<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
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: 0-16484
GETCHELL GOLD CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 64-0748908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5460 South Quebec Street
Suite 240
Englewood, Colorado 80111
(Address of principal executive offices) (Zip code)
(303) 771-9000
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year,
if changed since last report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, par value $0.0001 30,811,718 on May 12, 1999
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 14,476 $ 10,803
Cost of sales 20,004 15,033
-------- --------
Gross margin (5,528) (4,230)
General and administrative expenses 1,362 921
Exploration expenses 186 98
-------- --------
Loss from operations (7,076) (5,249)
Interest expense, net of capitalized interest (693) (192)
Interest and other income 105 535
-------- --------
Loss before cumulative effect of a
change in accounting principle (7,664) (4,906)
Cumulative effect of a change in accounting principle (7,804) --
-------- --------
Net loss $(15,468) $ (4,906)
======== ========
Loss per share before cumulative effect
of a change in accounting principle $ (0.25) $ (0.18)
Cumulative effect of a change in accounting principle (0.25) --
-------- --------
Loss per share $ (0.50) $ (0.18)
======== ========
Weighted average number of shares outstanding 30,806 27,901
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
--------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,410 $ 18,073
Accounts receivable:
Trade 1,780 2,191
Employee 74 1
Other 2,742 926
--------- ---------
Total accounts receivable 4,596 3,118
--------- ---------
Inventories:
Ore and ore in process 3,529 1,565
Materials and supplies 11,561 11,509
--------- ---------
Total inventories 15,090 13,074
--------- ---------
Other current assets 1,728 1,090
--------- ---------
Total current assets 29,824 35,355
Property, plant and equipment, net 260,909 259,815
Other 4,743 7,390
--------- ---------
Total assets $ 295,476 $ 302,560
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,878 $ 7,025
Accrued expenses 3,718 3,013
Current portion of capital lease obligations 4,094 3,539
Stock appreciation rights 1,316 1,393
Deferred revenue 4,752 3,617
Income taxes payable to ChemFirst Inc. 666 666
--------- ---------
Total current liabilities 22,424 19,253
Long-term debt, principally ChemFirst Inc. 28,737 28,799
Capital lease obligations, less current portion 12,042 10,399
Deferred income taxes 211 211
Reclamation liabilities 2,729 2,793
Deferred revenue 5,060 75
Deferred call option premium -- 2,000
Other liabilities 1,332 736
--------- ---------
Total liabilities 72,535 64,266
--------- ---------
Commitments and contingencies -- --
Stockholders' equity :
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued -- --
Common stock, $0.0001 par value; 100,000,000 shares authorized; issued and
outstanding 30,810,058 at March 31, 1999 and 30,797,536 at December 31, 1998 3 3
Contributed and paid-in capital 290,946 290,830
Accumulated deficit (68,008) (52,539)
--------- ---------
Total stockholders' equity 222,941 238,294
--------- ---------
Total liabilities and stockholders' equity $ 295,476 $ 302,560
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(15,468) $ (4,906)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Cumulative effect of a change in accounting principle 7,804 --
Depreciation and depletion 4,297 2,596
Other 537 626
Net change in operating assets and liabilities:
Accounts receivable (1,478) (464)
Inventories (2,016) 890
Other current assets (638) (44)
Accounts payable (1) (3,147)
Accrued expenses 705 110
Deferred revenue 6,825 (27)
Stock appreciation rights (77) (275)
-------- --------
Cash provided by (used in) operating activities 490 (4,641)
-------- --------
Cash flows used in investing activities:
Additions to property, plant and equipment (9,217) (17,990)
Other 9 --
-------- --------
Cash used in investing activities (9,208) (17,990)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 52 69,774
Principal payments under capital lease obligation (939) (516)
Other (58) 86
-------- --------
Cash provided by (used in) financing activities (945) 69,344
-------- --------
Net increase (decrease) in cash and cash equivalents (9,663) 46,713
Cash and cash equivalents at beginning of period 18,073 34,247
-------- --------
Cash and cash equivalents at end of period $ 8,410 $ 80,960
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the financial statements reflect all
adjustments of a normal and recurring nature which are necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. These financial statements should be read in conjunction with
the Annual Report of Getchell Gold Corporation (the "Company") on Form 10-K for
the year ended December 31, 1998.
(2) MERGER WITH PLACER DOME
On December 11, 1998, the Company entered into an Agreement and Plan of
Merger with Placer Dome Inc., a Canada-based, international gold mining company,
and Bullion Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Placer Dome (the "Merger Sub"), pursuant to which the Merger Sub
will be merged (the "Merger") with and into the Company, with the Company
surviving the Merger and becoming a wholly owned subsidiary of Placer Dome.
Under the terms of the Merger Agreement, each issued and outstanding share of
the Company's common stock, other than shares owned by Placer Dome or the
Company, will be converted into 2.45 shares of Placer Dome's common shares. The
Merger is subject to the Company's shareholder approval. The Company expects the
Merger to be consummated on or about May 27, 1999.
(3) CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. The Company adopted SOP 98-5
effective January 1, 1999. The change resulted in a $7.8 million charge as the
cumulative effect of a change in accounting principle.
This charge reflects the unamortized costs, net of revenues, incurred
in the production of development ore from the Turquoise Ridge mine in 1998 and
from the Getchell Underground mine in 1994 and 1995, both of which had
previously been capitalized. Such costs include costs of mining, milling,
minesite general and administrative, royalties and depreciation and depletion.
Development ore represents ore encountered in the process of development
drifting and ramping when building the mine.
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GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) HEDGING AND OTHER PRECIOUS METAL CONTRACT COMMITMENTS
Precious metal contracts consist of spot deferred, forward sales, call
option and lease rate swap contracts. The Company currently uses spot deferred
and forward sales contracts to mitigate the impact on earnings and cash flows of
decreases in gold prices. Risk of loss on the spot deferred and forward sales
contracts arises from the possible inability of a counterparty to fulfill its
obligations under the contracts and from the Company's potential inability to
deliver gold, although non-performance by the counterparty to the contracts is
not anticipated.
In the first quarter of 1999, the Company closed out all of its spot
deferred contracts. The proceeds from the closure of the spot deferred contracts
were recorded as deferred revenue and will be recognized in net sales when the
originally designated hedged future gold production is sold. Based on the
closing price of the contracts, the unrecognized gains on the spot deferred
contracts were $9.8 million at March 31, 1999, of which $3.9 million, $2.8
million, $1.9 million, $0.6 million and $0.6 million will be recognized in 1999,
2000, 2001, 2002 and 2003, respectively.
Deferred revenue includes premiums received for call options sold. The
deferred amounts are recognized in income when the option expires or the related
transaction occurs. At March 31, 1999, the Company had no outstanding European
call option contracts. Risk of loss on European call option contracts exists if
the Company is unable to deliver the required quantity of gold and the market
price were to exceed the exercise price of the option on the date designated in
the contract.
(5) PROPERTY, PLANT AND EQUIPMENT (In thousands)
<TABLE>
<CAPTION>
At At
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Land and land improvements $ 19,107 $ 14,241
Buildings and equipment 171,499 132,934
Mine development 160,662 64,122
Construction-in-progress 19,143 154,470
--------- ---------
Total property, plant and equipment 370,411 365,767
Accumulated depreciation and depletion (109,502) (105,952)
--------- ---------
Net property, plant and equipment $ 260,909 $ 259,815
========= =========
</TABLE>
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GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized mine development and construction-in-progress at March 31,
1999 and December 31, 1998 are comprised of the following (in thousands):
<TABLE>
<CAPTION>
At At
March 31, December 31,
Project 1999 1998
--------- ------------
<S> <C> <C>
Mine Development:
Getchell Underground mine ... $ 49,993 $ 51,581
Turquoise Ridge mine ........ 110,017 11,889
Other projects .............. 652 652
-------- --------
$160,662 $ 64,122
======== ========
Construction in Progress:
Getchell Underground mine ... $ 699 $ 944
Turquoise Ridge mine ........ 3,331 137,031
Mill improvements ........... 15,024 16,459
Other projects .............. 89 36
-------- --------
$ 19,143 $154,470
======== ========
</TABLE>
Depreciation and depletion expense was $4.3 million and $2.6 million
for the three months ended March 31, 1999 and 1998, respectively.
Capitalized interest was $0.4 million for the three months ended March
31, 1998.
(6) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
------ -----
<S> <C> <C>
Interest, net of amounts capitalized $ 294 $(261)
Income taxes paid $ -- $ --
</TABLE>
Capital lease obligations of $3.1 million and $4.4 million were
incurred to acquire equipment during the quarters ended March 31, 1999 and 1998,
respectively.
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GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) COMMITMENTS AND CONTINGENCIES
Environmental Obligations
The Company's mining and exploration activities are subject to various
federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect the public health and environment and believes its operations are in
compliance with all applicable laws and regulations. The Company has made, and
expects to make in the future, expenditures to comply with such laws and
regulations. The Company cannot predict such future expenditures.
Internal Revenue Service Tax Claim
In October 1996, September 1997 and December 1998, the Internal Revenue
Service ("IRS") filed notices of deficiencies, stating that the IRS is
proceeding against ChemFirst for income taxes associated with ChemFirst's
consolidated income tax returns filed in 1989 through 1994, for which the
Company is liable for a portion. Subsequent negotiations between the Company and
the IRS have resulted in settlement of all issues in the 1989 through 1994
periods.
The IRS has also conducted an audit of tax returns filed in 1995 and
1996 up to the Spin-Off and has asserted claims for additional taxes for these
two periods. ChemFirst has agreed to settle certain of the claims. The Company
believes it has adequately provided for any remaining liabilities that may
result from the final settlement of the audit of the returns filed in 1995 and
1996. The liability for the amount of the settlements attributable to the
Company, including interest payable, has been reflected on the Company's balance
sheet at March 31, 1999 as income taxes payable to ChemFirst Inc.
Major Contracts
The Company has an agreement with an independent contractor who
provides oxygen for the autoclave process in the mill. The agreement requires,
among other things, that the Company must pay the independent contractor at a
rate (subject to future adjustments for inflation) of approximately $0.2 million
a month. The Company is also obligated to a termination fee if the contract is
terminated prior to January 2004. The termination fee is $2.0 million in 1999
and decreases each year until reaching $0.4 million in 2004.
Royalties
The Company is obligated to pay a 2% royalty on net smelter returns of
the current mineral production from certain of its mining properties. Royalties,
recorded as operating costs, amounted to $0.3 million and $0.2 million for the
quarters ended March 31, 1999 and 1998, respectively.
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GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financing Fees on Proposed Merger with Placer Dome
The Company has entered into an agreement with its investment bankers
relating to the fees associated with the proposed merger with Placer Dome. The
agreement requires the Company to pay a financing fee, based on a formula, if
the proposed merger is completed. The remaining fees are currently estimated to
be approximately $7.3 million.
Promissory Note
The principal balance of the promissory note between the Company and
ChemFirst was $28.7 million at March 31, 1999 and December 31, 1998. The
promissory note is due September 22, 2000 or upon a change in control of the
Company and may be prepaid without penalty. The interest rate on the loan is the
London Interbank Offered Rate for a period selected by the Company, plus an
applicable margin. The interest rate was 5 5/8% at March 31, 1999 and December
31, 1998. Since the inception of the promissory note, interest has been
converted to note principal at the end of each interest period. The promissory
note contains covenants that require minimum net worth, as defined, of $27.0
million and a ratio of indebtedness to tangible net worth, as defined, of no
more than 2.0:1.0.
Letter of Credit
At March 31, 1999, the Company has a $4.5 million secured letter of
credit outstanding for bonding of reclamation plans relating to the Getchell
Property.
(8) SUBSEQUENT EVENT
On April 30, 1999, the Company entered into an unsecured $10 million
revolving line of credit with Toronto Dominion (Texas), Inc. which terminates
upon the Company's merger with Placer Dome.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The information set forth in this discussion and analysis includes both
historical information and "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the safe harbor created by that section. To the extent that this report
contains forward-looking statements regarding our financial condition, operating
results, business prospects or any of our other operations, our actual financial
condition, operating results and business prospects may differ materially from
that projected or estimated by us in forward-looking statements. Factors that
realistically could cause results to differ materially from those projected in
the forward-looking statements are set forth in "Risk Factors" below.
On December 11, 1998, we entered into an Agreement and Plan of Merger
with Placer Dome Inc., a Canada-based, international gold mining company, and
Bullion Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
Placer Dome (the "Merger Sub"), pursuant to which the Merger Sub will be merged
(the "Merger") with and into us, with us surviving the Merger and becoming a
wholly owned subsidiary of Placer Dome. Under the terms of the Merger Agreement,
each issued and outstanding share of our common stock, other than shares owned
by Placer Dome or us, will be converted into 2.45 shares of Placer Dome's common
shares. The Merger is subject to our shareholders' approval. We expect the
Merger to be consummated on or about May 27, 1999.
RESULTS OF OPERATIONS
We reported a net loss of $15.5 million, or $0.50 per share, after the
cumulative effect of a change in accounting principle for the quarter ended
March 31, 1999. Before the cumulative effect of a change in accounting
principle, the net loss for the quarter ended March 31, 1999 was $7.7 million,
or $0.25 per share, compared with a net loss of $4.9 million, or $0.18 per
share, for the quarter ended March 31, 1998. The cumulative effect of a change
in accounting for start-up costs was $7.8 million, or $0.25 per share. The
higher loss in the first quarter of 1999 as compared to the first quarter of
1998 was primarily due to the operations of the Turquoise Ridge mine, which
through the first quarter of 1999, was not at full operating production levels.
In the 1998 first quarter, the costs, net of revenues, incurred in the
production of development ore from the Turquoise Ridge mine were capitalized. In
the 1999 first quarter, in accordance with the new accounting principle, such
costs were charged to operations.
