of sale then outstanding, during any period that a Member is
purchasing or selling the other Member's share of such Products, the Other
Member may elect by Notice to the Member to take its Distribution of Products
in kind. A Member selling the other Member's share of Products as agent for
the other Member shall be entitled to deduct from proceeds of any sale by it
for the account of the other Member all reasonable expenses incurred in the
sale.
11.6 LIMITATION UPON DISTRIBUTIONS. No Distribution shall be
declared and paid unless, after the Distribution is made, the assets of the
Company are in excess of all liabilities of the Company, except liabilities
to Members on account of their contributions.
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11.7 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No Member
shall be entitled to interest on its Capital Contribution or to return of its
Capital Contribution, except as otherwise specifically provided for herein.
11.8 LOANS TO COMPANY. Nothing in this Agreement shall prevent any
Member from making secured or unsecured loans to the Company by agreement
with the Company.
11.9 RECORDS, AUDITS AND REPORTS. At the expense of the Company,
and in addition to the records required by Article 8, the Managers shall
maintain records and accounts of all operations and expenditures of the
Company. At a minimum the Company shall keep at its principal place of
business the following records:
(a) A current list of the full name and last known business,
residence, or mailing address of each Member and Manager, both past and
present;
(b) A copy of the Certificate of the Company and all
amendments thereto, together with executed copies of any powers of attorney
pursuant to which any amendment has been executed;
(c) Copies of the Company's federal, state, and local income
tax returns, tax work papers and reports, if any, for at least the four (4)
most recent years;
(d) Originals of this Agreement, copies of any writings
permitted or required with respect to a Member's obligation to contribute
cash, property or services, and copies of any financial statements of the
Company for the three (3) most recent years;
(e) Minutes of every annual, special meeting and court-
ordered meeting;
(f) Any written consents obtained from Members for actions
taken by Members without a meeting.
11.10 RETURNS AND OTHER ELECTIONS. The Manager for Mining shall
cause the preparation and timely filing of all tax returns required to be
filed by the Company pursuant to the Code and all other tax returns deemed
necessary and required in each jurisdiction in which the Company does
business. Copies of such returns, or pertinent information therefrom, shall
be furnished to the Members within a reasonable time after the end of the
Company's Taxable Year.
11.11 TAX MATTERS PARTNER. Hecla, so long as it is Manager for
Mining and is also a Member, is hereby designated the Tax Matters Partner
("TMP") as defined in Section 6231(a)(7) of the Code. The TMP and the other
Members shall use their best efforts
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to comply with the responsibilities outlined in Sections 6221 through 6233 of
the Code (including any Treasury Regulations promulgated thereunder), and in
doing so shall incur no liability to any other Member.
11.12 CAPITAL ACCOUNTS.
(a) A separate Capital Account shall be maintained for each
Member. Each Member's Capital Account shall be credited with the amount of
Twenty-Nine Million Dollars ($29,000,000) when such Member has made the
contributions required of it by Section 5.1 and satisfied its funding
obligations under Section 5.2, regardless of the amounts actually expended by
such Member to make such contributions or satisfy such obligations. Each
Member's Capital Account shall generally be increased by (1) the amount of
money contributed by such Member to the Company for Operations, but excluding
amounts contributed for Operations conducted to satisfy the obligations of
the Members pursuant to Section 5.2; (2) the fair market value of property
contributed by such Member to the Company, but excluding contributions made
to satisfy the obligations of the Members pursuant to Section 5.1, (net of
liabilities secured by such contributed property that the Company is
considered to assume or take subject to under Section 752 of the Code; and
(3) allocations of income or gain to such Member. Each Member's Capital
Account shall generally be decreased by (1) the amount of money distributed
to such Member by the Company; (2) the fair market value of property
distributed to such Member by the Company (net of liabilities secured by such
distributed property that such Member is considered to assume or take subject
to under Section 752 of the Code); and (3) allocations to such Member of
expenditures described in Section 705(a)(2)(B) of the Code; and (4) any items
in the nature of deduction and loss that are allocated to such Member
hereunder.
(b) In the event of a permitted Transfer of an Ownership
Interest, the Capital Account of the transferor shall become the Capital
Account of the transferee to the extent it relates to the transferred
Ownership Interest in accordance with Section 1.704-1(b)(2)(iv) of the
Treasury Regulations.
(c) The manner in which Capital Accounts are to be maintained
pursuant to this Section 11.12 is intended to comply with the requirements of
Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. If in the opinion of the Company's accountants the manner in
which Capital Accounts are to be maintained pursuant to the preceding
provisions of this Section 11.12 should be modified in order to comply with
Section 704(b) of the Code and the Treasury Regulations thereunder, then
notwithstanding anything to the contrary contained in the preceding
provisions of this Section 11.12, the method in which Capital Accounts are
maintained shall be so modified; provided, however, that any change in the
manner of maintaining Capital
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Accounts shall not materially alter the economic agreement between or among
the Members.
(d) Upon liquidation of the Company, as provided in section
17.3, liquidating Distributions shall be made in accordance with the positive
Capital Account balances of the Members, as determined after taking into
account all Capital Account adjustments for the Company's Taxable Year during
which the liquidation occurs. The Company may offset damages for breach of
this Agreement by a Member whose interest is liquidated (either upon the
withdrawal of the Member or the liquidation of the Company) against the
amount otherwise distributable to such Member.
ARTICLE 12
ACQUISITIONS WITHIN AREA OF INTEREST
12.1 GENERAL. Any interest in or right to acquire any interest in
real property, mineral rights, water or water rights within the Area of
Interest acquired during the term of this Agreement by or on behalf of a
Member or any Affiliate of a Member shall be subject to the terms and
provisions of this Agreement.
12.2 NOTICE TO NONACQUIRING MEMBER. Within ten (10) days after the
acquisition of any interest or the right to acquire any interest in real
property, mineral rights, water or water rights wholly or partially within
the Area of Interest (except real property, water or water rights acquired by
the Managers, for the Company, pursuant to an Adopted Program and Budget),
the acquiring Member shall notify the other Member of such acquisition. The
acquiring Member's Notice shall describe in detail the acquisition, the real
property, mineral rights, water or water rights covered thereby, the cost
thereof, and the reasons why the acquiring Member believes that the
acquisition of the interest may be in the best interests of the Company. In
addition to such Notice, the acquiring Member shall make any and all
information and material in its possession or control concerning the acquired
interest available for inspection by the other Member.
12.3 OPTION EXERCISED. If, within twenty (20) days after receiving
the acquiring Member's Notice, the other Member notifies the acquiring Member
of its election to accept a proportionate interest in the acquired interest
equal to its Ownership Interest, the acquiring Member shall convey the
acquired interest to the Company, by special warranty deed. The acquired
interest shall become a part of the Properties for all purposes of this
Agreement immediately upon the Notice of such other Member's election to
accept the proportionate interest therein. Such other Member shall promptly
pay to the acquiring Member its proportionate share of the latter's actual
out-of-pocket acquisition costs and such purchase price shall be treated as a
contribution to the Capital of the
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Company, followed by a Transfer of such purchase price to the acquiring
Member.
