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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 and 15(d) of The Securities
Exchange Act of 1934
DAKOTA MINING CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Canada 0-17583 84-1094683
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation/organization) Identification No.)
EXECUTIVE OFFICES:
410 Seventeenth Street
Suite 2450
Denver, Colorado 80202
Telephone: (303) 573-0221
Fax: (303) 573-1012
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
Number of common shares outstanding on May 10, 1996: 26,749,742
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DAKOTA MINING CORPORATION
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED BALANCE SHEETS. . . . . . . . . . 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS. . . . . 4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS . . . . . 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . 9
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 17
ITEM 1 - LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . 17
ITEM 2 - CHANGES IN SECURITIES . . . . . . . . . . . . . . . 17
ITEM 3 - DEFAULT UPON SENIOR SECURITIES. . . . . . . . . . . 17
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS . 17
ITEM 5 - OTHER INFORMATION . . . . . . . . . . . . . . . . . 17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2
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DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(expressed in United States dollars)
(unaudited)
MARCH 31, DECEMBER 31,
1996 1995
---- ----
ASSETS
CURRENT ASSETS
Cash $ 10,391,247 $ 2,260,025
Inventories 4,183,787 3,821,176
Deferred stripping costs 621,716 667,956
Other current assets 394,972 340,965
------------ ------------
15,591,722 7,090,122
PROPERTY, PLANT AND EQUIPMENT, NET 22,840,964 22,972,514
OTHER ASSETS
Reclamation bonds 3,901,773 3,577,475
Advance minimum royalties 2,064,718 2,007,260
Other 85,345 258,050
------------ -----------
$ 44,484,522 $35,905,421
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,604,004 $ 5,152,517
Accrued liabilities 1,315,070 1,864,790
Reclamation costs 541,905 576,500
Short-term borrowings 819,805 1,157,991
Current portion of long-term debt 521,567 565,546
------------ -----------
4,802,351 9,317,344
LONG-TERM LIABILITIES
Long-term debt 623,965 439,520
Reclamation costs 3,662,988 3,558,304
------------ ------------
Total liabilities 9,089,304 13,315,168
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SHAREHOLDERS' EQUITY
Warrants 87,500 87,500
Preference shares, without par
value; 20,000,000
shares authorized, none issued
or outstanding
Special Warrants 13,747,489
Common shares, without par value;
unlimited shares authorized;
26,660,242 issued and
outstanding in 1996;
26,534,742 in 1995 38,906,595 38,906,595
Accumulated deficit (17,009,703) (16,064,270)
Cumulative translation adjustment (336,663) (339,572)
------------ ------------
Total shareholders' equity 35,395,218 22,590,253
------------ ------------
$ 44,484,522 $ 35,905,421
------------ ------------
------------ ------------
(SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
3
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DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in United States dollars)
(unaudited)
THREE MONTHS ENDED
---------------------------------
MARCH 31, 1996 MARCH 31, 1995
---------------------------------
OPERATING REVENUES $ 3,196,715 $ 1,967,445
------------ -----------
OPERATING COSTS
Mine, mill and administration 2,645,978 1,465,356
Depreciation and depletion 819,845 537,015
Holding and standby costs 675,249
Royalties and severance taxes 129,156 55,432
Exploration 29,204 -
Reclamation 108,148 73,328
Other 9,553 32,985
General corporate costs 371,970 298,253
------------ -----------
4,113,854 3,137,618
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OPERATING LOSS (917,139) (1,170,173)
------------ -----------
Other income (expense):
Investment income 105,478 66,462
Interest expense (110,296) (104,349)
Other (23,476) (16,148)
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(28,294) (54,035)
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NET LOSS $ (945,433) $(1,224,208)
----------- -----------
----------- -----------
Net loss per common share $ (0.04) $ (0.06)
----------- -----------
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Weighted average number of
shares outstanding 26,582,506 21,360,108
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(SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
4
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DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in United States dollars)
(unaudited)
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss $ (945,433) $(1,224,208)
Add (deduct) non-cash items:
Depreciation, depletion and amortization 819,845 543,903
Gain on sale of assets - -
Reclamation, holding and standby accrued 70,089 18,316
Other 16,726 (53,821)
----------- -----------
(38,773) (715,810)
Net change in non-cash working
capital items related to operations (4,485,342) (120,937)
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(4,524,115) (836,747)
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INVESTMENT ACTIVITIES
Additions to property, plant and equipment (742,488) (790,273)
Proceeds from asset dispositions - -
Additions to reclamation bonds and other assets (226,675) (1,023,125)
----------- -----------
(969,163) (1,813,398)
----------- -----------
FINANCING ACTIVITIES
Proceeds from exercise of Common Share
Purchase Warrants -
Proceeds from the sale of special warrants 14,507,250 6,000,000
Special warrant offering costs paid (759,759) (421,256)
New borrowings - -
Repayment of indebtedness (125,898) (111,522)
----------- -----------
13,621,593 5,467,222
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Effect of exchange rate on cash 2,907 -
----------- -----------
Net change in cash 8,131,222 2,817,077
Cash, beginning of period 2,260,025 3,097,441
----------- -----------
CASH, END OF PERIOD $10,391,247 $ 5,914,518
----------- -----------
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(SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT)
5
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DAKOTA MINING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
Dakota Mining Corporation and its subsidiaries (the "Company") are engaged
in the business of investing in and operating precious metals mining
projects, producing gold and silver and exploring for, acquiring and
developing precious metals properties.