Net sales revenues of $14.5 million in the first quarter of 1999 were
up from $10.8 million in the first quarter of 1998. A lower average realized
price per ounce of gold sold resulted in $1.3 million of lower sales revenues
while a high er number of ounces of gold sold resulted in $5.0 million of higher
sales revenue for the first quarter of 1999 compared to the first quarter of
1998. The increase in ounces sold in the 1999 first quarter was due primarily to
production from the Turquoise Ridge mine which is included in the 1999
production results but
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not in the 1998 production results as previously discussed. We hedged a portion
of our production, which resulted in higher realized prices than the average
market prices.
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------
1999 1998
------- -------
<S> <C> <C>
Ounces of gold sold 47,153 31,021*
Average realized price per ounce $ 307 $ 348
Average market price per ounce $ 286 $ 297
</TABLE>
* For the quarter ended March 31, 1998, gold ounces sold does not
include 1,551 ounces of gold sold from the development of the Turquoise
Ridge mine for which revenues were offset against the mine development
costs of the project.
Ore mined at the Getchell Underground mine increased in the first
quarter of 1999 as compared to the first quarter of 1998 as a result of the
increased use long hole stoping, which also reduced the mining costs per ton
mined. Following are the operating results from the Getchell Underground mine.
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------
1999 1998
------- -------
<S> <C> <C>
Ore mined (dry tons) 111,691 87,607
Ore mined per operating day (dry tons) 1,255 996
Average grade of ore mined (ounces per ton) 0.348 0.372
Contained ounces (before recoveries) 38,845 32,609
Underground mining costs per ton $ 45.43 $ 51.53
</TABLE>
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Following are the operating results from the Turquoise Ridge mine,
which is expected to reach full operating production of approximately 1,800 tons
per day by the end of 1999:
<TABLE>
<CAPTION>
Quarter
Ended
March 31,
1999
---------
<S> <C>
Ore mined (dry tons) 59,054
Ore mined per operating day (dry tons) 644
Average grade of ore mined (ounces per ton) 0.318
Contained ounces (before recoveries) 18,795
Underground mining costs per ton $65.69
</TABLE>
Ore milled increased in the first quarter of 1999 as compared to the
first quarter of 1998 due to the utilization of two to three autoclaves in the
1999 period as opposed to one autoclave in the 1998 period. During the first
quarter of 1999, we experienced operating problems with the ball mill, which has
since been temporarily repaired, but resulted in lower average throughput an
gold recoveries for the first quarter of 1999 as compared to the same period of
1998. We have filed a business interruption insurance claim for this operating
problem, that has resulted in an interim payment in the first quarter of 1999.
Mill feed for the first quarter of 1999 and 1998 consisted of approximately 27%
and 5%, respectively, of low-grade stockpile ore. Operating results at the mill,
including the processing of development ore from the Turquoise Ridge mine during
the first quarter of 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
Quarter Ended
March 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Ore milled (dry tons) 212,489 100,083
Average grade of ore milled (ounces per ton) 0.268 0.352
Average gold recovery 87.6% 90.7%
</TABLE>
Cost of sales was $20.0 million in the first quarter of 1999, up from
$15.0 million in the first quarter of 1998. Cash costs per ounce were $332 and
$400 for the first quarter of 1999 and 1998, respectively. Turquoise Ridge
mining, mine site G&A and depreciation and depletion costs were higher in the
1999 quarter as compared to the same period in 1998. Mining, mine site G&A and
depreciation and depletion costs increased primarily due to the expensing of
costs associated with the Turquoise Ridge mine in the first quarter of 1999. In
the 1998 first quarter
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the costs, net of revenues, associated with the production of Turquoise Ridge
development ore were capitalized to mine development.
The increase in corporate G & A in the first quarter of 1999 as
compared to the first quarter of 1998 was primarily due to costs associated with
the proposed merger with Placer Dome.
Net interest expense was higher in the 1999 first quarter due to the
1998 amount reflecting capitalized interest of $0.4 million. With the completion
of the Turquoise Ridge mine, interest associated with the Turquoise Ridge mine
construction is no longer being capitalized. Interest and other income is lower
in the first quarter of 1999 as compared to the first quarter of 1998 due to
lower cash balances in the 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1999, $0.5 million was provided by
operations while we expended $9.2 million for capital expenditures. The capital
expenditures included $5.7 million on the Turquoise Ridge mine, $0.7 million on
the Getchell Underground mine, $2.7 million on the mill and $0.1 million on
other items.
As of March 31, 1999, cash and cash equivalents were $8.4 million. On
April 30, 1999, we entered into an unsecured $10 million revolving line of
credit with Toronto Dominion (Texas), Inc., which terminates upon our merger
with Placer Dome. We plan on financing our capital projects from the existing
cash and cash equivalents and the revolving line of credit.
The principal balance of our promissory note with ChemFirst Inc. was
$28.7 million at March 31, 1999. The promissory note is due September 22, 2000
or upon a change in control and may be prepaid without penalty. The interest
rate on the loan is the London Interbank Offered Rate for a period selected by
us, plus an applicable margin based on our leverage ratio. The interest rate was
5-5/8% at March 31, 1999. Since the inception of the promissory note, interest
has been capitalized to the note at the end of each interest period.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. We adopted SOP 98-5 effective
January 1, 1999. The change resulted in a $7.8 million charge for the cumulative
effect of the change in accounting for start up costs.
This charge reflects the unamortized costs, net of revenues, incurred
in the production of development ore from the Turquoise Ridge mine in 1998 and
from the Getchell Underground mine in 1994 and 1995, both of which had
previously been capitalized. Such costs include costs of mining, milling,
minesite general and administrative, royalties and depreciation and depletion.
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Development ore represents ore encountered in the process of development
drifting and ramping when building the mine.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes accounting
and reporting standards for derivative instruments and for hedging activities.
SFAS 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. We have not completed an assessment of the impact of SFAS
133 on our financial statements because of the complex nature of the statement.
THE YEAR 2000 ISSUE
The Problem
The Year 2000 Issue is the result of the potential inability of
hardware, software and control systems to correctly identify two-digit
references to specific years, beginning with the year 2000. This could result in
system failures or miscalculations causing disruptions of our operations and our
suppliers.
Our State of Readiness
We have instituted a Year 2000 project. As a part of the project, we
have completed an initial evaluation of our computer systems and significant
software programs. This evaluation included our network hardware and operating
system, software operating the hoists at Turquoise Ridge, the control system at
the mill and accounting and business process software. We currently believe that
our network hardware and operating system, software operating the hoists at
Turquoise Ridge and accounting and business process software are all Year 2000
compliant. The control system at the mill, and other less critical hardware and
software, require further evaluation, which is expected to be completed by the
end of the second quarter of 1999. Our less critical software programs are
predominantly "off-the-shelf" products with Year 2000 versions now available.
Therefore, if the software programs are not Year 2000 compliant, we will replace
these software programs by utilizing vendor provided upgrades by the end of the
third quarter of 1999. Based on work performed to date, no material issues have
been identified with our existing computer systems and significant software
programs. However, subsequent work may lead to discovery of material issues.
As part of our Year 2000 project, we plan to contact our significant
third-party suppliers, such as our refiners and suppliers of power, oxygen and
chemicals, to determine the extent to which we are vulnerable to our refiner's
or supplier's failure to remediate their Year 2000 issue. We plan to complete
the contacts by the end of the second quarter 1999. However, we cannot assure
that third party suppliers will adequately address their Year 2000 issues or
that failure of the third-party suppliers to address their Year 2000 issues
would not have a material adverse effect on us or our operations.
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The Costs to Address Our Year 2000 Issues
Expenditures through March 31, 1999 have been minimal. Based upon the
findings at March 31, 1999, our estimated costs of becoming Year 2000 compliant
are less than $0.1 million.
The Risks Associated with Our Year 2000 Issues
Our failure to resolve Year 2000 issues on or before December 31, 1999
could result in system failures or miscalculation causing disruption in
operations and normal business activities as well as a lack of safety for our
employees. Additionally, failure to timely remediate Year 2000 issues by third
parties upon whom our business relies could result in disruptions in our supply
of parts and materials or result in other problems related to the our daily
operations.
Contingency Plan
We are currently working on a contingency plan for all critical aspects
of the Year 2000 issues and plan to have such a plan completed by the end of the
second quarter of 1999.
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<PAGE> 16
RISK FACTORS
Readers should carefully consider the risk factors set forth below, as
well as all of the other information in this document and our Annual Report on
Form 10-K for the year ended December 31, 1998.
GOLD PRICE VOLATILITY
Changes in the price of gold significantly affect our profitability.
Gold prices may fluctuate widely. In August 1998, the market price of gold
declined to levels that were the lowest in over eighteen years and has remained
below $300 for most of 1998 and 1999.
Numerous industry factors affect gold prices, including
o industrial and jewelry demand;
o central bank lending, sales and purchases of gold;
o forward sales of gold by producers and speculators;
o production and cost levels in major gold-producing regions;
and
o rapid short-term changes in supply and demand because of
speculative or hedging activities.
Gold prices are also affected by macroeconomic factors, including:
o confidence in the global monetary system;
o expectations of the future rate of inflation;
o the strength of, and confidence in, the U.S. dollar (the
currency in which the price of gold is generally quoted) and
other currencies;
o interest rates; and
o global or regional political or economic events.
The current demand for, and supply of, gold affects gold prices. The
supply of gold consists of a combination of new production from mining and
mobilization of existing stocks of bullion held by government central banks,
public and private financial institutions, industrial organizations and private
individuals. As the amounts produced by all producers in any single year
constitute a small portion of the total potential supply of gold, normal
variations in current production do not usually have a significant impact on the
supply of gold or on its price. Mobilization of gold stocks held by central
banks through lending and official sales may have a significant adverse impact
on the gold price. If revenue from gold sales declines for a substantial period
below the cost of production at any or all of our operations, we could be
required to reduce our reserves and could determine that it is not economically
feasible to continue (1) commercial production at any or all current operations
or (2) the development of some or all of our current projects.
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<PAGE> 17
The following table of the annual high, low and average London P.M. Fix
illustrates the volatility of gold prices:
<TABLE>
<CAPTION>
PRICE PER OUNCE
-----------------------
CALENDAR YEAR HIGH LOW AVERAGE
- ------------- ---- ---- -------
<S> <C> <C> <C>
1989 .............................. $416 $356 $381
1990 .............................. $424 $346 $383
1991 .............................. $403 $344 $362
1992 .............................. $360 $330 $344
1993 .............................. $406 $326 $360
1994 .............................. $396 $370 $384
1995 .............................. $396 $372 $384
1996 .............................. $415 $367 $388
1997 .............................. $367 $283 $331
1998 .............................. $313 $273 $294
1999 (through May 12, 1999) ....... $294 $278 $285
</TABLE>
The London P.M. Fix on May 12, 1999, was $278 per ounce.
ORE RESERVE ESTIMATES MAY NOT BE REALIZED
We estimate our reserves of gold on the Getchell Property as either
"proven reserves" or "probable reserves." We estimate proven reserve quantities
through extensive sampling and testing of sites containing gold that allow us to
have an established estimate as to the amount of gold we expect to extract from
a site. Probable reserves are computed with similar information to that used for
proven reserves, but the sites for sampling are less extensive, and the degree
of certainty as to the content of a site is less. The figures presented for both
proven and probable reserves herein are only estimates. We cannot assure you
that we will obtain (1) indicated levels of gold recovery or (2) the prices
assumed in determining gold reserves. Estimated reserves may have to be
recalculated based on actual production experience. Market price fluctuations of
gold, as well as increased production costs or reduced recovery rates, may
render the present proven and probable reserves unprofitable to develop at a
particular site or sites for certain periods of time. This could cause us to
reduce our reserves.
PRODUCTION ESTIMATES MAY NOT BE ACHIEVED
We prepare estimates of future production for our operations. We
develop plans based on, among other things, mining experience, reserve
estimates, assumptions regarding ground conditions and physical characteristics
of ores (such as hardness and presence or absence of certain metallurgical
characteristics) and estimated rates and costs of mining and processing. Our
actual production may vary from estimates for a variety of reasons, including:
o risks and hazards of the types discussed in this section;
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<PAGE> 18
o actual ore mined varying from estimates of grade, tonnage,
dilution and metallurgical and other characteristics;
o the short-term operating factors relating to the ore reserves,
such as the need for sequential development of ore bodies and
the processing of new or different ore grades;
o mine failures, cave-ins or equipment failures;
o natural phenomena such as inclement weather conditions,
floods, and earthquakes;
o unexpected labor shortages or strikes; and
o restrictions or regulations imposed by government agencies.
Each of these factors also applies to sites not yet in production and
to operations that are to be expanded. In these cases, we do not have the
benefit of actual experience in our estimates, and there is a greater likelihood
that actual results will vary from the estimates.
SPECULATIVE NATURE OF GOLD EXPLORATION
Gold exploration is highly speculative in nature. Our exploration
projects involve many risks and maybe unsuccessful. We cannot assure you that
our future gold exploration efforts will be successful. Success in increasing
our reserves is the result of a number of factors, including the following:
o quality of management;
o gold prices;
o geological and technical expertise;
o quality of land available for exploration; and
o capital available for exploration and development.
Once we discover a site with gold mineralization, it may take several
years from the initial phases of drilling until production is possible.
Substantial expenditures are required to establish proven and probable ore
reserves and to construct mining and processing facilities. As a result of these
uncertainties, we cannot assure you that current and future exploration programs
will result in the expansion or replacement of current production with new
proven and probable ore reserves.
UNCERTAINTY OF DEVELOPMENT PROJECTS
From time to time we engage in the development of new ore bodies.
Specific risks associated with our development of the Turquoise Ridge mine are
discussed below. See "Certain Turquoise Ridge Mine Risks." Our ability to
sustain or increase our present level of gold production is dependent in part on
the successful development of such new ore bodies and/or
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<PAGE> 19
expansion of existing mining operations. The economic feasibility of such
development projects is based upon many factors, including:
o estimates of reserves;
o metallurgical recoveries;
o capital and operating costs of such projects; and
o future gold prices.