12.4 OPTION NOT EXERCISED. If the other Member does not give such
Notice within the twenty (20) day period set forth in Section 12.3, it shall
have no interest in the acquired interest, and the acquired interest shall
not be a part of the Properties or be subject to this Agreement.
ARTICLE 13
ABANDONMENT AND SURRENDER OF PROPERTIES
13.1 SURRENDER OR ABANDONMENT OF PROPERTY. The Management Board
may authorize the Manager for Mining to surrender or abandon part or all of
the Properties. If the Management Board authorizes any such surrender or
abandonment over the objection of a Member, the Company shall assign to the
objecting Member, by quit claim deed and without cost to the objecting
Member, all of the Company's interest in the property to be abandoned or
surrendered, and the abandoned or surrendered property shall cease to be part
of the Properties. Notwithstanding any provision of this Section, the
Members shall remain liable for Environmental Liabilities, Continuing
Obligations and Environmental Compliance with respect to such surrendered
property pursuant to Section 6.5.
13.2 REACQUISITION. If any Properties are abandoned or surrendered
under the provisions of this Article 13, then, unless this Agreement is
earlier terminated, the neither the surrendering Member nor any of its
Affiliates shall acquire any interest in such Properties or a right to
acquire such Properties for a period of one (1) year following the date of
such abandonment or surrender. If a Member reacquires any Properties in
violation of this Section 13.2, the other Member may elect by Notice to the
reacquiring Member within forty-five (45) days after it has actual notice of
such reacquisition, to have such properties conveyed to the Company and made
subject to the terms of this Agreement. In the event such an election is
made, the reacquired properties shall thereafter be treated as Properties,
and the costs of reacquisition shall be borne solely by the reacquiring
Member and shall not be included for purposes of calculating the Members'
respective Ownership Interests.
ARTICLE 14
CONFIDENTIALITY
14.1 GENERAL. This Agreement and all information with respect to
this Agreement or the performance of the Company shall be the exclusive
property of the Members and, except as provided in
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Section 14.2, shall not be disclosed to any third party or the public without
the prior written consent of the other Member, which consent shall not be
unreasonably withheld.
14.2 EXCEPTIONS. The consent required by Section 14.1 shall not
apply to a disclosure:
(a) To an Affiliate, consultant, contractor or subcontractor
that has a bona fide need to be informed;
(b) To any third party to whom the disclosing Member
contemplates a Transfer of all or any part of its Ownership Interest;
(c) To a governmental agency or to the public which the
disclosing Member believes in good faith is required by applicable law or
regulation or the rules of any stock exchange on which a Member's securities
are traded;
(d) To the lenders, potential lenders, credit rating
agencies, or insurance providers or brokers of the Company or any Member; or
(e) To securities, financial or investment analysts of any
Member, provided that before disclosure of such information to any such
analyst the disclosing Member shall have provided to the non-disclosing
Member a description or copy of the information to be disclosed.
As to any disclosure pursuant to Subsection 14.2(a) or (b), only such
confidential information as such third party shall have a legitimate business
need to know shall be disclosed and such third party shall first agree in
writing to protect the confidential information from further disclosure to
the same extent as the Members are obligated under this Article 14.
14.3 DURATION OF CONFIDENTIALITY. The provisions of this Article
14 shall apply during the term of this Agreement and for two (2) years
following termination of this Agreement pursuant to Section 6.4, 9.6(c)(ii)
or 17.1(c), and shall continue to apply to any Member who withdraws, who is
deemed to have withdrawn, or who Transfers its Ownership Interest, for two
(2) years following the date of such occurrence.
ARTICLE 15
TRANSFERABILITY
15.1 GENERAL. Except as otherwise specifically provided herein no
Member shall have the right to Transfer (with or without consideration) all
or any part of its Ownership Interest, directly,
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indirectly or beneficially. Each Member hereby acknowledges the
reasonableness of the restrictions on Transfer of Ownership Interests imposed
by this Agreement in view of the Company's purposes and the relationship of
the Members. Accordingly, the restrictions on Transfer contained herein
shall be specifically enforceable. In the event that any Member pledges or
otherwise encumbers any of its Ownership Interest as security for repayment
of a liability, any such pledge or hypothecation shall be made pursuant to a
pledge or hypothecation agreement that requires the pledgee or secured party
to be bound by all the terms and conditions of this Article 15.
15.2 PREEMPTIVE RIGHT. Except as otherwise provided in Section
15.3, if a Member desires to Transfer all or any part of its Ownership
Interest, the other Member shall have a preemptive right to acquire such
interests as provided in this Section 15.2
(a) A Member desiring to Transfer all or any part of its
Ownership Interest shall first offer such interest to the other Member. The
offer shall state the price and all other pertinent terms and conditions of
the desired Transfer. The other Member shall have thirty (30) days from the
date such offer is delivered to notify the transferring Member whether it
elects to acquire the offered interest at the price and on the terms and
conditions set forth in the offer. If it does so elect, the Transfer shall
be consummated promptly after Notice of such election is delivered to the
transferring Member.
(b) If the Member fails to so elect within the period
provided for in Section 15.2(a), the transferring Member shall have one
hundred twenty (120) days following the expiration of such period to market
and consummate a Transfer at a price and on terms no less favorable than
those offered by the transferring Member to the other Member in the Notice
required in Section 15.2(a).
(c) If the transferring Member fails to consummate a Transfer
within the period set forth in Section 15.2(b), the preemptive right of the
other Member in such offered interest shall be deemed to be revived. Any
subsequent efforts to Transfer such Ownership Interest shall be conducted in
accordance with all of the procedures set forth in this Section 15.2.
15.3 EXCEPTIONS TO PREEMPTIVE RIGHT. Section 15.2 shall not apply
to the following:
(a) Transfer by a Member of all or any part of its Ownership
Interest to its Affiliate, provided that if the transferee ceases to be an
Affiliate of Hecla or SFPG, it shall be required to offer to sell such
Ownership Interest to the other Member in accordance with Section 15.2 at a
price equal to the fair
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market value of such Ownership Interest as determined by an independent
appraiser agreed to by the Members;
(b) A corporate merger, consolidation, amalgamation or
reorganization of a Member by which the surviving entity shall possess
substantially all of the stock, or all of the property rights and interests,
and be subject to substantially all of the liabilities and obligations of
that Member;
(c) A sale or other commitment or disposition of Products or
proceeds from sale of Products by a Member upon distribution to it pursuant
to Section 11.5; or
(d) Transfer of all or any portion of the capital stock of a
Member, provided that the Ownership Interest or Interests of such Member do
not constitute more than 80% of the total assets owned by such Member.
15.4 CONSENT TO TRANSFER. Notwithstanding any other provisions of
this Agreement, no Member may Transfer its Ownership Interest without the
express written consent of the other Member, which consent may be withheld
for any reason, provided, however, that the provisions of this Section 15.4
shall not apply and any transferee of an interest in the Company in
accordance with the terms of this Agreement shall be admitted to the Company
upon execution and delivery to the Manager of a copy of this Agreement and/or
any other documents or instruments requested by the Manager to reflect the
terms of such transferee's admission, at any time when the requirement that
the foregoing consent of Members is no longer necessary for the Company to be
classified as a partnership for federal income tax purposes.