The consolidated financial statements of the Company are reported in
United States dollars in accordance with generally accepted accounting
principles in Canada. As described in Note 4, these principles may
differ in certain respects from those that the Company would have
followed had its consolidated financial statements been prepared in
accordance with generally accepted accounting principles and practices
in the United States.
The interim financial data is unaudited. However, in the opinion of
management, all adjustments that are normal and recurring in nature
have been made for a fair presentation of the financial position of the
Company at March 31, 1996 and the results of operations for the interim
periods presented. Results of operations for this period are not
necessarily indicative of results to be expected for the full year. For
a more thorough understanding of the Company's operations and financial
position, these statements should be read with the audited financial
statements and notes included with the Company's December 31, 1995
audited financial statements.
2. INVENTORIES AND DEFERRED STRIPPING COSTS
On the dates indicated, inventories were comprised of the following:
MARCH 31, DECEMBER 31,
1996 1995
---- ----
Bullion $ 473,780 $1,290,231
Heap leach 3,425,345 2,244,420
Materials and Supplies 284,662 286,525
---------- ----------
$4,183,787 $3,821,176
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In 1993, the mining activity at Stibnite Mine consisted primarily of the
removal of waste overburden. Accordingly, the costs of waste removal of
approximately $1.8 million were deferred. Of this amount, $1.12 million
was charged to operations in 1995 with the remainder to be charged to
operations in 1996 as the related gold resources are recovered.
3. BORROWING ARRANGEMENTS
On April 19, 1996, the Company completed an agreement to establish a
Revolving Loan Agreement with Gerald Metals, Inc. for a $4.0 million
seasonal line of credit. Interest will accrue at a rate of LIBOR plus
2.75% with the entire balance repayable within one year. The credit
facility is collateralized by all the underlying assets of the Gilt
Edge and Stibnite
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Mines and is guaranteed by the Company. At May 10, 1996, the Company
had drawn $1.6 million of the credit facility.
In April, 1996, the terms of a short-term borrowing arrangement with
D.H. Blattner & Sons ("Blattner") were redetermined. The Company has
signed a Secured Loan Note which provides for monthly payments,
including accrued interest, of $75,000 commencing May 1, 1996 and
continuing until September 1, 1997. The loan bears interest at 8.5%
per annum, is collateralized by the assets of Stibnite Mine and is
guaranteed by Dakota Mining Corporation. This facility has been
subordinated by Blattner to Gerald under the Revolving Credit Facility
previously described.
4. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) IN CANADA AND THE
UNITED STATES
The Company follows Canadian accounting principles which are different
in some respects from accounting principles applicable in the United
States. There are no significant differences in 1996 and 1995 between
Canadian accounting principles and U.S. GAAP pertaining to the Company.
(a) Under Canadian accounting principles, the Arrangement completed on
September 15, 1993 (Note 6) was accounted for as a financial
reorganization resulting in a "fresh start." Consequently, results
of operations and cash flows for periods before the financial
reorganization are not reported. However, under U.S. GAAP, the
Arrangement would be accounted for as a quasi-reorganization and
the pre-Arrangement results of operations and cash flow activities
would have been combined with the post-Arrangement financial
reorganization activities. U.S. GAAP requires that the deficit
accumulated after the financial reorganization be dated as of
September 15, 1993 to notify financial statement readers
of the reorganization.