Development projects are also subject to the successful completion of
feasibility studies, issuance of necessary governmental permits and receipt of
adequate financing.
Development projects have no operating history upon which to base
estimates of future cash flow. Our estimates of proven and probable ore reserves
and cash operating costs are, to a large extent, based upon detailed geologic
and engineering analysis. We also conduct feasibility studies which derive
estimates of capital and operating costs based upon many factors, including:
o anticipated tonnage and grades of ore to be mined and
processed;
o the configuration of the ore body;
o ground and mining conditions;
o expected recovery rates of the gold from the ore; and
o anticipated environmental and regulatory compliance costs.
It is possible that actual costs and economic returns may differ
materially from our best estimates. It is not unusual in the mining industry for
new mining operations to experience unexpected problems during the start-up
phase and to require more capital than anticipated.
CERTAIN TURQUOISE RIDGE MINE RISKS
The Turquoise Ridge mine involves numerous risks. These include the
following:
Reserves. We cannot assure that we will actually mine and mill the
probable reserves set forth in our reserve reports for the Turquoise Ridge mine
on an economic basis. These reports are based upon many assumptions, which may
not prove to be accurate. The failure of any such assumptions to prove accurate
may alter the conclusions of our reserve reports and may have a material adverse
affect on us. The reserve estimates were prepared using geological and
engineering judgment based on available data. In the absence of underground
development, such estimates must be regarded as imprecise and some of the
assumptions made may later prove to be incorrect or unreliable. The grade
distribution at Turquoise Ridge is generally between 0.2 to 0.75 ounces per ton.
Small changes in cutoff grade can cause large shifts in the reserves. If
dilution and/or mining costs related to hydrology or poor ground conditions are
higher than expected, the reserves could be substantially reduced, resulting in
a shortening of mine life and a reduced or negative cash flow.
Dilution. Our reserve reports estimated the tonnage and grade of the
mill feed by applying dilution factors to certain resource data. The dilution
agents are backfill, waste from the back of overcut crosscuts and drifts, and
from the walls. If estimated dilution increases, there
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<PAGE> 20
will be corresponding negative effects on the tonnage and grade to mill. This
risk is related to the irregular configuration of the ore body which, even with
the tight cut-and-fill stoping method used, could make achievement of a dilution
thickness of one foot impossible to achieve in practice.
Mining Cost. As part of the project risk assessment, sensitivities were
run on various mining costs. Due to uncertainties about actual ground conditions
and productivities, these costs are only predictable within a broad range and
the predictions may not be valid. Increased actual mining costs may have a
material adverse effect on the viability of the Turquoise Ridge project and on
us.
Hydrology. Drainage of the ore body and surrounding rock will be
critical to the achievement of the mining efficiencies and costs estimated by
the study. If the deposit is not drained and water remains in this clay-rich
environment, mining conditions could worsen, and ground support costs would
increase. If, due to the presence of fine clays, the deposit drains slowly, the
start of production may be delayed, and the build-up to full production may be
of longer duration. Additionally, depending upon the quantity and quality of
water encountered, the water treatment/disposal options presently available to
us may be insufficient to meet estimated amounts needed to treat water pumped
from Turquoise Ridge during dewatering. Currently, the infiltration basins are
accepting and disposing of all water delivered from both the Getchell
Underground and the Turquoise Ridge mines.
Geotechnical Considerations. The Turquoise Ridge ore zones may contain
areas of localized poor ground conditions. As a result, we may be required to
make expenditures on additional ground support.
DEPENDENCE ON A SINGLE PROPERTY
All of our revenues are derived from our mining and milling operations
at the Getchell Property. If the operations at the Getchell Underground or
Turquoise Ridge mines, or at any of our processing facilities, are reduced,
interrupted or curtailed, our ability to generate future revenues and profits
could be materially adversely affected.
IMPACT OF HEDGING ACTIVITIES AND OTHER PRECIOUS METAL CONTRACT COMMITMENTS
Precious metals contracts between us and various counterparties involve
the requirement that we deliver gold to the counterparty at agreed-upon prices.
If the counterparty is unable to fulfill its purchase obligations, there is no
guarantee that we will be able to receive the agreed-upon sales price in the
open market. If we are unable to produce sufficient gold to meet our hedging
contract obligations, we may be obligated to purchase such gold at the then
market price. We cannot assure that we will have the funds necessary to purchase
such gold or that we will be able to do so without causing a material adverse
effect on us.
Our accounting treatment for hedging and other precious metal contract
commitments is outlined in Notes 2 and 3 to our consolidated financial
statements included in Item 8 "-Financial
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<PAGE> 21
Statements and Supplementary Data" of our Annual Report on Form 10-K for the
year ended December 31, 1998.
DEPENDENCE ON KEY PERSONNEL
We are dependent on the services of certain key officers and employees,
including our Chief Executive Officer, our Chief Financial Officer, our Chief
Operating Officer, our Chief Administrative Officer and our Vice President of
Exploration. Competition in the mining industry for qualified individuals is
intense, and the loss of any of these key officers or employees, if not
replaced, could have a material adverse effect on us. We currently do not have
key person insurance. We have entered into Termination Agreements with our Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief
Administrative Officer and Vice President of Exploration which provide for
certain payments upon termination or resignation resulting from a change of
control (as defined in such agreements).
In connection with the development of Turquoise Ridge, we expect that
we will require a significant number of additional skilled employees. We face
intense competition from other mining companies in connection with the
recruitment and retention of such employees. Additionally, although we do not
currently have any unionized employees, we cannot assure that unionization will
not occur in the future.
GOVERNMENT REGULATION
Safety. Our mining operations are subject to inspection and regulation
by the Mine Safety and Health Administration of the United States Department of
Labor ("MSHA") under the provisions of the Mine Safety and Health Act of 1977.
The Occupational Safety and Health Administration ("OSHA") also has jurisdiction
over safety and health standards not covered by MSHA. It is our policy to comply
with applicable directives and regulations of MSHA and OSHA.
On February 15, 1999, a mine site accident involving the Turquoise
Ridge mine's underground compressed air system resulted in the death of one of
our employees. The State of Nevada and Mine Safety and Health Administration of
the United States Department of Labor ("MSHA") investigated the accident. Upon
conclusion of its investigation, MSHA issued two citations with respect to the
incident, which have not yet been assessed. An additional order was issued by
MSHA and a notice issued by the State of Nevada to Getchell relating to the
compressed air connections in use underground. A hearing was held in front of a
Federal Administrative Law Judge at which the judge issued a ruling from the
bench that Getchell was not in violation of the MSHA standard. The judge will
issue a written ruling, and the agency will have 30 days from issuance to
appeal.
The State of Nevada refused to extend the time allowed us to correct
the alleged problem from March 30, and a temporary restraining order was issued
against the State by a state court judge prohibiting Nevada from enforcing the
order. The state court judge subsequently denied our motion for a preliminary
injunction on May 10. We filed a Motion for Reconsideration and a Motion for
Stay Pending Appeal on May 12. We dispute both the MSHA and State claims and
intend to vigorously defend ourself in these matters. We do not believe these
matters will have a material adverse effect on Getchell.
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<PAGE> 22
Current Environmental Laws and Regulations. We must comply with
environmental standards, laws and regulations that may result in greater or
lesser costs and delays depending on the nature of the regulated activity and
how the regulations are implemented by the regulatory authority. The costs and
delays associated with compliance with such laws and regulations could stop us
from proceeding with the development of a project or the operation or further
development of a mine. Laws and regulations involving the protection and
remediation of the environment and the governmental policies for implementation
of such laws and regulations are constantly changing and are generally becoming
more restrictive. We have made, and expect to make in the future, significant
expenditures to comply with such laws and regulations. These requirements
include regulations under many state and federal laws and regulations,
including:
o the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA" or "Superfund") which
regulates and establishes liability for the release of
hazardous substances;
o the Endangered Species Act ("ESA") which identifies endangered
species of plants and animals and regulates activities to
protect these species and their habitats;
o the Clean Water Act;
o the Clean Air Act;
o the Resource Conservation and Recovery Act for disposal of
hazardous waste ("RCRA");
o the Migratory Bird Treaty Act;
o the Safe Drinking Water Act;
o the Emergency Planning and Community Right-to-Know Act;
o the Federal Land Policy and Management Act;
o the National Environmental Policy Act;
o the National Historic Preservation Act; and
o many other state and federal laws and regulations.
The United States Environmental Protection Agency ("EPA") continues the
development of a solid waste regulatory program specific to mining operations
such as ours, whose mineral extraction and beneficiation wastes are not
regulated as hazardous wastes under RCRA.
Regulations promulgated under Section 313 of the Emergency Planning and
Community Right to Know Act have significantly expanded Toxic Release Inventory
("TRI") reporting requirements to include the metal mining industry. We expect
to incur additional costs in complying with the new TRI reporting requirements.
The public availability of the TRI reports, which must be filed with the EPA by
July 1, 1999, could adversely affect us, along with the rest of the metal mining
industry.
Environmental laws and regulations may also have an indirect impact on
us, such as increased cost for electricity due to acid rain provisions of the
Clean Air Act Amendments of 1990. Charges by refiners to which we sell our
metallic concentrates and products have
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<PAGE> 23
substantially increased over the past several years because of requirements that
refiners meet revised environmental quality standards. We have no control over
the refiners' operations or their compliance with environmental laws and
regulations.
Potential Legislation. Changes to the current laws and regulations
governing the operations and activities of mining companies, including changes
in permitting, environmental, title, health and safety, labor and tax laws, are
actively considered from time to time. We cannot predict such changes, and such
changes could have a material adverse impact on our business. Expenses
associated with the compliance with such new laws or regulations could be
material. Further, increased expenses could prevent or delay exploration or
development projects and could therefore affect future levels of mineral
production.
ENVIRONMENTAL MATTERS
Environmental Liability. We are subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products that could occur as a result of our mineral exploration,
development and production.
The gold ore located on the Getchell Property and the existing tailings
ponds, and the waste rock piles located on the Getchell Property contain
relatively high levels of arsenic compounds. The milling of such ore involves
the use of other toxic substances, including, but not limited to, sodium
cyanide, sodium hydroxide, sulfuric acid and nitric acid.
Environmental liability may result from mining activities conducted by
others prior to our ownership of a property. Historic mining disturbances,
facilities, waste materials and other discrete areas of potential contamination
associated with the production of gold, tungsten, and molybdenum between 1937
and 1969 by previous owners and operators are contained within the area of the
Getchell Property. Under CERCLA and other federal, state and local environmental
laws, ordinances, and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property or other property to which the
substances may have migrated. Such laws may impose liability whether or not the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with our current or prior ownership
or operation of property or facilities, we may be potentially liable for any
such costs or liabilities. Although we are currently not aware of any material
environmental claims pending or threatened against us, we cannot assure that a
material environmental claim will not be asserted against us.
To the extent we are subject to environmental liabilities, the payment
of such liabilities or the costs that we may incur to remedy environmental
pollution would reduce funds otherwise available to us and could have a material
adverse effect on us. If we are unable to fully remedy an environmental problem,
we might be required to suspend operations or enter into interim compliance
measures pending completion of the required remedy. The potential exposure may
be significant and could have a material adverse effect on us. We have not
purchased insurance,
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<PAGE> 24
including insurance for potential liability for pollution and other hazards as a
result of the disposal of waste products occurring from exploration and
production for environmental risks, because it is not generally available at a
reasonable price.
Environmental Permits. All of our exploration, development, production
and restoration activities are subject to regulation and permitting under one or
more of the various state and federal environmental laws and regulations. Many
of the regulations require that we obtain permits for specific activities. We
must update and review our permits from time to time, and these permits are
normally subject to environmental impact analyses and public review processes
prior to approval of the activity. It is possible that future changes in
applicable laws, regulations and permits or changes in their enforcement or
regulatory interpretation could have a significant impact on some portion of our
business, causing those activities to be economically re-evaluated at that time.
Restoration. We accrue expenses over the productive life of our mine
for anticipated costs associated with restoration of the mine site. Permanent
closure of the mining and milling operations and the reclamation of the
disturbed land to a productive use may result in restoration costs. This
includes restoration of historic and current mining and milling operations and
associated land disturbances. Restoration takes place concurrent with and after
the productive life of mining operations. Activities which result in restoration
costs after permanent closure and reclamation primarily relate to monitoring and
other post mining management activities.
The uncertainties related to future restoration costs result from
unknown future additional regulatory requirements, significant new facilities or
surface disturbances, and the potential for recognition in the future of
additional activities needed for restoration. In accordance with applicable
state and federal laws, we posted a reclamation bond of $4.5 million in 1998
based on previously permitted activities. This bonding amount was under normal
periodic review with state and federal agencies and is expected to be revised in
1999. As of March 31, 1999, the total estimated restoration costs for the
current disturbances on the Getchell Property were $5.4 million. At March 31,
1999, the total estimated restoration costs at the planned future full level of
development were $8.7 million, of which we had accrued $2.7 million at March 31,
1999. The amount of total estimated restoration costs will increase over time as
the planned future full level of development is approached. Additional increases
may occur as expanded mining and mineral processing activities are proposed and
regulatory requirements become more stringent or additional requirements are
added.
MINING RISK AND INSURANCE
The gold mining industry is generally subject to a number of risks and
hazards including:
o environmental hazards;
o industrial accidents;
o labor disputes;
o the encounter of unusual or unexpected geological conditions;
o slope failures;
o changes in the regulatory environment; and
o natural phenomena such as inclement weather conditions,
floods, blizzards and earthquakes.
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Such occurrences could result in:
o damage to, or destruction of, mineral properties or production
facilities;
o personal injury or death;
o environmental damage;
o delays in mining;
o monetary losses; and
o possible legal liability.