ARTICLE 16
ADDITIONAL MEMBERS, SEPARATE OPERATING AREAS
16.1 ADDITIONAL MEMBERS. From the date of the formation of the
Company, any Person acceptable to the Management Board may become a Member in
the Company either by the issuance by the Company of Ownership Interests for
such consideration as the Members by their unanimous vote shall determine, or
as a transferee of a Member's Ownership Interest or any portion thereof,
subject to the terms and conditions of this Agreement. No new Members shall
be entitled to any retroactive allocation of losses, income or expense
deductions incurred by the Company. The Management Board may, at its option,
when a new Member is admitted, close the Company books (as though the
Company's tax year had ended) or make pro rata allocations of loss, income
and expense deductions to a new Member for that portion of the Company's tax
year in which a Member was admitted in accordance with the provisions of
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Section 706(d) of the Code and the Treasury Regulations promulgated
thereunder.
16.2 SEPARATE OPERATING AREAS. If at any time during the term of
this Agreement, the Management Board determines that it is advisable to
conduct further Development or Mining within the Area of Interest, but
separately from Operations at the Rosebud Mine, the Management Board shall
designate which portion of the Properties will comprise the separate area
(the "Separate Operating Area"), and the Members shall enter into a new
agreement for the purpose of further Exploration, Development and Mining of
the Separate Operating Area ("Separate Operating Agreement"). If the
Management Board so determines, a separate Entity may be established to own
and/or operate the Separate Operating Area. The Separate Operating Agreement
shall provide that each Member's initial contribution to the Separate
Operating Agreement shall be determined by multiplying its Ownership Interest
by the fair market value of the Separate Operating Area as determined by a
qualified independent appraiser acceptable to both Members. The Separate
Operating Agreement shall also provide for the manner in which Products from
the Separate Operating Area shall be processed, subject to SFPG's obligations
with respect to processing as set forth in Section 5.3. Following execution
of the Separate Operating Agreement, this Agreement shall terminate insofar
as it affects the Properties included in the Separate Operating Area. The
Ownership Interests of the Members in the Properties subject to the Separate
Operating Agreement may differ from the Ownership Interests of the Members in
the remainder of the Properties. If pursuant to a Separate Operating
Agreement the Ownership Interest of a Member in the Properties subject
thereto is reduced to fifteen percent (15%), such Ownership Interest shall be
deemed Transferred to the other Member or its designee, subject to the
conveyance to the Member whose Ownership Interest was Transferred of a two
percent (2%) Net Returns Royalty in such Properties.
ARTICLE 17
DISSOLUTION, WINDING UP AND CANCELLATION
17.1 DISSOLUTION AND WITHDRAWAL.
(a) The Company shall be dissolved only:
(i) by the unanimous written agreement of all Members;
(ii) as provided in Section 17.1(b); or
(iii) on the bankruptcy of any Member unless the other
Member consents in writing to the continuation of the Company within ninety
(90) days after the bankruptcy.
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(b) A Member may elect to withdraw as a Member by giving
Notice to the Company of the effective date of withdrawal, which shall be the
later of the end of the then current Adopted Program and Budget or at least
thirty (30) days after the date of the Notice. Upon such withdrawal, the
Company shall dissolve unless in writing within ninety (90) days after the
withdrawal the remaining Member elects to continue the Company, but all
relevant terms of this Agreement shall continue and the withdrawing Member
shall be deemed to have transferred to the Company or a designee of the other
Member, without cost and free and clear of royalties, liens or other
encumbrances arising by, through or under such withdrawing Member, all of its
Ownership Interest. No withdrawal under this Section 17.1(b) shall relieve
the withdrawing Member of its obligation to make contributions with respect
to Operations for which it has agreed to make contributions and shall not
affect its liability under Section 6.5.
(c) Except as provided in Section 17.1(a), the Company shall
not dissolve and shall continue notwithstanding the expulsion, bankruptcy of
any Member or the occurrence of any event that terminates the continued
membership of any Member.
17.2 WINDING UP, LIQUIDATION AND DISTRIBUTION OF ASSETS.
(a) Upon dissolution, an accounting shall be made by the
Company's independent accountants of the accounts of the Company and of the
Company's assets, liabilities and operations, from the date of the last
previous accounting until the date of dissolution. A Manager designated by
the Management Board shall immediately proceed to wind up the affairs of the
Company.
(b) If the Company is dissolved and its affairs are to be
wound up, the designated Manager shall:
(i) Sell or otherwise liquidate all of the Assets as
promptly as practicable (except to the extent the Management Board
may determine to distribute any Assets to the Members in kind),
(ii) Allocate any gain, income or loss resulting from
such sales to the Members' Capital Accounts in accordance with
Article 11,
(iii) Discharge all liabilities of the Company, including
liabilities to Members who are also creditors, to the extent
otherwise permitted by law, other than liabilities to Members for
Distributions and the return of capital, and establish such
reserves as may be reasonably necessary to provide for contingent
liabilities of the Company (for purposes of determining
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the Capital Accounts of the Members, the amounts of such reserves
shall be deemed to be an expense of the Company),
(iv) Distribute the remaining Assets in the following
order:
(A) If any Assets are to be distributed in kind,
the net fair market value of such Assets as of the date
of dissolution shall be determined by independent
appraisal or by agreement of the Members. Such Assets
shall be deemed to have been sold as of the date of
dissolution for their fair market value, and the Capital
Accounts of the Members shall be adjusted pursuant to the
provisions of Article 11 to reflect such deemed sale.
(B) The positive balance (if any) of each Member's
Capital Account (as determined after taking into account
all Capital Account adjustments for the Company's taxable
year during which the liquidation occurs) shall be
distributed to the Members, either in cash or in kind, as
determined by the Management Board, with any assets
distributed in kind being valued for this purpose at
their fair market value. Any such Distributions to the
Members in respect of their Capital Accounts shall be
made in accordance with the time requirements set forth
in Section 1.704-1(b)(2)(ii)(b)(2) of the Treasury
Regulations.
(c) Upon a liquidation within the meaning of Section 1.704-
1(b)(2)(ii)(g) of the Treasury Regulations, if any Member has a deficit
Capital Account (after giving effect to all contributions, Distributions,
allocations and other Capital Account adjustments for all taxable years,
including the year during which such liquidation occurs), such Member shall
make, within the time periods required by the Treasury Regulations,
contributions to the Company equal to the negative balance of such Member's
Capital Account.
17.3 NON-COMPETE COVENANTS. A Member that is deemed to have
withdrawn pursuant to Sections 6.4, 9.6(b)(ii) or 17.1(b), shall not directly
or indirectly acquire any interest in property within the Area of Interest
for twelve (12) months after the effective date of withdrawal. If a
withdrawing Member, or an Affiliate of a withdrawing Member, breaches this
Section, such Member or Affiliate shall be obligated to offer to convey to
the non-withdrawing Member, without cost, any such property or interest so
acquired. Such offer shall be made in writing and can be
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accepted by the non-withdrawing Member at any time within forty-five (45)
days after it is received by such non-withdrawing Member.