(b) Under U.S. GAAP, the Company would calculate deferred income taxes
using an asset and liability method. Deferred income taxes reflect
the net tax effect of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
(c) Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123) was issued in October, 1995
by the Financial Accounting Standards Board. SFAS 123 establishes
financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an
entity issues equity instruments to acquire goods or services from
non-employees. Under SFAS 123 an entity may continue to measure
compensation cost for those plans in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees, which method is
similar to that applied under Canadian GAAP, providing that certain
proforma disclosures are provided. SFAS 123 is applicable to
fiscal years beginning after December 15, 1995. The Company does
not expect to adopt the accounting prescribed by SFAS 123; however,
it will include the proforma disclosures required by SFAS 123
beginning with its 1996 annual consolidated financial statements.
7
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5. OWNERSHIP INTEREST IN GOLDEN REWARD MINE
The Company owns a 40% interest in Golden Reward Mine, with the remaining
60% interest being owned by two subsidiaries of Wharf Resources Ltd.
("Wharf"). The Company's proportionate share of the partnership's
balance sheets as of March 31, 1996 and December 31, 1995 and statements
of operations for each of the years indicated are as follows:
MARCH 31, DECEMBER 31,
1996 1995
---- ----
BALANCE SHEETS:
Current assets $ 1,208,815 $ 1,313,421
Plant property and equipment 9,428,833 10,047,831
Other assets 686,061 464,193
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Total assets 11,323,709 11,825,445
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Accounts payable and other
current liabilities 420,322 428,777
Current portion of long-term debt 364,400 364,400
Long-term debt 268,800 358,400
Other long-term liabilities 477,470 370,701
----------- -----------
Total liabilities 1,530,992 1,522,278
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$ 9,792,717 $10,303,167
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THREE MONTHS ENDED
MARCH 31,
1996 1995
---- ----
STATEMENT OF OPERATIONS:
Revenues $ 1,419,391 $ 1,828,265
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Mine cash production costs 1,250,745 1,230,773
Royalties 51,278 30,509
Exploration 25,930 25,704
Reclamation 108,148 21,869
Depreciation and depletion 612,380 447,633
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Total production costs 2,048,481 1,756,488
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Operating income (loss) (629,090) 71,777
Other income (expense) (8,607) (54,733)
----------- -----------
$ (637,697) $ 17,044
----------- -----------
----------- -----------
Based upon uncertainties arising from the proximity of certain
unpermitted reserves to a ski hill, the operator of Golden Reward L.P.
reflected in the financial statements of the partnership at December 31,
1995 an impairment of its investment in mineral properties relating to
the Golden Reward Mine. The Company did not incorporate this write-down
into the March 31, 1996 or December 31, 1995 financial statements
because Golden Reward L.P. is actively pursuing the acquisition of the
interests in the ski hill not presently owned by Golden Reward L.P.
Therefore, these amounts do not reflect the impairment recorded by
Golden Reward L.P.
6. 1993 ARRANGEMENT
On September 13, 1993, the shareholders of the Company approved a
recapitalization of the Company's outstanding common shares as part of
an "arrangement" under applicable
8
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Canadian law (the "Arrangement"). Pursuant to such Arrangement, all of
the shares of common stock of the Company issued and outstanding as of
September 15, 1993 (the "Old Common Shares") were exchanged for new
Common Stock and Common Share Purchase Warrants (the "Arrangement
Warrants".) The basis for such exchange was one share of new Common
Stock and 1/2 of an Arrangement Warrant for every 12.43452 shares of Old
Common Shares. A whole Arrangement Warrant allowed the holder thereof
to acquire one share of Common Stock at an exercise price of $1.50 until
September 15, 1994 and thereafter at $1.75 until their expiry on
September 15, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company has interests in three principal mining properties: a 100%
interest in Gilt Edge Mine; a 100% interest in Stibnite Mine; and a 40%
interest in Golden Reward Mine. The Company also has a 25% interest in
Cactus Mine; however, such mine is presently in the reclamation stage and
future activities will not be material to the Company.
The Company's operating activities at Gilt Edge Mine and Stibnite Mine
have been severely curtailed since 1993 pending receipt of various new
operating permits. The lack of operating activities at these two mines
resulted in the Company reporting significant net losses in each of 1993,
1994, 1995 and in the first quarter of 1996. The Company received the
necessary operating permits to recommence operations at Stibnite Mine on July
7, 1995 and to recommence operations at Gilt Edge Mine on January 19, 1996.
Due to the seasonal nature of activities at Stibnite Mine and the timing of
the permit at Gilt Edge Mine the full impact of a return to production at
both mines is not reflected in these financial statements.