We maintain insurance against risks that are typical in the gold mining
industry and in amounts that we believe to be reasonable, but which may not
provide adequate coverage in certain unforeseen circumstances. However, we have
not purchased insurance, including insurance against certain liabilities for
environmental pollution or other hazards as a result of exploration and
production, against certain risks because such coverage is not generally
available at a reasonable price to us or to other companies within the industry.
This lack of coverage could result in material economic harm to us.
TITLE TO PROPERTIES
Certain of our mineral rights consist of "unpatented" mining claims
created and maintained in accordance with the General Mining Law. Unpatented
mining claims are unique U.S. property interests, and are generally considered
to be subject to greater title risk than other real property interests because
the validity of unpatented mining claims is often uncertain. This uncertainty
arises, in part, out of the complex federal and state laws and regulations under
the General Mining Law. Also, unpatented mining claims are always subject to
possible challenges of third parties or contests by the federal government. The
validity of an unpatented mining claim, in terms of both its location and its
maintenance, is dependent on strict compliance with a complex body of federal
and state statutory and decisional law. In addition, there are few public
records that definitively control the issues of validity and ownership of
unpatented mining claims.
In recent years, the U.S. Congress has considered a number of proposed
amendments to the General Mining Law. Although no such legislation has been
adopted to date, we cannot assure you that such legislation will not be adopted
in the future. If ever adopted, such legislation could, among other things,
impose royalties on gold production from currently unpatented mining claims
located on federal lands. If such legislation is ever adopted, it could have an
adverse impact on earnings from our operations, it could reduce estimates of our
present probable reserves and it could reduce the amount of our future
exploration and development activity on federal lands.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
10(a) - Loan Agreement dated April 30, 1999, by and between Toronto Dominion
(Texas), Inc. and the Company.
27. - Financial Data Schedule.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the registrant in the quarter
ended March 31, 1999.
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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.
Getchell Gold Corporation
May 14, 1999 By: /s/ G. W. Thompson
Date G. W. Thompson, President,
Chief Executive Officer and Director
May 14, 1999 By: /s/ Donald S. Robson
Date Donald S. Robson, Vice President and Chief
Financial Officer (Principal Financial Officer)
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<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10(a) - Loan Agreement dated April 30, 1999, by and between Toronto Dominion
(Texas), Inc. and the Company.
27. - Financial Data Schedule.
</TABLE>
<PAGE> 1
GETCHELL GOLD CORPORATION,
AS BORROWER
- AND -
TORONTO DOMINION (TEXAS), INC.,
AS LENDER
----------------------------------------------------------------
LOAN AGREEMENT
DATED APRIL 30, 1999
----------------------------------------------------------------
<PAGE> 2
ii
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. INTERPRETATION.........................................................................................2
1.1. Definitions...........................................................................................2
1.2. Gender and Number.....................................................................................8
1.3. Interest..............................................................................................8
1.4. Invalidity, etc.......................................................................................8
1.5. Headings, etc.........................................................................................8
1.6. Governing Law; Attornment.............................................................................8
1.7. References............................................................................................9
1.8. Currency..............................................................................................9
1.9. This Agreement to Govern..............................................................................9
1.10. Generally Accepted Accounting Principles..............................................................9
1.11. Computation of Time Periods..........................................................................10
1.12. Actions on Days Other Than Banking Days..............................................................10
1.13. Verbal Instructions..................................................................................10
ARTICLE 2. THE LOAN FACILITY.....................................................................................10
2.1. Amount...............................................................................................10
2.2. Advances.............................................................................................10
2.3. Evidence of Indebtedness.............................................................................11
2.4. Term and Repayment...................................................................................11
2.5. Application of Proceeds..............................................................................11
2.6. Payments Generally...................................................................................11
ARTICLE 3. FEES AND EXPENSES.....................................................................................12
3.1. Facility Fee.........................................................................................12
3.2. Payment of Costs and Expenses........................................................................12
</TABLE>
<PAGE> 3
iii
<TABLE>
<S> <C> <C>
ARTICLE 4. CONDITIONS PRECEDENT..................................................................................12
4.1. Conditions Precedent to Closing......................................................................13
4.2. General Conditions Precedent to Advances.............................................................14
4.3. Conditions Precedent to Initial Advance..............................................................15
ARTICLE 5. ADVANCES..............................................................................................15
5.1. Loans................................................................................................15
5.2. Payment of Interest..................................................................................16
5.3. Request for Advances.................................................................................16
ARTICLE 6. SECURITY..............................................................................................17
ARTICLE 7. REPRESENTATIONS AND WARRANTIES........................................................................17
7.1. Representations and Warranties.......................................................................17
7.2. Survival of Representations and Warranties...........................................................20
ARTICLE 8. COVENANTS.............................................................................................20
8.1. Affirmative Covenants................................................................................20
8.2. Negative Covenants...................................................................................22
ARTICLE 9. EVENTS OF DEFAULT AND REMEDIES........................................................................23
9.1. Events of Default....................................................................................23
9.2. Remedies Upon Default................................................................................25
9.3. Distributions........................................................................................25
ARTICLE 10. ASSIGNMENT...........................................................................................25
10.1. Assignments..........................................................................................25
10.2. Exchange of Information..............................................................................26
ARTICLE 11. GENERAL..............................................................................................26
11.1. Reliance and Non-Merger..............................................................................26
11.2. Amendment and Waiver.................................................................................27
</TABLE>
<PAGE> 4
iv
<TABLE>
<S> <C> <C>
11.3. Set-Off or Compensation..............................................................................27
11.4. No Set-Off from Payments.............................................................................27
11.5. Reimbursement........................................................................................27
11.6. Capital Adequacy.....................................................................................28
11.7. Indemnity............................................................................................28
11.8. Notices..............................................................................................29
11.9. Time.................................................................................................31
11.10. Further Assurances...................................................................................31
11.11. Counterparts.........................................................................................31
11.12. Entire Agreement.....................................................................................31
</TABLE>
<PAGE> 5
Schedule A - Request for Advance
Schedule B - Grid Promissory Note
Schedule C - Permitted Liens
Schedule D - Notice of Continuation/Conversion
Schedule E - FMG Guarantee
<PAGE> 6
-2-
THIS AGREEMENT is made as of April 30, 1999
BETWEEN:
GETCHELL GOLD CORPORATION, A DELAWARE
CORPORATION
(the "Borrower")
- and -
TORONTO DOMINION (TEXAS), INC.
(the "Lender")
RECITALS:
A. The Borrower has requested the Lender to provide to it certain
financing for general corporate purposes (as hereinafter defined); and
B. The Lender agreed to do so upon the terms and conditions set out
herein.
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration
of the covenants and agreements herein contained, the parties hereto agree as
follows:
ARTICLE 1.
INTERPRETATION
1.1. DEFINITIONS
For the purposes of this Agreement the following terms shall have the following
definitions:
"ADVANCE" means a borrowing by the Borrower by way of Loans, and any reference
relating to the amount of Advances shall mean the sum of all outstanding
Advances;
"AGREEMENT" means this agreement and all schedules attached to this agreement,
in each case as they may be amended or supplemented from time to time; the
expressions "HEREOF", "HEREIN", "HERETO", "HEREUNDER", "HEREBY" and similar
expressions refer to this Agreement as a whole and not to any particular
article, section, schedule or other portion hereof, and the expression "ARTICLE"
and "SECTION" followed by a number or by a number and letter, and "SCHEDULE"
followed by a letter, mean and refer to the specified article or section of or
schedule to this Agreement, except as otherwise specifically provided herein;
"APPLICABLE LAW" means, in respect of any Person, property, transaction or
event, all applicable laws, statutes, rules, by-laws and regulations, and all
applicable official directives, orders, judgments and decrees of Governmental
Bodies;
<PAGE> 7
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"ATTORNEY COSTS" means and includes all actual and reasonable fees and
disbursements of any law firm or other external counsel, the allocated actual
and reasonable cost of internal legal services and all reasonable disbursements
of internal counsel.
"BANKING DAY" shall mean a day on which banks are not authorized or required to
be closed and foreign exchange markets are open for the transaction of business
required for this Agreement in London, England, Houston, Texas and New York, New
York, as relevant to the determination to be made or the action to be taken;
"BASE RATE" shall mean, as of any date, a simple interest rate per annum equal
to the greater of (a) the Prime Rate, or (b) the sum of (i) the Federal Funds
Rate, plus (ii) one-half of one percent (1/2%). The Base Rate shall be adjusted
automatically as of the opening of business on the effective date of each change
in the Prime Rate or the Federal Funds Rate, as the case may be;
"BASE RATE ADVANCE" shall mean the principal portion of the Loans which is made
as a Base Rate Advance on the closing date or which the Borrower requests to be
made as a Base Rate Advance or to be converted to a Base Rate Advance after the
closing date;
"BORROWER" means Getchell Gold Corporation, a Delaware corporation, and its
successors and assigns;
"BORROWER'S COUNSEL" means Latham & Watkins;
"BRANCH OF ACCOUNT" means such branch of The Toronto Dominion Bank as the
Lender, acting reasonably, may designate in writing to the Borrower;
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as (a) a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than Placer Dome becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of more than fifty percent (50%) of the outstanding
shares of each class of common stock of the Borrower, or (b) the current Board
of Directors of the Borrower shall cease to constitute a majority of the Board
of Directors of the Borrower, other than as pursuant to the Merger or (c) the
Borrower fails to own one hundred percent (100%) of the outstanding shares of
the common stock of FMG;
"CLOSING DATE" means the date on which all conditions precedent set forth in
Section 4.1 are satisfied or waived by the Lender (or in the case of subsection
4.1.6., waived by the Person entitled to receive such payment);
"COMMITMENT" means the Lender's agreement to make Advances to the Borrower in a
total maximum amount outstanding at any time of $10,000,000;
"CURRENCY" means U.S. dollars;
"DEFAULT" means any event which, with the lapse of time, giving of notice or
both, would constitute an Event of Default;
<PAGE> 8
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"DESIGNATED ACCOUNT" means, in respect of any Advance, the account or accounts
maintained by the Borrower at the Branch of Account, or such other account or
accounts, that the Borrower designates in its Request for Advance, acting
reasonably;
"DRAWDOWN DATE" means any Banking Day on which an Advance is made;
"DUE DATE" means the earliest to occur of (a) July 20, 1999, (b) three (3)
Banking Days after the consummation of the Merger, or (c) such other date as the
entire balance of the Loan may become due whether by acceleration or otherwise;
"ENVIRONMENTAL LAWS" means all federal, state, municipal or local laws,
regulations or rules relating to generation, operation, manufacture, refining,
treatment, transportation, storage, handling, disposal, transfer, production or
processing of any material or process including, without limiting the generality
of the foregoing, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. ss. 9601, et seq.; the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. ss. 1801, et seq.; the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901, et seq.;
the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251, et
seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601, et seq.; the Clean
Air Act, 42 U.S.C. ss. 7401, et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.
3808, et seq.; Nev. Rev. Stat. ch. 459; Nev. Rev. Stat. ch. 444; Nev. Rev. Stat.