17.4 CERTIFICATE OF CANCELLATION. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been
made therefor and all of the remaining property and assets have been
distributed to the Members and the Manager responsible therefor has otherwise
completed the winding up of the Company, a certificate of cancellation shall
be executed and filed as required by the Act. Upon the filing of the
certificate of cancellation, the existence of the Company shall cease, except
for the purpose of suits, other proceedings and appropriate action as
provided in the Act. The Managers shall have authority to distribute any
Company property discovered after dissolution, convey real estate and take
such other action as may be necessary on behalf of and in the name of the
Company.
17.5 RETURN OF CONTRIBUTION NONRECOURSE TO OTHER MEMBERS. Except
as provided by Law or as expressly provided in this Agreement, upon
dissolution, each Member shall look solely to the Assets for the return of
its Capital Contribution. If the Company's property remaining after the
payment or discharge of the debts and liabilities of the Company is
insufficient to return the contributions of one or more Members, such Members
shall have no recourse against any other Member.
ARTICLE 18
ARBITRATION
18.1 RESOLUTION OF DISPUTES. The Members shall resolve by
arbitration as provided in this Article 18 all disputes between them (i)
arising out of or relating to this Agreement, its interpretation, execution,
validity, breach, application or termination, (ii) relating to the Company,
including the adoption of Programs and Budgets as provided in Section
10.5(b), or (iii) arising out or relating to the Security Agreements.
18.2 GENERAL PROVISIONS CONCERNING ARBITRATION. The arbitration
shall be conducted in Denver, Colorado in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA") then in
effect, as varied and supplemented by the provisions of this Article 18. If
there is a conflict between the terms and conditions, either express or
fairly implied, of this Agreement and the Commercial Arbitration Rules, the
terms and conditions of this Agreement shall apply. Judgment may be entered
on any arbitral award by any court of competent jurisdiction.
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18.3 SPECIAL ARBITRATION PROCEDURES FOR MATTERS ARISING UNDER
SUBSECTION 10.5(b). In any arbitration of a matter submitted to arbitration
pursuant to Subsection 10.5(b) the following shall apply:
(a) The arbitration shall be heard and determined by one impartial
arbitrator, chosen by the Members from a list of potential arbitrators
submitted to the Members by the AAA. The arbitrator shall be knowledgeable
concerning the mining industry and qualified by education, training and/or
experience in the subject matter of the issue to be arbitrated. The
arbitrator shall take an oath of impartiality prior to the commencement of
the hearing.
(b) The arbitration proceedings shall be conducted in accordance
with the Expedited Procedures of the Commercial Arbitration Rules, except
that:
(i) The list of potential arbitrators submitted to the
Members need not be limited to individuals on the National
Panel of Commercial Arbitrators.
(ii) The time for various procedures in the arbitration shall
be as follows:
(A) Appointment of arbitrator - lists of potential
arbitrators shall be returned to the AAA by the
Members within ten (10) days after mailing of the
lists.
(B) Objection to the appointment of an arbitrator
within two (2) days after receipt of notice of
appointment.
(C) Hearing - within fifteen (15) days after the
appointment of the arbitrator, to be completed on
consecutive days within ten (10) days after its
commencement.
(D) Award - within ten (10) days after the close of
the hearing.
(c) There shall be no discovery as part of or in connection with
any arbitration conducted pursuant to Subsection 10.5(b), and the Members
hereby irrevocably waive all rights to conduct discovery.
(d) The demand shall specify the Program and Budget which the
Member wishes adopted for the ensuing period. The other Member shall, within
ten (10) days after receipt of such a demand, notify the Member initiating
the arbitration and the AAA of the
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Program and Budget it wishes to have adopted for the ensuing period.
(e) The arbitrator shall be limited to selecting, as the only
remedy or relief that may be awarded, the Program and Budget proposed in
accordance with Subsection 18.3(d) by one or the other of the Members. The
arbitrator shall not effect a compromise or award any relief or remedy, and
shall have no authority to award any type or form of damages.
Notwithstanding the foregoing, the arbitrator shall be authorized to impose
sanctions for abuse or frustration of the arbitration process.
(f) The arbitrator shall award to the Member whose proposed
Program and Budget is selected by the arbitrator all of its pre-award costs
of arbitration, including the arbitrator's fee, administrative and other fees
paid to the AAA, witness fees, experts fees, travel expenses, and its
attorneys' fees.
(g) In determining which of the Members' proposed Programs and
Budgets to adopt, the arbitrator shall determine which proposal would better
contribute to the reasonable, prudent and efficient Exploration Development
and Mining of the Properties, or Processing of ores, as the case may be,
consistent with the purposes of the Company set forth in Section 3.1. The
financial condition or business plans of the Members shall not be deemed
relevant or considered in the arbitrator's determination.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 NOTICES. All notices, demands and other required or permitted
communications (each a "Notice") to either Member shall be in writing, and
shall be addressed respectively as follows:
If to Hecla: 6500 Mineral Drive,
Coeur d'Alene,
Idaho, 83814
Attention: VP General Counsel
Telephone: (208) 769-4100
Facsimile: (208) 769-7612
With a Copy to: V.P. Metal Mining
Telephone: (208) 769-4100
Facsimile: (208) 769-4107
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If to SFPG: 6200 Uptown Blvd. N.E., Suite 400
Albuquerque NM 87110
Attention: LeRoy E. Wilkes
Chief Operating Officer
Telephone: (505) 880-5300
Facsimile: (505) 880-5435
All Notices shall be given (a) by personal delivery to an officer of the
Member, or (b) by electronic communication, with a confirmation of
transmission sent by registered or certified mail return receipt requested,
(c) by registered or certified mail return receipt requested; or (d) by
nationally recognized overnight or other express courier service. All
Notices shall be effective and shall be deemed delivered on the date of
receipt if received during normal business hours, and, if not received during
normal business hours, on the next business day following receipt. Either
Member may change its address for Notice by Notice to the other Member.
19.2 APPLICATION OF DELAWARE LAW. This Agreement, and the
application of interpretation hereof, shall be governed exclusively by its
terms and by the Laws of the State of Delaware, and specifically the Act.
19.3 WAIVER OF ACTION FOR PARTITION. Each Member irrevocably
waives during the term of the Company any right that it may have to maintain
any action for partition with respect to the Properties.
19.4 AMENDMENTS. This Agreement may not be amended except by the
unanimous written agreement of all of the Members.
19.5 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby
agrees to execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply
with any applicable Laws, rules or regulations.
19.6 CONSTRUCTION. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and
neuter genders and vice versa.
19.7 HEADINGS AND PRONOUNS. The headings in this Agreement are
inserted for convenience only and are in no way intended to describe,
interpret, define, or limit the scope, extent or intent of this Agreement or
any provision hereof.
63
<PAGE> 69
19.8 WAIVERS. The failure of any Member to seek redress for
violation of or to insist upon the strict performance of any covenant or
condition of this Agreement shall not prevent a subsequent act, which would
have originally constituted a violation, from having the effect of an
original violation. All waivers of rights under this Agreement shall be in
writing, identified as a waiver and signed by the Member who is waiving the
rights.