ch. 445; Nev. Rev. Stat. ch. 590; Nev. Rev. Stat. ss.ss. 618.750-618.850,
inclusive; and Nev. Rev. Stat. ss. 477.045; as all of the same may be amended
from time to time;
"ENVIRONMENTAL PERMITS" means all permits, certificates, approvals, consents,
authorizations, registrations and licenses issued by any Governmental Body
pursuant to Environmental Laws;
"EVENT OF DEFAULT" has the meaning attributed to such term in Section 9.1;
"FEDERAL FUNDS RATE" shall mean, as of any date, the weighted average of the
rates on overnight federal funds transactions with the members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Banking Day, for the next preceding Banking Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Banking Day, the average of the quotations for such day on such
transactions received by the Lender from three federal funds brokers of
recognized standing selected by the Lender;
"FMG" means FMG Inc., a wholly-owned subsidiary of the Borrower;
"FMG GUARANTEE" means a guarantee of the Obligations, in form of Schedule E to
this Agreement, by FMG in favor of the Lender;
"GOVERNMENTAL BODY" means any government, parliament, legislature, or any
regulatory authority, agency, commission or board of any government, parliament
or legislature, or any court or (without limitation to the foregoing) any other
law, regulation or rule-making entity (including, without limitation, any
central bank, fiscal or monetary authority or authority
<PAGE> 9
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regulating banks), having or purporting to have jurisdiction in the relevant
circumstances, or any Person acting or purporting to act under the authority of
any of the foregoing;
"GRID PROMISSORY NOTE" means a grid promissory note in the form of Schedule B to
this Agreement;
"INDEBTEDNESS" means with respect to any Person, all indebtedness, obligations,
and liabilities of such Person, including without limitation: (i) all
"liabilities" which would be reflected on the balance sheet of such Person,
prepared in accordance with United States of America generally accepted
accounting principles, (ii) all obligations of such Person in respect of any
guarantee, (iii) all obligations of such Person in respect of any capital lease,
(iv) all obligations, indebtedness and liabilities secured by any lien or any
security interest on any property or assets of such Person, and (v) all
redeemable preferred stock of such Person valued at the greater of its voluntary
or involuntary liquidation preference plus accrued and unpaid dividends;
"INTEREST PERIOD" shall mean, (a) in connection with any Base Rate Advance, the
period beginning on the date such Advance is made and ending on the last day of
the calendar month in which such Advance is made, provided, however, that if a
Base Rate Advance is made on the last day of any calendar month, it shall have
an Interest Period ending on the last day of the following calendar month; and
(b) in connection with any LIBOR Advance, a period of one (1) month, fourteen
(14) days, or seven (7) days as selected by the Borrower. Notwithstanding the
foregoing, however, (i) any applicable Interest Period which would otherwise end
on a day which is not a Banking Day shall be extended to the succeeding Banking
Day unless, with respect to LIBOR Advances only, such Banking Day falls in
another calendar month, in which case such Interest Period shall end on the
preceding Banking Day, (ii) any one (1) month Interest Period, with respect to
LIBOR Advances only, with respect to any Interest Period of one (1) month, which
begins on a day for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall (subject to
clause (i) above) end on the last day of such calendar month, and (iii) no
Interest Period shall extend beyond the Due Date;
"LENDER" means Toronto Dominion (Texas), Inc.;
"LENDER'S COUNSEL" means Paul, Hastings, Janofsky & Walker LLP;
"LIBOR" shall mean the interest rate per annum (rounded upward to the nearest
one sixteenth (1/16th) of one percent) determined by the Lender to be the
average of the rates at which deposits in U.S. dollars for the Interest Period
selected by the Borrower are offered to the Lender in the LIBOR interbank
borrowing market at approximately 11:00 a.m. New York time, two (2) Banking Days
before the first day of such Interest Period, in an amount approximately equal
to the principal amount of the LIBOR Advance sought by the Borrower;
"LIBOR ADVANCE" shall mean the principal portion of the Loans which the Borrower
requests to be converted to a LIBOR Advance, and which bears interest at a per
annum rate equal to the LIBOR Basis plus one and one half percent (1.50%);
<PAGE> 10
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"LIBOR Basis" shall mean a simple interest rate per annum (rounded upward to the
nearest one-sixteenth (1/16th) of one percent) equal to the quotient of (i)
LIBOR divided by (ii) one (1) minus the LIBOR Reserve Percentage, stated as a
decimal. The LIBOR Basis shall apply to Interest Periods of one (1) month. The
LIBOR Basis shall remain unchanged during the applicable Interest Period, except
for changes to reflect adjustments in the LIBOR Reserve Percentage;
"LIBOR RESERVE PERCENTAGE" shall mean the percentage which is in effect from
time to time under Regulation D of the Board of Governors of the Federal Reserve
System, as such regulation may be amended from time to time, as the maximum
reserve requirement applicable with respect to Eurocurrency Liabilities (as that
term is defined in Regulation D), whether or not the Lender has any such
Eurocurrency Liabilities subject to such reserve requirement at that time. The
LIBOR Basis for the applicable Interest Period shall be adjusted automatically
for any change in the LIBOR Reserve Percentage;
"LIEN" means any mortgage, lien, pledge, assignment, charge, security interest,
lease intended as security, title retention agreement, rights reserved in any
Governmental Body, lease of real property, hypothecation, levy, execution,
seizure, attachment, garnishment or other similar encumbrance;
"LOAN" means, at any time, the principal amount of all Obligations then
outstanding under the Loan Facility;
"LOAN DOCUMENTS" means this Agreement, the Grid Promissory Note, the FMG
Guarantee, and any other agreement executed by the Borrower or FMG in connection
with the transactions contemplated hereby;
"LOAN FACILITY" means the loan facility of $10,000,000 in favor of the Borrower
which is established by this Agreement;
"MATERIAL AUTHORIZATION" means, with respect to any Person, at any point in time
any approval, permit, license or similar authorization (including any trademark,
trade name or patent) from, and any filing or registration with, any
Governmental Body or any other Person required by such Person to own its
property and assets or to carry on its business as carried on by it at such time
or as contemplated hereunder to be carried on by it at such time in each
jurisdiction in which it does so or is contemplated to do so or where the
failure to have such approval, permit, license, authorization, filing or
registration would have a material adverse effect upon its business, financial
condition or prospects or upon its ability to perform its obligations under any
Loan Document to which it is a party;
"MERGER" means the merger of Bullion Acquisition Corp., a Delaware corporation,
with and into the Borrower, making the Borrower a wholly-owned subsidiary of
Placer Dome as more fully set forth in that certain Agreement and Plan of Merger
dated as of December 11, 1998, as amended, among the Borrower, Bullion
Acquisition Corp. and Placer Dome;
<PAGE> 11
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"NOTICE OF CONTINUATION/CONVERSION" means a Notice of Continuation/Conversion in
the form of Schedule D hereto;
"OBLIGATIONS" means all indebtedness, liabilities and other obligations of the
Borrower to the Lender under or in connection with this Agreement and the other
Loan Documents and any other document delivered pursuant hereto, including all
Advances, all interest which may accrue after the filing of any case under the
United States Bankruptcy Code, whether or not such interest is allowed in such
case, and the obligation to pay an amount equal to the amount of any and all
damages which the Lender may suffer by reason of a breach by the Borrower or any
other obligor of any obligation, covenant, or undertaking with respect to this
Agreement or any other Loan Document, whether actual or contingent, direct or
indirect, matured or not, now existing or arising hereafter;
"OFFICERS' CERTIFICATE" means a certificate signed by the Chief Executive
Officer and the Chief Financial Officer of the Borrower or FMG, as the case may
be;
"PAYMENT DATE" shall mean the last day of the Interest Period for any Advance;
"PERMITTED LIENS" has the meaning set out in Schedule C;
"PERSON" means any individual, partnership, limited partnership, limited
liability company, joint venture, syndicate, sole proprietorship, company or
corporation with or without share capital, unincorporated association, trust,
trustee, executor, administrator or other legal personal representative or
Governmental Body;
"PLACER DOME" means Placer Dome Inc., a corporation amalgamated under the Canada
Business Corporations Act;
"PRIME RATE" shall mean, at any time, the rate of interest adopted by The
Toronto-Dominion Bank, New York Branch, as its reference rate for the
determination of interest rates for loans of varying maturities in United States
dollars to United States residents of varying degrees of creditworthiness and
being quoted at such time by such bank as its "prime rate." The Prime Rate is
not necessarily the lowest rate of interest charged to borrowers of The
Toronto-Dominion Bank;
"REQUEST FOR ADVANCE" means a notice in the form of Schedule A to this
Agreement;
"SUBSIDIARY" means FMG and any other subsidiary of the Borrower that may exist
from time to time;
"TAXES" means all taxes of any kind or nature whatsoever including, without
limitation, income taxes, sales or value-added taxes, levies, stamp taxes,
royalties, duties, and all fees, deductions, compulsory loans and withholdings
imposed, levied, collected, withheld or assessed as of the date hereof or at any
time in the future, by any Governmental Body having power to tax, together with
penalties, fines, additions to tax and interest thereon; and
<PAGE> 12
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"U.S. DOLLARS" or "$" means lawful money of the United States of America.
1.2. GENDER AND NUMBER
Words importing the singular include the plural and vice versa
and words importing gender include all genders.
1.3. INTEREST
Where in any Loan Document a rate of interest is to be
calculated on the basis of a year of 360 days, the yearly rate of interest to
which the 360 day rate is equivalent is such rate multiplied by the number of
days in the year for which such calculation is made and divided by 360.
1.4. INVALIDITY, ETC.
Each of the provisions contained in this Agreement is distinct
and severable and a declaration of invalidity, illegality or unenforceability of
any such provision or part thereof by a court of competent jurisdiction shall
not affect the validity or enforceability of any other provision of this
Agreement or of any other Loan Document. Without limiting the generality of the
foregoing, if any amounts on account of interest or fees or otherwise payable by
the Borrower to the Lender hereunder exceed the maximum amount recoverable under
Applicable Law, the amounts so payable hereunder shall be reduced to the maximum
amount recoverable under Applicable Law and the Lender, in consultation with the
Borrower, will determine the payment or payments that are to be reduced or
refunded, as the case may be, to effect such result.
1.5. HEADINGS, ETC.
The division of this Agreement into articles, sections and
clauses, the inclusion of a table of contents and the insertion of headings are
for convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.6. GOVERNING LAW; ATTORNMENT
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANY OTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK
OR, AT THE SOLE OPTION OF
<PAGE> 13
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THE LENDER, IN ANY OTHER COURT IN WHICH THE LENDER SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY AND PERSONAL JURISDICTION OVER THE BORROWER. EACH OF THE BORROWER
AND THE LENDER WAIVES ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 1.6. THE BORROWER AND THE LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF THE BORROWER AND THE LENDER
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
1.7. REFERENCES
Except as otherwise specifically provided, reference in this
Agreement to any contract, agreement or any other instrument shall be deemed to
include references to the same as varied, amended, supplemented or replaced from
time to time and reference in this Agreement to any enactment, including without
limitation, any statute, law, by-law, regulation, ordinance or order, shall be
deemed to include references to such enactment as re-enacted, amended or
extended from time to time.
1.8. CURRENCY
Except as otherwise specifically provided herein, all monetary
amounts in this Agreement are stated in, and all amounts payable hereunder are
payable in, U.S. dollars.
1.9. THIS AGREEMENT TO GOVERN
If there is any inconsistency between the terms of this
Agreement and the terms of any other Loan Document, the provisions hereof shall
prevail to the extent of the inconsistency. For greater certainty,
notwithstanding that any Loan Document may provide for payment on demand, the
Obligations shall only be payable as stipulated herein.
1.10. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Except as otherwise specifically provided herein, all
accounting terms shall be applied and construed in accordance with U.S.
generally accepted accounting principles consistently applied.
<PAGE> 14
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1.11. COMPUTATION OF TIME PERIODS
Except as otherwise specifically provided herein, in the
computation of a period of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
1.12. ACTIONS ON DAYS OTHER THAN BANKING DAYS
Except as otherwise specifically provided herein, where any
payment is required to be made or any other action is required to be taken on a
particular day and such day is not a Banking Day and, as a result, such payment
cannot be made or action cannot be taken on such day, then this Agreement shall
be deemed to provide that such payment shall be made or such action shall be
taken on the first Banking Day after such day; provided that if such deferral
would cause such payment to be made or such action to be taken after the first
day of the following calendar month, such payment shall be made or such action
shall be taken on the next preceding Banking Day and interest and fees shall be
calculated accordingly. If the payment of any amount is deferred for any period
under this section, then such period shall, unless otherwise provided herein, be
included for purposes of the computation of any interest or fees payable
hereunder.
1.13. VERBAL INSTRUCTIONS
Notwithstanding any other provision herein regarding the
delivery of notices by the Borrower, the Lender shall in its sole discretion be
entitled to act upon the verbal instructions of the Borrower, or any Person
reasonably believed by the Lender to be a Person authorized by the Borrower to
give instructions regarding any request. All such verbal instructions shall be
at the risk of the Borrower and must be confirmed in writing by the Borrower on
the same Banking Day as the verbal instruction is given. The Lender shall not be
responsible for any error or omission in such instructions or in the performance
thereof except in the case of negligence or wilful misconduct by the Lender as
determined by a final order of a court of competent jurisdiction.
ARTICLE 2.
THE LOAN FACILITY
2.1. AMOUNT
Upon and subject to the terms and conditions of this
Agreement, the Lender hereby establishes the Loan Facility in favor of the
Borrower in the amount of $10,000,000.
2.2. ADVANCES
The Borrower shall be entitled to obtain Advances under the
Loan Facility, in an amount of $1,000,000 (or an integral multiple of $250,000
in excess of that amount) for each Advance, upon satisfaction of the conditions
set out in Article 4. Upon satisfaction of the
<PAGE> 15
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conditions set out in Article 4, the principal amount of any Loan that is repaid
may be reborrowed.
2.3. EVIDENCE OF INDEBTEDNESS
The indebtedness of the Borrower resulting from Loans made by
the Lender shall be evidenced by the Grid Promissory Note. The Lender shall
record on the Grid Promissory Note each Advance and the date thereof and the
interest, fees and other charges accrued thereon and applicable thereto from
time to time and each payment of principal (including prepayments). The Grid
Promissory Note shall constitute, in the absence of manifest error, prima facie
evidence of the indebtedness of the Borrower to the Lender. The failure of the
Lender to correctly record any amount or date on the Grid Promissory Note shall
not adversely affect the obligation of the Borrower to pay amounts due hereunder
to the Lender in accordance with this Agreement. At all times and for all
purposes, the Grid Promissory Note may be tendered as prima facie evidence, in
the absence of manifest error, of the matters recorded therein.
2.4. TERM AND REPAYMENT
2.4.1. Term: Notwithstanding any other provision of this Agreement,
Obligations outstanding on the Due Date shall be due and
payable, together with all interest accrued and unpaid
thereon, on the Due Date.
2.4.2. Prepayment: The principal amount of the Loans may be repaid in
full or in part at any time prior to the Due Date upon three
(3) Banking Day's prior written notice to the Lender, without
penalty or premium; provided that the Borrower shall reimburse
the Lender for any loss or reasonable out-of-pocket expense
incurred by the Lender in connection with such prepayment, as
set forth in Section 11.5 hereof. Each notice of prepayment
shall be irrevocable. Prepayments of principal hereunder shall
be in integral multiples of $250,000.
2.5. APPLICATION OF PROCEEDS
During the existence of an Event of Default, all amounts
prepaid and repaid shall be applied firstly in reduction of fees due to the
Lender and then in reduction of the accrued and unpaid interest then outstanding
and then in reduction of the principal amount of the Loans then outstanding and
thereafter in reduction of all other Obligations outstanding.
2.6. PAYMENTS GENERALLY
All payments in respect of the Loans (in respect of principal,
interest, fees or otherwise) shall be made in U.S. dollars in immediately
available funds by the Borrower to the Lender no later than 11:00 a.m. (Houston
time) on the due date thereof to the accounts specified therefor by the Lender
at its Branch of Account. Any payments received after such time shall be
considered for all purposes as having been made on the next following Banking
Day unless the Lender otherwise agrees in writing. All payments shall be made by
way of immediate transfers from accounts of the Borrower with the Lender or
other immediately available funds.
<PAGE> 16
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ARTICLE 3.
FEES AND EXPENSES
3.1. FACILITY FEE
The Borrower shall pay to the Lender a facility fee in the
amount of one percent (1.0%) per annum of the Commitment, which fee shall be
payable commencing on May 1, 1999 and on the first day of each month during the
remaining term of the Loan Facility. The facility fee shall be fully earned when
due and non-refundable when paid, and calculated based on a year of 360 days.
3.2. PAYMENT OF COSTS AND EXPENSES
Whether or not the Borrower obtains any Loans hereunder, the
Borrower shall pay to the Lender upon request all reasonable out-of-pocket costs
and expenses of the Lender, its agents, officers and employees, any receiver or
receiver-manager appointed by it or by a court in connection with this Agreement
or the other Loan Documents, including, without limitation:
3.2.1. the preparation, execution, filing and registration of any of
the Loan Documents, any actual or proposed amendment or
modification hereof or thereof or any waiver hereunder or
thereunder and all instruments supplemental or ancillary
thereto;
3.2.2. obtaining advice as to the Lender's rights and
responsibilities under the Loan Documents; and
3.2.3. the defense, establishment, protection or enforcement of any
of the rights or remedies of the Lender under any of the Loan
Documents including, without limitation, all costs and
expenses of establishing the validity and enforceability of,
or of collection of amounts owing under, any of the Loan
Documents or of any enforcement of the Loan Documents,
and further including, without limitation, all of the fees, expenses and
disbursements of the Lender's Counsel, (and, following the occurrence of an
Event of Default, such legal counsel as may be retained by the Lender), incurred
in connection therewith, and including all sales or value-added taxes payable by
the Lender (whether refundable or not) on all such costs and expenses.
<PAGE> 17
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ARTICLE 4.
CONDITIONS PRECEDENT
4.1. CONDITIONS PRECEDENT TO CLOSING
The obligation of the Lender to close this Agreement is
subject to the fulfilment, to the satisfaction of the Lender and Lender's
Counsel, of each of the following conditions on or before the Closing Date:
4.1.1. the Lender shall have received a duly executed copy of this
Agreement and the FMG Guarantee;
4.1.2. the Borrower shall have delivered to the Lender an opinion of
the Borrower's Counsel, as counsel to the Borrower and FMG,
addressed to the Lender, in form satisfactory to the Lender,
acting reasonably;
4.1.3. the Lender shall have received, in form and substance
satisfactory to the Lender acting reasonably, an Officers'
Certificate from the Borrower dated as of the Closing Date
certifying that attached thereto are true and correct copies
of the following documents, and that such documents are in
full force and effect, unamended:
4.1.3.1. the certificate of incorporation of the
Borrower;
4.1.3.2. the by-laws of the Borrower;
4.1.3.3. good standing certificates for the Borrower
issued by the States of Delaware, Colorado,
and Nevada;
4.1.3.4. a certificate of incumbency, including
sample signatures of officers, of the
Borrower; and
4.1.3.5. the resolutions or other documentation
evidencing that all necessary action,
corporate or otherwise, has been taken by
the Borrower to authorize the execution,
delivery and performance of the Loan
Documents;
4.1.4. the Lender shall have received, in form and substance
satisfactory to the Lender acting reasonably, an Officers'
Certificate from FMG dated as of the Closing Date certifying
that attached thereto are true and correct copies of the
following documents, and that such documents are in full force
and effect, unamended:
4.1.4.1. the articles of incorporation of FMG;
4.1.4.2. the by-laws of FMG;
4.1.4.3. good standing certificates for FMG issued by
the State of Nevada;
4.1.4.4. Intentionally omitted; and
<PAGE> 18
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4.1.4.5. the resolutions or other documentation
evidencing that all necessary action,
corporate or otherwise, has been taken by
FMG to authorize the execution, delivery and
performance of the Loan Documents to which
it is a party;
4.1.5. the Lender shall have received evidence that there are no
Liens on any assets of the Borrower other than Permitted Liens
and that the Borrower has obtained all consents and
authorizations necessary for it to enter into this Agreement
(including, without limitation, the consent of Placer Dome);
and
4.1.6. the Lender shall have received payment by the Borrower of all
accrued and unpaid fees, costs and expenses to the extent then
due and payable by the Borrower to the Lender and its
affiliates, including TD Securities (USA), Inc., as arranger,
on the Closing Date, together with Attorney Costs of the
Lender to the extent invoiced prior to or on the Closing Date,
plus such additional amounts of Attorney Costs as shall
constitute the Lenders' reasonable estimate of Attorney Costs
incurred or to be incurred by it through the closing
proceedings (provided that such estimate shall not thereafter
preclude final settling of accounts between the Borrower and
Lender); including any such costs, fees and expenses arising
under or referenced in Article 3;
4.1.7. the representations and warranties set forth in Article 7 are
true and accurate in all material respects on the Closing
Date;
4.1.8. the Lender shall have received such other approvals, opinions,
documents or materials as the Lender may reasonably request;
and
4.1.9. the Lender's site visit to the Borrower's mining operations
shall have been completed and the results reasonably
satisfactory to the Lender.
4.2. GENERAL CONDITIONS PRECEDENT TO ALL ADVANCES
The Borrower shall not be entitled to obtain an Advance until
satisfaction of and compliance with the following terms and conditions:
4.2.1. the representations and warranties set forth in Article 7 are
true and accurate in all material respects on the Closing Date
and shall continue to be true and accurate in all material
respects on the date of the Advance in question and the Lender
shall have received an Officers' Certificate from the Borrower
to such effect;
4.2.2. no Default or Event of Default shall have occurred and be
continuing and the Lender shall have received an Officers'
Certificate from the Borrower to such effect; and
4.2.3. the Lender shall have received a Request for Advance in
accordance with Section 5.3.
<PAGE> 19
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4.3. CONDITIONS PRECEDENT TO INITIAL ADVANCE
In addition to the terms and conditions contained in Sections
4.1 and 4.2, the Borrower shall be entitled to obtain the initial Advance under
the Loan Facility upon and only in compliance with the following terms and
conditions:
4.3.1. the Lender shall have received an Officers' Certificate, in
form satisfactory to the Lender acting reasonably, certifying
that all regulatory and other governmental approvals and
consents required for the Merger have been obtained, including
without limitation, that as of the Closing Date the Securities
Exchange Commission has not objected to the treatment of the
Merger as a pooling of interests under U.S. generally accepted
accounting principles:
4.3.2. since the date of the audited consolidated financial
statements of the Borrower dated as of and for the period
ending December 31, 1998, there has been no development which
has had or will have a material adverse effect upon the
business, operation, assets, capitalization, financial
condition or prospects of the Borrower or upon the ability of
the Borrower to perform its obligations under any of the Loan
Documents and the Lender shall have received an Officers'
Certificate from the Borrower to such effect; and
4.3.3. the Lender shall have received the duly executed Grid
Promissory Note.
ARTICLE 5.
ADVANCES
5.1. LOANS
5.1.1. Upon the timely fulfilment of all applicable conditions as set
forth in this Agreement, the Lender shall make the requested
amount of each Advance available to the Borrower on the
Drawdown Date by crediting the Designated Account with such
amount and making the appropriate notation on the Grid
Promissory Note. The Borrower shall designate whether the
requested Advance will be a Base Rate Advance or a LIBOR
Advance.
5.1.2. So long as there shall not have occurred and be continuing a
Default hereunder, upon at least three (3) Banking Days'
irrevocable prior written notice from time to time to the
Lender pursuant to a Notice of Continuation/Conversion, the
Borrower may convert all or a portion of the principal of any
Base Rate Advance to one or more LIBOR Advances. Additionally,
at least three (3) Banking Days' prior to each Payment Date
for a LIBOR Advance, the Borrower shall give the Lender
written notice pursuant to a Notice of Continuation/Conversion
specifying whether all or a portion of any LIBOR Advance
outstanding on the Payment Date (A) is to be rolled over as
another LIBOR Advance, or (B) is to be converted to a Base
Rate Advance; provided, however, the Borrower shall not have
the right to
<PAGE> 20
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roll over a LIBOR Advance as another LIBOR Advance if any
Default then exists, and such LIBOR Advance shall instead be
converted to a Base Rate Advance on such Payment Date. LIBOR
Advances may be prepaid on or prior to the applicable Payment
Date upon at least three (3) Banking Days' prior written
notice to the Lender, only in accordance with the terms of
Section 11.5 hereof.
5.2. PAYMENT OF INTEREST
5.2.1. Interest on the Loans shall be computed on the basis of a year
of 360 days for the actual number of days elapsed and shall be
payable in arrears on the applicable Payment Date for the
period through the date immediately preceding such Payment
Date. Interest on the outstanding Loans shall also be due and
payable on the Due Date. Interest shall accrue and be payable
on each Base Rate Advance at a per annum interest rate equal
to the Base Rate. Interest shall accrue and be payable on each
LIBOR Advance at a per annum interest rate equal to (A) the
LIBOR Basis applicable to such LIBOR Advance, plus (B) one and
one half percent (1.50%).
5.2.2. If an Event of Default shall have occurred and shall be
continuing, the Lender shall have the option (but shall not be
required to give prior notice thereof to the Borrower, to
accelerate the maturity of the Loan, or exercise any other
rights or remedies hereunder in connection with this right) to
charge interest on the outstanding principal balance of the
Loan at a rate which is two percentage points (2.0%) above the
rate which would accrue pursuant to Section 5.2.1. above (the
"Default Rate") from the date of such Event of Default.
Interest at the Default Rate shall be payable on the earlier
of DEMAND by the Lender or the Due Date and shall accrue until
the earlier of (i) waiver in writing by the Lender of the
applicable Event of Default, (ii) agreement by the Lender to
rescind the charging of interest at the Default Rate, or (iii)
payment in full of the Obligations. In addition, upon the
occurrence and during the continuance of an Event of Default,
the Lender shall have all the rights and remedies set forth in
this Agreement and the other Loan Documents. 5.2.3. In
computing interest on any Advance, the date of making the
Advance shall be included and the date of payment shall be
excluded; provided, however, that if an Advance is repaid on
the date that it is made, one (1) day's interest shall be due
with respect to such Advance.
5.3. REQUEST FOR ADVANCES
Request for Advances or repayment notices, as the case may be,
shall be given on the third Banking Day prior to the date of any Advance or
payment. A Request for Advance shall be given not later than 11:00 a.m. (Houston
time) on the date for notice. If a notice is not given by such time, it shall be
deemed to have been given on the next Banking Day, unless the Lender agrees to
accept the late notice as being effective on the date it is given.
<PAGE> 21
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ARTICLE 6.
SECURITY
INTENTIONALLY OMITTED
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES
7.1. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender that:
7.1.1. Incorporation and Status: each of the Borrower and FMG is duly
incorporated and validly existing under the laws of Delaware
and Nevada, respectively, and has the corporate power and
capacity to own its properties and assets and to carry on its
business as presently carried on by it or as contemplated
hereunder to be carried on by it and holds all Material
Authorizations;
7.1.2. Power and Authority: the Borrower has the corporate power and
authority to enter into each of the Loan Documents and to do
all acts and things as are required or contemplated hereunder
or thereunder to be done, observed and performed by it;
7.1.3. Business: neither the Borrower nor FMG is engaged in any
business other than as set out in the Borrower's most recent
annual report on Form 10-K;
7.1.4. Due Authorization: the Borrower and FMG have each taken all
necessary corporate actions to authorize the execution,
delivery and performance by it of each of the Loan Documents
to which it is a party;
7.1.5. No Contravention: the execution and delivery by the Borrower
of the Loan Documents to which it is a party and the
performance by the Borrower of its obligations thereunder (i)
does not and will not contravene, breach or result in any
default under the organizational documents of the Borrower or
under any material mortgage, lease, agreement or other legally
binding instrument, license, permit, Material Authorization or
Applicable Law to which the Borrower is a party or by which
the Borrower or any of its properties or assets may be bound,
(ii) will not oblige the Borrower to grant any Lien to any
Person, (iii) will not result in or permit the acceleration of
the maturity of any indebtedness, liability or obligation
under any material mortgage, lease, agreement or other legally
binding instrument of or affecting the Borrower and (iv) will
not violate any judgment, order, injunction, determination or
award which is binding on the Borrower;
7.1.6. No Consents Required: no Material Authorization or other
material authorization, consent or approval of, or filing with
or notice to, any Person (including any Governmental Body) is
required which has not been obtained in connection with
<PAGE> 22
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the execution, delivery or performance by the Borrower of this
Agreement or any of the other Loan Documents;
7.1.7. Enforceability: each of the Loan Documents to which the
Borrower is a party constitutes, or upon execution and
delivery will constitute, a valid and binding obligation of
the Borrower enforceable against it in accordance with its
terms, subject only to the qualifications set out in the
opinion of the Borrower's Counsel;
7.1.8. Title: the Borrower has good and valid title to all of the
issued and outstanding capital stock of FMG, free and clear of
any Liens and no Person has any claim or rights with respect
to such capital stock, and the Borrower has good and valid
title to all of its other assets free and clear of Liens other
than Permitted Liens;
7.1.9. No Litigation: there is no court, administrative, regulatory
or similar proceeding (whether civil or criminal); arbitration
or other dispute settlement procedure; investigation or
inquiry by any Governmental Body; or any similar matter or
proceeding (collectively "proceedings") against or involving
the Borrower or FMG, whether in progress or, to its knowledge,
threatened, which could reasonably be expected to materially
adversely affect its ability to perform any of the provisions
of any Loan Document to which it is a party or which purports
to affect the legality, validity and enforceability of any
such Loan Document; no event has occurred which might
reasonably be expected to give rise to any proceedings and
there is no judgment, decree, injunction, rule, award or order
of any Governmental Body outstanding against the Borrower or
FMG which has or could reasonably be expected to have a
material adverse effect on the Borrower's ability to perform
any of the provisions of any Loan Document;
7.1.10. No Default: neither the Borrower nor FMG is in default or
breach under the terms and conditions relating to any Material
Authorizations and there exists no state of facts which, after
notice or the passage of time or both, would constitute such a
default or breach; and there are no proceedings in progress or
pending, or to the Borrower's knowledge, threatened, which may
result in the revocation, cancellation, suspension or any
adverse modification of any Material Authorization;
7.1.11. Financial Statements: the audited consolidated financial
statements of the Borrower dated as of and for the period
ending December 31, 1998 contained in the annual report on
Form 10-K of the Borrower have been prepared in accordance
with U.S. generally accepted accounting principles and fairly,
completely and accurately present the financial position of
the Borrower and the financial information presented therein
for the period and as at the date thereof. Since the date of
such audited consolidated financial statements, there has been
no development which has had or which could reasonably be
expected to have a material adverse effect upon the business,
property, financial condition or
<PAGE> 23
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prospects of the Borrower or upon the ability of the Borrower
to perform its obligations under any of the Loan Documents;
7.1.12. Other Material Subsidiaries: The Borrower does not have any
Subsidiaries other than FMG;
7.1.13. Environmental Compliance: The Borrower and FMG and the
business and assets of each of them has been and is being
operated in compliance in all material respects with all
applicable Environmental Laws and Environmental Permits;
7.1.14. Compliance with Regulations U and X. Neither the Borrower nor
any of its Subsidiaries is engaged principally or as one of
its important activities in the business of extending credit
for the purpose of purchasing or carrying, and neither the
Borrower nor any of its Restricted Subsidiaries owns or
presently intends to acquire, any "margin security" or "margin
stock" as defined in Regulations U and X of the Board of
Governors of the Federal Reserve System (herein called "margin
stock"). None of the proceeds of the Loans will be used,
directly or indirectly, for the purpose of purchasing or
carrying any margin stock or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to
purchase or carry margin stock or for any other purpose which
might constitute this transaction a "purpose credit" within
the meaning of said Regulations U and X;
7.1.15. Year 2000 Issue. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its
Subsidiaries businesses and operations (including those
affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Issue" (that is, the risk
that computer applications used by the Borrower or any of its
Subsidiaries (or suppliers, vendors and customers) may be
unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and after December
31, 1999), (ii) developed a plan and timeline for addressing
the Year 2000 Issue on a timely basis and (iii) to date,
implemented that plan in accordance with that timetable ((i),
(ii) and (iii), the "Year 2000 Plan"). Based on the foregoing,
the Borrower represents and warrants that all computer
applications that are material to its or any of its
Subsidiaries businesses and operations will be able on a
timely basis to perform properly date sensitive functions for
all dates before and after December 31, 1999 (that is, be
"Year 2000 Compliant"). In addition, neither the cost to the
Borrower and its Subsidiaries of implementing the Year 2000
Plan and becoming Year 2000 Compliant nor the affect of the
Year 2000 Issue on the Borrower and its Subsidiaries has
resulted or is reasonably likely to result in an Event of
Default or a Default or in a material adverse change on the
business, assets, liabilities, financial condition, prospects
or results of operations of the Borrower or its Subsidiaries;
and
<PAGE> 24
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7.1.16. ChemFirst, Inc. Indebtedness: the Obligations of the Borrower
are pari passu with all of the Borrower's Indebtedness to
ChemFirst, Inc.