19.9 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies
provided by this Agreement are cumulative and in addition to any other rights
the parties may have by Law or otherwise. The use of any one right or remedy
by any Member shall not preclude or waive the right to use any or all other
remedies, provided that multiple recovery of loss or damage shall not occur.
19.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid, illegal
or unenforceable to any extent, the remainder of this Agreement and the
application there of shall not be affected and shall be enforceable to the
fullest extent permitted by Law.
19.11 SUCCESSORS AND ASSIGNS. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the Members and, to the extent permitted by this
Agreement, their respective successors and assigns.
19.12 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
19.13 FORCE MAJEURE. Except for the obligation to make payments
when due hereunder, the obligations of a Manager shall be suspended to the
extent and for the period that performance is prevented by any cause, whether
foreseeable or unforeseeable, beyond its reasonable control, including,
without limitation, labor disputes (however arising and whether or not
employee demands are reasonable or within the power of the Manager to grant);
acts of God; Laws, instructions or requests of any government or governmental
entity; judgments or orders of any court; inability to obtain on reasonably
acceptable terms any public or private license, permit or other
authorization; curtailment or suspension of activities to remedy or avoid an
actual or alleged, present or prospective violation of federal, state or
local environmental standards; action or inaction by any federal state or
local agency that delays or prevents the issuance or granting of any approval
or authorization required to conduct Operations beyond the reasonable
expectations of the Manager; acts of war or conditions arising out of or
attributable to war, whether declared or undeclared; riot, civil strife,
insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink
holes, drought or other adverse
64
<PAGE> 70
weather condition; delay or failure by suppliers or transporters of
materials, parts, supplies, services or equipment or by contractors' or
subcontractors' shortage of, or inability to obtain, labor, transportation,
materials, machinery, equipment, supplies, utilities or services; accidents;
breakdown of equipment, machinery or facilities; actions by native rights
groups, environmental groups, or other similar special interest groups; or
any other cause whether similar or dissimilar to the foregoing ("Force
Majeure"). If an event of Force Majeure occurs, the Manager shall promptly
give Notice to the Company of the suspension of performance, stating therein
the nature of the suspension, the reasons therefor, and the expected duration
thereof. The affected Manager shall resume performance as soon as reasonably
possible.
19.14 RULE AGAINST PERPETUITIES. The Members intend that the Rule
Against Perpetuities (and any similar rule of law) not be applicable to any
provisions of this Agreement.
19.15 INVESTMENT REPRESENTATIONS. The Members understand (1) that
the Ownership Interests evidenced by this Agreement have not been registered
under the Securities Act of 1933 or any state securities laws (the
"Securities Acts") because the Company is issuing these Ownership Interests
in reliance upon the exemptions from the registration requirements of the
Securities Acts providing for issuance of securities not involving a public
offering, (2) that the Company has relied upon the fact that the Ownership
Interests are to be held by each Member for investment, and (3) that
exemption from registrations under the Securities Acts would not be available
if the Ownership Interests were acquired by a Member with a view to
distribution.
Accordingly, each Member hereby confirms to the Company and each
other Member that such Member is acquiring the Ownership Interests for such
own Member's account, for investment and not with a view to the resale or
distribution thereof. Neither Member shall Transfer or offer to Transfer any
of portion of the Ownership Interests unless there is an effective
registration or other qualification relating thereto under the Securities
Acts or unless the holder of Ownership Interests delivers to the Company an
opinion of counsel, satisfactory to the Company, that such registration or
other qualification under the Securities Acts is not required in connection
with such Transfer or offer. Each Member acknowledges that the Company is
under no obligation to register the Ownership Interests or to assist such
Member in complying with any exemption from registration under the Securities
Acts if such Member should at a later date, wish to dispose of the Ownership
Interest. Furthermore, each Member realizes that the Ownership Interests are
unlikely to qualify for disposition under Rule 144 of the Securities and
Exchange Commission unless such Member is not an "affiliate" of the Company
and the Ownership Interest has been beneficially owned and fully paid for by
such Member for at least three (3) years.
65
<PAGE> 71
Each Member, prior to acquiring an Ownership Interest, has made an
investigation of the Company and its proposed business, and has had made
available to each such Member all information with respect thereto which such
Member needed to make an informed decision to acquire the Ownership Interest.
Each Member considers itself to possess experience and sophistication as an
investor which are adequate for the evaluation of the merits and risks of
such Member's investment in the Ownership Interest.
IN WITNESS WHEREOF, the Members have executed this Agreement as of
the year and date first above written.
Santa Fe Pacific Gold Corporation
/s/ Bruce D. Hansen
--------------------------------------------
Senior Vice President, Corporate Development
--------------------------------------------
Hecla Mining Company
/s/ Roger A. Kauffman
---------------------------------------------
Executive Vice President & Chief Operating Officer
66
<PAGE> 1
Exhibit 12
HECLA MINING COMPANY
FIXED CHARGE COVERAGE RATIO CALCULATION
For the Nine Months Ended September 30, 1995 and 1996
(In thousands, except ratios)
<TABLE>
<CAPTION>
Nine Months Nine Months
1995 1996
----------- -----------
<S> <C> <C>
Loss before income taxes $(102,694) $ (32,565)
Add: Fixed Charges 7,689 8,670
Less: Capitalized Interest (850) (1,714)
---------- ----------
Loss before income taxes $ (95,855) $ (25,609)
========== ==========
Fixed charges:
Preferred stock dividends $ 6,038 $ 6,038
Interest portion of rentals 415 408
Interest expense 1,236 2,224
---------- ----------
Total fixed charges $ 7,689 $ 8,670
========== ==========
Fixed Charge Ratio (a) (a)
Inadequate coverage 103,544 34,279
========== ==========
Write-downs and other noncash charges:
Depreciation, depletion and
amortization (mining activity) 18,580 15,186
Depreciation, depletion and
amortization (corporate) 265 256
Provision for closed operations 4,296 22,691
Reduction in carrying value of
mining properties 97,387 12,902
---------- ----------
$ 120,528 $ 51,035
========== ==========
</TABLE>
(a) Earnings for period inadequate to cover fixed charges.
<PAGE> 1
Exhibit 13
[HECLA LOGO]
HECLA WRITE-DOWNS AND ACCRUALS AFFECT THIRD QUARTER RESULTS
For the Period Ended September 30, 1996
For release: November 11, 1996
Hecla Mining Company (HL & HL-PrB:NYSE) today reported a net loss for
the third quarter of 1996 of $38.8 million, or 76 cents per share, after the
payment of a quarterly dividend of $2 million to shareholders of preferred
stock. The third quarter loss includes nonrecurring adjustments totaling
$38.1 million. The largest portion of the nonrecurring adjustments relates to
the decision by Hecla's board of directors to suspend operations at the Grouse
Creek gold mine in central Idaho next year. The mine will be placed on a care
and maintenance status. Some reclamation on the property is anticipated next
summer, after the Sunbeam pit is mined out during the second quarter of 1997.