7.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The Borrower covenants that the representations and warranties
made by it in this Article 7 shall be true and correct in all material respects
on each day that this Agreement remains in force and effect, and all such
representations and warranties shall be deemed to be made on each such day with
the same effect as if such representations and warranties had been made and
given on and as of such day, notwithstanding any investigation made at any time
by the Lender; except that if any such representation and warranty is
specifically given in respect of information as of a particular date or
particular period of time and relates only to such information, then such
representation and warranty shall continue to be given as at such date or for
such period of time until the information to which it relates is updated at
which point it shall continue to be given as of such updated date or period of
time, and so forth from time to time.
ARTICLE 8.
COVENANTS
8.1. AFFIRMATIVE COVENANTS
So long as any Obligations remain outstanding and the
Commitment has not been terminated, unless the Lender otherwise consents in
writing, the Borrower covenants and agrees that:
8.1.1. Punctual Payment: it shall pay or cause to be paid all
Obligations falling due hereunder on the dates and in the
manner specified herein;
8.1.2. Conduct of Business: it shall do or cause to be done, and
shall cause FMG to do or cause to be done, all things
necessary or desirable to maintain its corporate existence in
its present jurisdiction of incorporation and to maintain its
corporate power and authority to own its properties and
assets;
8.1.3. Preservation of Material Authorizations: it shall preserve and
maintain all Material Authorizations of the Borrower;
8.1.4. Compliance with Applicable Law and Contracts: it shall comply,
and shall cause FMG to comply, with the requirements of all
Applicable Laws and all contracts to which it is a party or by
which it or its properties are bound, non-compliance with
which would, singly or in the aggregate, have a material
adverse effect upon the Borrower's ability to perform its
obligations under any Loan Document;
8.1.5. Notice of Litigation and Other Matters: as soon as practical
after it shall become aware of the same, the Borrower shall
give, and shall cause FMG to give, notice to the Lender of the
following events:
<PAGE> 25
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8.1.5.1. the commencement of any action, proceeding,
arbitration or investigation against or in any other
way relating adversely to the Borrower or FMG or its
properties, assets or businesses which, if adversely
determined, could reasonably be expected to singly or
when aggregated with all other such actions,
proceedings, arbitrations and investigations, have a
material adverse effect on the ability of the
Borrower to perform its obligations under any Loan
Document;
8.1.5.2. any amendment of the organizational documents of the
Borrower;
8.1.5.3. any development which has had or could reasonably be
expected to have a material adverse effect upon the
ability of the Borrower to perform its obligations
under any Loan Documents; and
8.1.5.4. any Default or Event of Default giving in each case
the details thereof and specifying the action
proposed to be taken with respect thereto.
8.1.6. Maintenance of Assets: it shall, and shall cause FMG to, keep
all of its equipment in good working order and condition, and
protect and maintain the value of all other assets, except
where the failure to do so would not have a material adverse
effect on the Borrower and FMG, taken as a whole;
8.1.7. Use of Proceeds: it shall use the Advance solely for
general working capital purposes of the Borrower;
8.1.8. Compliance Certificate: within two (2) Banking Days following
a request therefor from the Lender, the Borrower shall deliver
to the Lender an Officers' Certificate certifying that no
Default or Event of Default has occurred hereunder or, if any
Default or Event of Default has occurred, specifying the
relevant particulars and the period of existence thereof and
the action taken or proposed to be taken by the Borrower with
respect thereto;
8.1.9. Year 2000 Issue: the Borrower and its Subsidiaries shall
implement and complete the Year 2000 Plan in accordance with
the timetable set out in such Plan. In addition, the Borrower
and its Subsidiaries shall provide the Lender, upon request,
with their current Year 2000 Plan, periodic updates on the
implementation and progress of such Plan and access to their
senior management for discussions on the Year 2000 Plan. The
Borrower and its Subsidiaries shall ensure that adequate
resources are committed to implement and complete the Year
2000 Plan. The Borrower and its Subsidiaries shall be Year
2000 Compliant by December 31, 1999; and
8.1.10. Tax and Accounting Treatment of the Merger: the Borrower shall
not take any action and shall not fail to take any action
which action or failure to act would
<PAGE> 26
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prevent, or would be likely to prevent, the Merger from
qualifying (a) for pooling of interests accounting treatment
under U.S. generally accepted accounting principles or (b) as
a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
8.2. NEGATIVE COVENANTS
So long as any Obligations remain outstanding and the
Commitment has not been terminated, unless the Lender otherwise consents in
writing, the Borrower covenants and agrees that:
8.2.1. Encumber Assets: without the prior written approval of the
Lender, it shall not and shall not permit FMG to create,
grant, assume or suffer to exist any Liens upon its assets,
other than Permitted Liens;
8.2.2. Unrelated Business: it shall not engage directly or indirectly
in any business activity, or purchase or otherwise acquire any
properties or assets, in each case unrelated to or unnecessary
for the conduct of its present business in the ordinary
course;
8.2.3. Sell Assets: it shall not sell, transfer or otherwise dispose
of any of its assets, except that the Borrower may enter into
sales transactions in the ordinary course of business and may
dispose of worn out, obsolete or replaced assets;
8.2.4. Amalgamations: except for the Merger, it shall not enter into
(a) any merger or amalgamation with any other Person, and (b)
any other transaction (including by way of merger,
reorganization, consolidation, amalgamation, liquidation,
transfer, sale or otherwise) whereby all or any material
portion of the property and assets of the Borrower would
become the property of any other Person;
8.2.5. Limitation on Indebtedness: it shall not, and shall not permit
FMG to, incur, create, contract, assume, guarantee or
otherwise be or become, directly or indirectly, liable in
respect of any Indebtedness, except (i) Indebtedness arising
out of this Agreement; (ii) Indebtedness secured by the
Permitted Liens, (iii) current liabilities for taxes and
assessments incurred in the ordinary course of business, (iv)
Indebtedness in respect of current accounts payable accrued
and incurred in the ordinary course of business, (v)
Indebtedness of the Borrower and FMG as reflected in the
audited consolidated financial statements of the Borrower as
at December 31, 1998, and (vi) Indebtedness incurred pursuant
to the loan agreement between the Borrower and ChemFirst, Inc.
dated September 24, 1995 in an aggregate principal amount
outstanding not to exceed $29, 600,000;
8.2.6. Distributions and Dividends: neither the Borrower nor FMG
shall make any repayment of any Indebtedness (other than the
payment of (a) liabilities for taxes and assessments incurred
in the ordinary course of business, (b) Indebtedness in
respect of current accounts payable accrued and incurred in
the ordinary course of
<PAGE> 27
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business, (c) regularly scheduled payments of interest, and
(d) Indebtedness owed to ChemFirst Inc. on September 22, 2000
or upon any "Change of Control" as defined in the Borrower's
loan agreement with ChemFirst Inc.), or issue any capital
stock or security, or pay or declare any dividends or other
forms of cash distributions, except that FMG may pay dividends
to the Borrower;
8.2.7. Negative Pledge. it shall not, and shall not permit FMG to,
enter into any agreement (other than the Loan Documents or the
Merger agreement with Placer Dome) with any Person that
prohibits or restricts or limits the ability of the Borrower
or FMG to create, incur, pledge or suffer to exist any Lien
upon any assets of the Borrower or FMG; and
8.2.8. Subsidiaries: it shall not form or acquire any Subsidiary
other than FMG, and it shall not make any loan or advance to,
or investment or capital contribution in, or otherwise
transfer any assets to FMG other than in the ordinary course
of business.
ARTICLE 9.
EVENTS OF DEFAULT AND REMEDIES
9.1. EVENTS OF DEFAULT
The occurrence of any one or more of the following events
shall constitute an Event of Default:
9.1.1. the Borrower shall fail to pay any portion of the principal
amount of any Loan or interest when due, or the Borrower shall
fail to pay any fees or other Obligations within five days of
when due and payable;
9.1.2. default in the performance or observance of any covenant,
condition or obligation contained in any Loan Document that
does not require the payment of money to the Lender and which
is not remedied within thirty (30) days of receipt by the
Borrower of notice of such default from the Lender provided
that, if such default requires more than thirty (30) days to
be cured and the Borrower is diligently and actively pursuing
the curing of such default, the Borrower shall be afforded
such additional time to cure such default as shall be
reasonable in the circumstances provided that in any event
such default is cured within sixty (60) days of receipt by the
Borrower of notice of such default from the Lender;
9.1.3. any representation or warranty made or deemed to have been
made by the Borrower herein or in any Loan Document, Officers'
Certificate or other document delivered to the Lender pursuant
hereto or in connection with any Loan Document is found to be
false or incorrect in any way so as to make it materially
misleading when made or deemed to have been made;
<PAGE> 28
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9.1.4. an event shall occur that causes either the Borrower or FMG to
be in default under one or more agreements or instruments
under or pursuant to which Indebtedness was incurred or
created if the effect of such default or event results in the
Indebtedness of the Borrower or FMG in excess of $1,000,000
becoming due prior to its stated maturity;
9.1.5. either the Borrower or FMG admits its inability to pay its
debts generally as they become due or otherwise acknowledges
its insolvency;
9.1.6. either the Borrower or FMG institutes any proceeding or takes
any corporate action or executes any agreement to authorize
its participation in or commencement of any proceeding (other
than the Merger):
9.1.6.1. seeking to adjudicate it bankrupt or insolvent, or
9.1.6.2. seeking liquidation, dissolution, winding up,
reorganization, arrangement, protection, relief or
composition of it or any of its property or debt or
making a proposal with respect to it under any law
relating to bankruptcy, insolvency, reorganization or
compromise of debts or other similar laws (including,
without limitation, the filing of any petition under
the United States Bankruptcy Code or any similar
federal or state statute);
9.1.7. any proceeding is commenced against or affecting either the
Borrower or FMG:
9.1.7.1. seeking to adjudicate it a bankrupt or insolvent;
9.1.7.2. seeking liquidation, dissolution, winding up,
reorganization, arrangement, protection, relief or
composition of it or any of its property or debt or
making a proposal with respect to it under any law
relating to bankruptcy, insolvency, reorganization or
compromise of debts or other similar laws (including,
without limitation, the filing of any petition under
the United States Bankruptcy Code or any similar
federal or state statute);or
9.1.7.3. seeking appointment of a receiver, trustee, agent,
custodian or other similar official for it or for any
substantial part of its properties and assets, or any
part thereof,
and such proceeding is not being contested in good faith by
appropriate proceedings and is not in any event stayed or
terminated within forty-five (45) days of its commencement,
or, if such proceeding is being contested in good faith, the
Borrower should default under Section 9.1.1;
9.1.8. any execution, distress or other enforcement process, whether
by court order or otherwise, relating to any entry of final
judgment in excess of $1,000,000
<PAGE> 29
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becomes enforceable against any property of the Borrower or of
FMG and the same is not fully covered by insurance;
9.1.9. FMG ceases to be a wholly-owned subsidiary of the Borrower; or
9.1.10. any Change of Control shall occur.