Although major reclamation and dismantling of the plant have not been
scheduled, the company decided to accrue $22.5 million for holding costs,
reclamation and final closure expenses. The company also took a reduction in
the carrying value of the Grouse Creek mine in the amount of $5.3 million
relating to the write-down of tailings impoundment construction costs and other
assets. Year to date, Grouse Creek has produced 40,000 ounces of gold, at a
cash cost of $315 per ounce.
Hecla earlier announced an asset write-down of $7.6 million with an
additional closure cost accrual of $336,000 during the third quarter for the
American Girl gold mine in southern California. In addition, an accrual of
$2.3 million was recorded for future costs relating to Coeur d'Alene River
Basin environmental issues. Before these write-downs and accruals, Hecla had a
net loss of $649,000, or 1 cent per share, on revenue of $41 million after a $2
million quarterly dividend payment to shareholders of preferred stock.
The third quarter loss was partially offset by miscellaneous income of
about $3 million, which is primarily a result of a gain of $1 million on the
sale of the Apex mine in southern Utah, a favorable settlement in the amount of
approximately $680,000, and a $625,000 gain on the sale of an immediate 75%
interest in the Golden Eagle gold exploration project to Santa Fe Pacific Gold
Corporation.
For the first nine months of 1996, the company incurred a net loss of
$38.5 million, or 75 cents per share, on revenue of $125.9 million, compared to
a net loss in the same period last year of $109 million, or $2.26 per share, on
revenue of 121.9 million.
PRODUCTION AND PRICES
Hecla produced nearly 1.8 million ounces of silver and 122,000 ounces
of gold during the first nine months of 1996, at a total cash cost of $4.07 per
ounce of silver and $277 per ounce of gold. The average price of silver for
the first nine months of 1996 was $5.29 per ounce, and the average price of
gold was $397 per ounce.
OPERATIONS
ROSEBUD
The 50/50 joint venture agreement with Santa Fe Pacific Gold
Corporation on the Rosebud gold project was finalized in September. The
project is located in northern Nevada. The mine will be operated by Hecla, and
the ore will be trucked to Santa Fe's Twin Creeks mine for processing.
Development is on schedule, and the underground mine is expected to begin
production in the second quarter of 1997. After reaching full production,
Rosebud is expected to yield about 50,000 ounces of gold annually for Hecla's
account. Current reserve estimates give the operation a five year life.
Exploration plans through the end of 1997 include approximately $2 million for
a surface drilling program. In addition, an underground drilling program is
planned to further delineate the deposit to the north and east of current
development. Rosebud lies on trend with several other operating gold
properties, and Arthur Brown, Hecla's chairman and chief executive officer,
said, "We are very optimistic about the potential here to expand the mine life
at Rosebud through further exploration."
<PAGE> 2 Page 2
LA CHOYA
The La Choya gold mine in Sonora, Mexico, is on its way to producing
well over 70,000 ounces of gold in 1996. During the first nine months, the
mine has produced nearly 60,000 ounces of gold at a total cash cost of $181 per
ounce.
LUCKY FRIDAY
At the Lucky Friday mine, increased production, better lead prices and
development ore from the higher-grade expansion area contributed significantly
to the reduction in total cash costs to $3.37 per ounce during the third
quarter of 1996. The full cost of production, including depreciation, was
$4.55 per ounce. For the first nine months, the total cash cost per ounce of
silver at Lucky Friday was $4.07, and the full cost of production was $5.30 per
ounce.
Thirty-six drill holes into the expansion area adjacent to the
underground Lucky Friday workings have all encountered ore-grade material. The
identified extent of the deposit now has about a 1,400-foot strike length and
is still open above, below, and to the east and west. The drill indicated
resource in the main vein of the expansion area has an average grade of 21
ounces of silver per ton, which is twice the grade currently being mined at
Lucky Friday. Brown said, "We continue to see excellent drilling results from
this new area. I'm enthused about the potential for this deposit to bring the
Lucky Friday mine back to historic levels of production of 4 to 5 million
ounces annually, and with that, a return to profitability." Engineering and
final feasibility studies for the Lucky Friday expansion project are expected
to be completed in the first quarter of 1997.
GREENS CREEK
The Greens Creek mine in Alaska went back into operation ahead of
schedule at the end of July. Start-up is going smoothly, and the mine produced
about 145,000 ounces of silver for Hecla's account during the first two months
of operation. Full production rates are expected by the end of the year.
Hecla's share of 1997 production is expected to exceed 3 million ounces of
silver at a cash cost ranging from $2.50-$3.00 per ounce. Hecla owns a 29.7%
interest in the mine, which is operated by Kennecott Greens Creek Mining
Company.
INDUSTRIAL MINERALS
Hecla's industrial minerals segment continued its record performance
in the third quarter. Gross profit from industrial minerals increased 30% to
$2.6 million, compared to $2 million in the same period of 1995. In the first
nine months of 1996, the industrial minerals segment contributed $8.9 million
in gross profit, compared to $6.5 million in the first nine months of last
year.
The improvement is associated with increased shipments from all four
of Hecla's industrial minerals subsidiaries: Mountain West Products, Kentucky-
Tennessee Clay Company, K-T Feldspar Corporation and Colorado Aggregate
Company.
EXPLORATION
GOLDEN EAGLE
Hecla owns a 25% interest in this gold exploration property in
northeast Washington State. The remaining interest is held by Santa Fe Pacific
Gold Corporation, which has the exploration rights at the site. Santa Fe has
reported that it has confirmed and expanded the volume of gold mineralization
present at the site. However, economic and technical analyses indicate that
either an improvement in the gold price or a reduction in operating or capital
costs is required to warrant a positive development decision.
PREFERRED DIVIDEND APPROVED
Hecla's directors approved a $2 million dividend payment to preferred
stock shareholders of record as of December 11, 1996, payable January 1, 1997.
CONCLUSION
The decisions affecting the Grouse Creek and American Girl mines
negatively affected third quarter earnings, but Brown said having those issues
settled is a positive development. "Although earnings are temporarily
affected, suspending operations at these high-cost mines lets us look forward
to lower operating costs for both our silver and gold segments in the future.
We feel confident that this is the best decision we could make, considering the
circumstances. It's time now to concentrate on increasing our silver
production over the next two years and putting Rosebud into operation. We see a
<PAGE> 3 Page 3
strong upturn in our future, and I'm optimistic about where we're headed,
especially on the silver side of our business."
FORWARD-LOOKING INFORMATION
Statements made which are not historical facts are forward-looking
statements, which involve a number of risks and uncertainties that could cause
actual results to differ materially from those projected. These risks and
uncertainties include, but are not limited to, metal price volatility,
volatility of metals production and project development risks. See the
company's Form 10-Q and 10-K reports for a more detailed discussion of factors
that may impact expected future results.
Hecla Mining Company, headquartered in Coeur d'Alene, Idaho, is one of
the United States' best-known silver producers. The company also produces gold
and is a major supplier of ball clay, kaolin and other industrial minerals.
Hecla's operations are principally in the U.S. and Mexico.