9.2. REMEDIES UPON DEFAULT
Upon the occurrence of any Event of Default, the Lender may do
any one or more of the following:
9.2.1. declare the unutilized portion (if any) of the Loan Facility
to be terminated (whereupon the Lender shall not be required
to make any further Advances) and declare all Obligations to
be immediately due and payable;
9.2.2. Intentionally Omitted;
9.2.3. take such actions and commence such proceedings as may be
permitted by law or in equity (whether or not provided for
herein or in the Loan Documents) at such times and in such
manner as the Lender in its sole discretion may consider
expedient,
all without, except as may be required by Applicable Law, any
additional notice, presentment, demand, protest, notice of protest, dishonor or
any other action. The rights and remedies of the Lender hereunder are cumulative
and are in addition to and not in substitution for any other rights or remedies
provided by Applicable Law or by the Loan Documents.
9.3. DISTRIBUTIONS
All distributions under or in respect of the Loan Documents
shall be held by the Lender on account of the Obligations and the Borrower shall
remain liable for any deficiency. All such distributions may be applied to such
part of the Obligations as the Lender may see fit in its sole discretion, and
the Lender may at any time change any appropriation of any such distributions or
other moneys received by it and reapply the same against any other part of the
Obligations as the Lender may see fit, notwithstanding any previous application,
with any remaining amounts following payment of all Obligations, payable to the
Borrower.
ARTICLE 10.
ASSIGNMENT
10.1. ASSIGNMENTS
Except as provided in this section, no party may assign its
rights or benefits under this Agreement.
<PAGE> 30
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10.1.1. The Borrower shall not assign or transfer all or any part of
its rights or benefits hereunder without the prior written
consent of the Lender.
10.1.2. The Lender may assign all or part of its rights in respect of
the Obligations and have its corresponding obligations
hereunder assumed by:
10.1.2.1. any Federal Reserve Bank as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve
System and any Operating Circular issued by such Federal
Reserve Bank (no such assignment shall relieve the Lender from
its obligations hereunder), or any affiliate of the Lender
without the consent of the Borrower, and
10.1.2.2. any other Person with the prior written consent of the
Borrower (which consent shall not be unreasonably withheld).
Any assignment under Section 10.1.2.1 shall become effective when the
Borrower has been notified thereof by the Lender and has received from the
assignee an undertaking to be bound by this Agreement and the other Loan
Documents and to perform the obligations assumed by it; any assignment under
Section 10.1.2.2 shall become effective when the Borrower has provided its
written consent to the Lender and has received from the assignee an undertaking
to be bound by this Agreement and the other Loan Documents and to perform the
obligations assumed by it. Any such assignee shall be treated as a party to this
Agreement for all purposes of this Agreement and the other Loan Documents and
shall be entitled to the full benefit hereof and thereof and shall be subject to
the obligations of the Lender to the same extent as if it were an original party
in respect of the rights assigned to it and obligations assumed by it and,
except in the case of an assignee referred to in Section 10.1.2.1 the Lender
shall be released and discharged accordingly.
10.2. EXCHANGE OF INFORMATION
The Lender may provide to any proposed assignee such
information concerning the financial position and the operations of the Borrower
as, in the opinion of the Lender, may be relevant or useful in connection with
the Loan Facility or any portion thereof proposed to be acquired by such
assignee, provided that each recipient of such information agrees not to
disclose such information to any other Person.
ARTICLE 11.
GENERAL
11.1. RELIANCE AND NON-MERGER
All covenants, agreements, representations and warranties of
the Borrower made herein or in any other Loan Document or in any certificate or
other document signed by any of its directors or officers and delivered by or on
behalf of it pursuant hereto or thereto, shall be
<PAGE> 31
-27-
deemed to have been relied upon by the Lender notwithstanding any investigation
heretofore or hereafter made by the Lender or the Lender's Counsel or any
employee or other representative of the Lender and shall survive the execution
and delivery of this Agreement and the other Loan Documents until the Borrower
shall have satisfied and performed all of the Obligations.
11.2. AMENDMENT AND WAIVER
No amendment or waiver of any provision of any Loan Document
or consent to any departure by the Borrower from any provision thereof is
effective unless it is in writing and signed by the Lender. Such amendment,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which it is given.
11.3. SET-OFF OR COMPENSATION
In addition to and not in limitation of any rights now or
hereafter granted under applicable law, if repayment is accelerated pursuant to
Section 9.2, the Lender may at any time and from time to time without notice to
the Borrower or any other Person, any notice being expressly waived by the
Borrower, set-off and compensate and apply any and all deposits, general or
special, time or demand, provisional or final, matured or unmatured, and any
other indebtedness at any time owing by the Lender to or for the credit of or
the account of the Borrower, against and on account of the Obligations
notwithstanding that any of them are contingent or unmatured and notwithstanding
that any such deposit or indebtedness may or may not be expressed in the same
Currency.
11.4. NO SET-OFF FROM PAYMENTS
The Borrower agrees to pay principal, interest, fees and all
other amounts due hereunder without set-off or counterclaim or any deduction
whatsoever. All payments due to the Lender under this Agreement, whether for
principal, interest, fees or otherwise, shall be made without set-off or
counter-claim, and free and clear and without any deduction or withholding on
account of any taxes, all of which shall be for the account of the Borrower and
paid by it directly to the relevant taxing or other authority when due. If the
Borrower shall be required by law to make any deduction or withholding in
respect of taxes from any payment hereunder, the sum payable shall be increased
by such amount as will result in the receipt by the Lender, after such deduction
or withholding, of the amount that would have been received if such deduction or
withholding had not been required. The Borrower shall, at the request of the
Lender, furnish to the Lender authenticated copies of receipts evidencing that
the Borrower has met its obligations under this section.
11.5. REIMBURSEMENT
11.5.1. Whenever the Lender shall sustain or incur any losses or
reasonable out-of-pocket expenses in connection (i) the
failure by the Borrower to borrow, prepay or convert any
Advance after having given notice of its intention to do so in
accordance with Section 2.4 hereof (whether by reason of the
Borrower's election not to proceed or the non-fulfilment of
any of the conditions set forth in Article 4
<PAGE> 32
-28-
or otherwise), or (ii) with the prepayment of any LIBOR
Advance in whole or in part for any reason, the Borrower
agrees to pay to the Lender, upon the earlier of the Lender's
demand or the Due Date, an amount sufficient to compensate the
Lender for all such losses and reasonable out-of-pocket
expenses. The Lender's good faith determination of the amount
of such losses or out-of-pocket expenses, as set forth in
writing and accompanied by calculations in reasonable detail
demonstrating the basis for its demand, shall be conclusive,
absent manifest error.
11.5.2. Losses subject to reimbursement hereunder shall include,
without limiting the generality of the foregoing, expenses
incurred by the Lender or any participant of the Lender in
connection with the re-employment of funds prepaid, repaid,
not borrowed, or paid, as the case may be, and lost profits.
11.6. CAPITAL ADEQUACY.
If, after the date hereof, the adoption of any Applicable Law
regarding the capital adequacy of banks or bank holding companies, or any change
in Applicable Law (whether adopted before the closing date but not effective
until after the closing date or adopted after the closing date), other than in
connection with income taxes, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Lender with any directive regarding capital adequacy (whether or not
having the force of law) of any such governmental authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Lender's capital as a consequence of its obligations hereunder with
respect to the Loans to a level below that which it could have achieved but for
such adoption, change or compliance (taking into consideration the Lender's
policies with respect to capital adequacy immediately before such adoption,
change or compliance and assuming that the Lender's capital was fully utilized
prior to such adoption, change or compliance) by an amount reasonably deemed by
the Lender to be material, then upon the earlier of demand by the Lender or the
Due Date, the Borrower shall promptly pay to the Lender such additional amounts
as shall be sufficient to compensate the Lender for such reduced return,
together with interest on such amount from the fourth (4th) day after the date
of demand until payment in full thereof at the Default Rate. A certificate of
the Lender setting forth the amount to be paid to the Lender by the Borrower as
a result of any event referred to in this paragraph and supporting calculations
in reasonable detail demonstrating the basis therefor shall be conclusive,
absent manifest error.
11.7. INDEMNITY.
The Borrower agrees to indemnify and hold harmless the Lender,
and each of its affiliates, employees, representatives, officers, directors and
agents (any of the foregoing shall be an "Indemnitee") from and against any and
all claims, liabilities, losses, damages, actions, investigations, proceedings,
attorneys' fees and expenses (as such fees and expenses are incurred and
irrespective of whether suit is brought) and demands by any party, including the
costs of investigating and defending such claims, actions, investigations or
proceedings, and the costs of answering any discovery served in connection
therewith, whether or not the Borrower, any
<PAGE> 33
-29-
Subsidiary or the Person seeking indemnification is the prevailing party and
whether or not the Person seeking indemnification is a party to any such action
or proceeding (a) resulting from any breach or alleged breach by the Borrower or
any Subsidiary of the Borrower of any representation or warranty made hereunder,
or (b) arising out of (i) the Loans or otherwise under this Agreement, including
the use of the proceeds of Loan hereunder in any fashion by the Borrower or any
of its Subsidiaries or the performance of their respective obligations under the
Loan Documents by the Borrower or any of its Subsidiaries, (ii) allegations of
any participation by the Lender in the affairs of the Borrower or any of its
Subsidiaries, or allegations that the Lender has any joint liability with the
Borrower or any of its Subsidiaries for any reason, or (iii) any claims against
the Lender by any shareholder or other investor in or lender to the Borrower or
any Subsidiary of the Borrower, by any brokers or finders or investment advisers
or investment bankers retained by the Borrower or by any other third party, for
any reason whatsoever, or (c) in connection with taxes, fees, and other charges
payable in connection with the Loan, or the execution, delivery, and enforcement
of this Agreement, the other Loan Documents, and any subsequent amendments
thereto or waivers of any of the provisions thereof; unless the Person seeking
indemnification hereunder is determined in such case to have acted or failed to
act with gross negligence or willful misconduct by a non-appealable judicial
order.
11.8. NOTICES
Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be given by prepaid first-class
mail, by nationally recognized overnight delivery service, by telecopier or
other means of electronic communication or by hand-delivery as hereinafter
provided. Any such notice, if mailed by prepaid first-class mail at any time
other than during or within four Banking Days prior to a general discontinuance
of postal service due to strike, lockout or otherwise, shall be deemed to have
been received on the fourth Banking Day after the post-marked date thereof, or
if sent by overnight delivery or by telecopier or other means of electronic
communication, shall be deemed to have been received on the Banking Day
following the sending, or if delivered by hand delivery shall be deemed to have
been received at the time it is delivered to the applicable address of the
addressee. Notice of change of address shall also be governed by this section.
In the event of a general discontinuance of postal service due to strike,
lock-out or otherwise, notices or other communications shall be delivered by
hand or sent by facsimile or other means of electronic communication and shall
be deemed to have been received in accordance with this section. Notices and
other communications shall be addressed to the addresses of the relevant party
hereto as follows:
To the Borrower:
Getchell Gold Corporation
5460 South Quebec Street
Suite 240
Englewood, Colorado
80111
Attention: Chief Financial Officer
Telecopier No.: (303) 771-1075
<PAGE> 34
-30-
with a copy to:
Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, California
94111-2562 U.S.A.
Attention: Tad J. Freese
Telecopier No.: (415) 395-8095
To the Lender:
Toronto Dominion (Texas), Inc.
909 Fannin, Suite 1700
Houston, Texas 77010
Attention: Carol Brandt
Telecopier No.: (713) 951-9921
with a copy to:
The Toronto Dominion
First National Plaza
70 W. Madison, Suite 5430
Chicago, IL 60602
Attention: Mario da Ponte
Telecopier No.: (312) 782-6337
and a copy to:
Paul Hastings Janofsky & Walker LLP
600 Peachtree Street, N.E.
Suite 2400
Atlanta, GA 30308
Attention: Chris D. Molen, Esq.
Telecopier No.: (404) 815-2424
Upon the occurrence of any Event of Default, the Borrower shall notify
the following persons:
Placer Dome Inc.
1600-1055 Dunsmuir Street
Vancouver, B.C.
V7X 1P1
<PAGE> 35
-31-
Attention: J.R. Donald Rose
Telecopier No.: (604) 661-3703
with a copy to:
David S. Stone
Seyfarth, Shaw, Fairweather & Geraldson
55 Monroe Street, Suite 4200
Chicago, Illinois 60603
Telecopier No.: (312) 269-8869
11.9. TIME
Time is of the essence with respect to the Loan Documents.
11.10. FURTHER ASSURANCES
Whether before or after the happening of an Event of Default,
the Borrower shall at its own expense do, make, execute or deliver all such
further acts, documents and things in connection with the Loan and the Loan
Documents as the Lender may reasonably require from time to time for the purpose
of giving effect to the Loan Documents including, without limitation, for the
purpose of facilitating the enforcement of the Loan Documents, all promptly upon
the request of the Lender.
11.11. COUNTERPARTS
This Agreement may be signed in any number of counterparts,
each of which shall be deemed to be an original, but all such separate
counterparts shall together constitute one and the same instrument.
11.12. ENTIRE AGREEMENT
The Loan Documents constitute the entire agreement between the
parties hereto pertaining to the matters therein set forth and supersede and
replace any prior understandings or arrangements pertaining to the subject
matter hereof. There are no warranties, representations or agreements between
the parties in connection with such matters except as specifically set forth or
referred to in the Loan Documents.
<PAGE> 36
IN WITNESS WHEREOF this Agreement has been executed by the
parties hereto as of the date first written above.
GETCHELL GOLD CORPORATION
By: /s/ Donald S. Robson
--------------------------------
Title: Vice President and Chief
--------------------------------
Financial Officer
--------------------------------
TORONTO DOMINION (TEXAS), INC.
By: /s/ Carol Brandt
--------------------------------
Title: Vice President
--------------------------------
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