-HL-
Hecla Mining Company news releases can be accessed on the Internet at:
http://www.hecla-mining.com
You can also request a free fax of this entire news release
from BusinessWire NewsOnDemand at 800-344-7826
<PAGE> 4
HECLA MINING COMPANY
(dollars in thousands, except per-share amounts and per-ounce
amounts - unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
-------------------------------- -------------------------------
HIGHLIGHTS Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $ 41,008 $ 44,273 $ 125,886 $ 121,888
Gross profit 2,360 1,775 9,323 2,621
Net loss (36,765) (102,723) (32,489) (102,945)
Loss applicable to common shareholders (38,778) (104,736) (38,527) (108,983)
Loss per common share (0.76) (2.17) (0.75) (2.26)
Cash flow provided by operating activities 11,358 4,553 17,780 4,222
- --------------------------------------------------------------------------------------------------------------
SALES OF PRODUCTS BY SEGMENT
- --------------------------------------------------------------------------------------------------------------
Gold operations $ 16,342 $ 17,795 $ 47,809 $ 47,902
Silver operations 3,361 3,170 11,290 8,902
Industrial minerals 17,959 17,176 62,033 54,194
Specialty metals - - 1,947 - - 4,414
----------- ----------- ----------- ----------
Total sales $ 37,662 $ 40,088 $ 121,132 $ 115,412
- -------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) BY SEGMENT
- -------------------------------------------------------------------------------------------------------------
Gold operations $ (152) $ (282) $ 731 $ (4,652)
Silver operations (93) (204) (289) 487
Industrial minerals 2,605 1,995 8,881 6,492
Specialty metals - - 266 - - 294
----------- ----------- ----------- ----------
Total gross profit $ 2,360 $ 1,775 $ 9,323 $ 2,621
- -------------------------------------------------------------------------------------------------------------
PRODUCTION SUMMARY - TOTALS
- -------------------------------------------------------------------------------------------------------------
Gold - Ounces 43,558 44,209 121,739 119,839
Silver - Ounces 811,299 604,988 1,763,120 1,623,661
Lead - Tons 6,066 4,241 16,064 12,492
Zinc - Tons 1,598 722 3,374 2,118
Industrial minerals - Tons shipped 276,574 265,524 824,498 767,713
Average cost per ounce of gold produced:
Cash operating costs ($/oz.) 284 261 273 300
Total cash cost ($/oz.) 288 264 277 303
Total production costs ($/oz.) 389 393 375 424
Average cost per ounce of silver produced:
Cash operating costs ($/oz.) 3.37 4.57 4.07 4.73
Total cash costs ($/oz.) 3.37 4.57 4.07 4.73
Total production costs ($/oz.) 4.55 5.71 5.30 5.95
- -------------------------------------------------------------------------------------------------------------
AVERAGE METAL PRICES
- -------------------------------------------------------------------------------------------------------------
Gold - Realized ($/oz.) 391 388 397 388
Gold - London Final ($/oz.) 385 384 392 384
Silver - Handy & Harman ($/oz.) 5.05 5.33 5.29 5.17
Lead - LME Cash ( cents/pound) 36.2 27.8 36.0 27.6
Zinc - LME Cash ( cents/pound) 45.5 45.8 46.4 47.1
</TABLE>
<PAGE> 5
HECLA MINING COMPANY
Consolidated Balance Sheets
(dollars in thousands - unaudited)
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995
- -------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,139 $ 4,024
Accounts and notes receivable 27,055 25,571
Income tax refund receivable 765 737
Inventories 19,339 20,915
Other current assets 1,473 2,038
-------------- ------------
Total current assets 59,771 53,285
Investments 1,950 2,200
Restricted investments 16,468 16,254
Properties, plants and equipment, net 175,437 177,374
Other noncurrent assets 10,674 9,077
-------------- ------------
Total assets $ 264,300 $ 258,190
============== ============
- -------------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 14,872 $ 14,145
Accrued payroll and related benefits 2,986 3,217
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,323 1,042
Accrued reclamation costs 7,392 5,549
-------------- ------------
Total current liabilities 28,585 25,965
Deferred income taxes 359 359
Long-term debt 33,082 36,104
Accrued reclamation costs 48,160 26,782
Other noncurrent liabilities 6,585 4,864
-------------- ------------
Total liabilities 116,771 94,074
-------------- ------------
- -------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------
Preferred stock 575 575
Common stock 12,800 12,079
Capital surplus 351,659 330,352
Accumulated deficit (211,733) (173,206)
Net unrealized gain on investments 12 100
Foreign currency translation adjustment (4,898) (4,898)
Treasury stock (886) (886)
-------------- ------------
Total shareholders' equity 147,529 164,116
-------------- ------------
Total liabilities and shareholders' equity $ 264,300 $ 258,190
============== ============
Common shares outstanding at end of period 51,137 48,255
============== ============
</TABLE>
<PAGE> 6
HECLA MINING COMPANY
Consolidated Statements of Operations
(dollars and shares in thousands, except per-share amounts - unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
------------------------------- -------------------------------
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales of products $ 37,662 $ 40,088 $ 121,132 $ 115,412
---------- ---------- ---------- ----------
Cost of sales and other direct
production costs 29,998 31,298 96,623 94,211
Depreciation, depletion and
amortization 5,304 7,015 15,186 18,580
---------- ---------- ---------- ----------
35,302 38,313 111,809 112,791
---------- ---------- ---------- ----------
Gross profit 2,360 1,775 9,323 2,621
---------- ---------- ---------- ----------
Other operating expenses:
General and administrative 2,331 3,106 6,836 7,570
Exploration 1,410 2,671 3,400 4,879
Depreciation and amortization 82 97 256 265
Provision for closed operations
and environmental matters 25,492 4,069 22,691 4,296
Reduction in carrying value of
mining properties 12,902 97,387 12,902 97,387
---------- ---------- ---------- ----------
42,217 107,330 46,085 114,397
---------- ---------- ---------- ----------
Loss from operations (39,857) (105,555) (36,762) (111,776)
---------- ---------- ---------- ----------
Other income (expense):
Interest and other income 3,346 4,185 4,754 6,476
Foreign exchange gain (loss) 9 (12) (19) 150
Gain (loss) on investments (158) (1,051) (28) 2,842
Interest expense:
Total interest cost (875) (650) (2,224) (1,236)
Less amount capitalized 671 474 1,714 850
---------- ---------- ---------- ----------
2,993 2,946 4,197 9,082
---------- ---------- ---------- ----------
Loss before income taxes (36,864) (102,609) (32,565) (102,694)
Income tax (provision) benefit 99 (114) 76 (251)
---------- ---------- ---------- ----------
Net loss (36,765) (102,723) (32,489) (102,945)
Preferred stock dividends (2,013) (2,013) (6,038) (6,038)
---------- ---------- ---------- ----------
Loss applicable to common
shareholders $ (38,778) $ (104,736) $ (38,527) $ (108,983)
========== ========== ========== ==========
Loss per common share $ (0.76) $ (2.17) $ (0.75) $ (2.26)
========== ========== ========== ==========
Weighted average number of
common shares outstanding 51,137 48,237 51,133 48,178
========== ========== ========== ==========
</TABLE>
<PAGE> 7
HECLA MINING COMPANY
Consolidated Statements of Cash Flows
(in thousands - unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
Sept. 30, 1996 Sept. 30, 1995
- ---------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss $ (32,489) $ (102,945)
Noncash elements included in net loss:
Depreciation, depletion and amortization 15,442 18,845
Gain on disposition of properties, plants and equipment (731) (3,484)
Loss (gain) on investments 28 (2,842)
Reduction in carrying value of mining properties 12,902 97,387
Provision for reclamation and closure costs 27,429 4,651
Change in:
Accounts and notes receivable (2,695) (7,224)
Income tax refund receivable (28) (3)
Inventories (699) 571
Other current assets 332 (732)
Accounts payable and accrued expenses 727 388
Accrued payroll and related benefits (231) (163)
Accrued taxes 281 661
Accrued reclamation and other noncurrent liabilities (2,488) (888)
-------------- --------------
Net cash provided by operating activities 17,780 4,222
-------------- --------------
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------------
Additions to properties, plants and equipment (25,596) (33,083)
Proceeds from disposition of properties, plants and equipment 3,158 3,069
Proceeds from the sales of investments 130 4,685
Increase in restricted investments (214) (1,439)
Purchase of investments and increase in cash surrender
value of life insurance (607) (822)
Other, net (1,715) (1,249)
-------------- --------------
Net cash used by investing activities (24,844) (28,839)
-------------- --------------
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------------
Proceeds from exercise of stock warrants - - 1,239
Common stock issued under stock option plans - - 91
Issuance of common stock, net of offering costs 22,028 - -
Dividends on preferred stock (6,038) (6,038)
Borrowings against cash surrender value of life insurance 602 - -
Borrowing on long-term debt 40,500 41,000
Repayment on long-term debt (42,913) (11,796)
-------------- --------------
Net cash provided by financing activities 14,179 24,496
-------------- --------------
Net increase (decrease) in cash and cash equivalents 7,115 (121)
Cash and cash equivalents at beginning of period 4,024 7,278
-------------- --------------
Cash and cash equivalents at end of period $ 11,139 $ 7,157
============== ==============
</TABLE>
<PAGE> 8
HECLA MINING COMPANY
Production Data
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
----------------------------- -------------------------------
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
LA CHOYA UNIT
Tons of ore processed 793,271 1,310,417 2,771,076 2,781,845
Ore grade processed - Gold (oz./ton) 0.029 0.029 0.025 0.028
Gold produced (oz.) 20,007 21,799 59,722 45,480
Silver produced (oz.) 1,866 2,273 5,912 4,699
Average cost per ounce of gold produced:
Cash operating costs $193 $180 $181 $214
Total cash costs $194 $180 $181 $214
Total production costs $309 $287 $296 $313
AMERICAN GIRL UNIT (1) (Reflects Hecla's 47% share)
Tons of ore milled 28,931 17,709 94,147 40,943
Tons of ore to heap 88,375 115,684 304,262 615,296
Ore grade milled - Gold (oz./ton) 0.125 0.191 0.126 0.191
Ore grade to heap - Gold (oz./ton) 0.037 0.029 0.041 0.029
Gold produced (oz.) 5,708 5,436 18,466 15,985
Silver produced (oz.) 1,465 3,063 4,781 10,331
Average cost per ounce of gold produced:
Cash operating costs $424 $437 $463 $407
Total cash costs $447 $461 $486 $428
Total production costs $509 $523 $559 $468
GROUSE CREEK (2) (Reflects Hecla's share)
Tons of ore milled 398,062 476,992 943,331 1,120,461
Ore grade milled - Gold (oz./ton) 0.048 0.036 0.046 0.046
Ore grade milled - Silver (oz./ton) 0.37 0.61 0.39 0.64
Gold produced (oz.) 16,529 15,336 40,063 50,534
Silver produced (oz.) 71,010 149,314 195,554 390,273
Average cost per ounce of gold produced:
Cash operating costs $337 $308 $315 $352
Total cash costs $337 $308 $315 $352
Total production costs $437 $503 $403 $536
LUCKY FRIDAY UNIT
Tons of ore milled 56,598 43,004 139,359 117,022
Ore grade milled - Silver (oz./ton) 10.30 10.72 10.16 10.73
Silver produced (oz.) 591,771 449,791 1,409,556 1,201,266
Lead produced (tons) 5,806 4,241 15,804 12,492
Zinc produced (tons) 1,031 722 2,807 2,118
Average cost per ounce of silver produced:
Cash operating costs $3.37 $4.57 $4.07 $4.73
Total cash costs $3.37 $4.57 $4.07 $4.73
Total production costs $4.55 $5.71 $5.30 $5.95
</TABLE>
(cont.)
<PAGE> 9
HECLA MINING COMPANY
Production Data (cont.)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
----------------------------- -----------------------------
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
GREENS CREEK (3) (Reflects Hecla's 29.73% share)
Tons of ore milled 12,157 - - 12,157 - -
Ore grade milled - Silver (oz./ton) 20.50 - - 20.50 - -
Silver produced (oz.) 144,609 - - 144,609 - -
Gold produced (oz.) 320 - - 320 - -
Lead produced (tons) 260 - - 260 - -
Zinc produced (tons) 567 - - 567 - -
OTHER
Gold produced (oz.) 994 1,638 3,168 7,840
Silver produced (oz.) 578 547 2,708 17,092
</TABLE>
(1)On September 5, 1996, Hecla announced that operations at the American Girl
Joint Venture gold mine will be suspended effective November 4, 1996. During
the third quarter, Hecla recorded an approximate $7.6 million write-down of the
carrying value of the property, and a closure cost accrual totaling
approximately $0.3 million.
(2)The ownership percentage of the Grouse Creek mine has increased to 81.05% as
of September 30, 1996, compared to 80.00% at September 30, 1995. Hecla
announced plans to suspend operations at the Grouse Creek mine next year. The
mine will be placed on a care-and-maintenance status. The company recorded
adjustments in the third quarter of 1996 for holding costs, reclamation and
final closure expenses of $22.5 million and reduction in carrying value
totaling $5.3 million.
(3)The Greens Creek mine recommenced operations on July 29, 1996, on a start-up
basis; as such, no cost per ounce amounts are reported. Full production is
expected by January 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,139
<SECURITIES> 0
<RECEIVABLES> 27,055
<ALLOWANCES> 0
<INVENTORY> 19,339
<CURRENT-ASSETS> 59,771
<PP&E> 388,467
<DEPRECIATION> (213,030)
<TOTAL-ASSETS> 264,300
<CURRENT-LIABILITIES> 28,585
<BONDS> 0
0
575
<COMMON> 12,800
<OTHER-SE> 134,154
<TOTAL-LIABILITY-AND-EQUITY> 264,300
<SALES> 121,132
<TOTAL-REVENUES> 125,886
<CGS> 96,623
<TOTAL-COSTS> 111,809
<OTHER-EXPENSES> 46,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 510
<INCOME-PRETAX> (32,565)
<INCOME-TAX> 76
<INCOME-CONTINUING> (32,489)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,489)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