For the past three years, the Company has funded, and it is anticipated
that it will continue to fund its operating losses, working capital
requirements and capital needs primarily through the private placement of
equity securities. On February 14, 1996, the Company issued and sold by way
of private placement, 8.7 million Special Warrants at a price of Cdn$2.30 per
Special Warrant representing gross proceeds to the Company of Cdn$20,010,000
(US$14,507,250). Subject to adjustment in certain circumstances, each
Special Warrant is exchangeable into one Common Share and one-half of a
Purchase Warrant for no additional consideration. Each whole Purchase
Warrant entitles the holder thereof to acquire one Common Share until
December 14, 1997 at an exercise price of Cdn$2.65.
At the closing of the offering, the Company received Cdn.$9,004,500
(U.S. $6,528,000) or 50% of the sale proceeds less Underwriter commission,
with the remaining Cdn.$10,005,000 (U.S. $7,254,000) or 50% of proceeds
placed into escrow pending the clearance of the Company's Canadian
prospectus. The Company paid commissions to certain underwriters in
connection with the offering of Cdn.$1,000,500 (U.S. $725,400) or Cdn$.115
per Special Warrant and issued to such underwriters a warrant to purchase
200,000 Common Shares under the same terms and conditions as the Purchase
Warrants.
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In connection with the offering, the Company agreed to use its best
efforts to obtain receipts from securities regulatory authorities of British
Columbia, Alberta and Ontario for a Canadian prospectus and to complete all
necessary U.S. securities regulatory filings as soon as practical. If the
Company's Canadian prospectus is not receipted on or before June 11, 1996,
the Company may be required to redeem 50% of the Special Warrants with all of
the escrowed funds and issue up to 1,087,500 additional Purchase Warrants to
holders of the remaining outstanding Special Warrants. Although the Company
anticipates receiving the necessary receipts and completing the U.S. filings
in a timely manner, there is no assurance that this will occur.
The proceeds from the private placement will be used to fund capital
expenditures required to bring the Anchor Hill deposit located at Gilt Edge
Mine into production in lieu of previous financing arrangements with Repadre
International Corporation ("Repadre") described below; to fund feasibility
and permitting expenditures on sulfide reserves at Gilt Edge Mine; to fund
exploration, property development and acquisition; and to fund the general
working capital requirements of the Company. Included in plans for
exploration and property development are plans to commence reverse
circulation drilling at Stibnite Mine in an attempt to define additional
reserves and extend the present mine life.
On April 19, 1996, the Company completed an agreement to establish a
Revolving Loan Agreement with Gerald Metals, Inc. for a $4.0 million seasonal
line of credit. Interest will accrue at a rate of LIBOR plus 2.75% with the
entire balance repayable within one year. The credit facility is
collateralized by all the underlying assets of the Gilt Edge and Stibnite
Mines and is guaranteed by the Company. At May 10, 1996, the Company had
drawn $1.6 million of the credit facility.
Effective March 8, 1995, the Company entered into an agreement (the
"Repadre Agreement") with Repadre International Corporation ("Repadre")
whereby Repadre agreed to provide the Company with a $4.0 million credit
facility and thereby receive a royalty interest in the Company's Gilt Edge
Mine. After completion of the private placement of Special Warrants in
February 1996, the Company terminated the credit facility. However, under
the terms of the Repadre Agreement, Repadre retains a 1-3/4% royalty interest
in certain properties and a 3/4% royalty interest in certain other properties
at Gilt Edge Mine for providing the credit facility to the Company.
In order to minimize an adverse effect upon operations should gold
prices fall in the future, the Company from time-to-time, enters into gold
price protection agreements. At May 10, 1996, the Company had entered into
various option contracts with a bullion dealer to deliver 12,000 ounces of
gold at a minimum price of $395 per ounce and a maximum of $425 per ounce
during the period from July 1, 1996 through December 31, 1996 and has agreed
to deliver 1,250 ounces of gold at $386 per ounce under a forward sales
contract which expires in June, 1996. Fluctuations in future gold prices
could significantly impact the Company's future revenues.
At March 31, 1996, the Company has working capital of $10.8 million
primarily due to an increase in cash and inventory of $8.5 million since
December 31, 1995, offset by a decrease in accounts payable and accrued
liabilities of $4.0 million since December 31, 1995. The improvement in
working capital from a deficit of $2.2 million at December 31, 1995 is a
result of the private placement of Special Warrants and reductions in
accounts payable from sales of gold bullion produced after December 31, 1995.
10
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Cash used in operations was $4.5 million during the first quarter of
1996 compared to cash used in operations of $836,747 during the same period
of 1995. The increase in cash used in the first quarter of 1996 as compared
to 1995 is primarily due to the decrease in accounts payable and accrued
liabilities at March 31, 1996, when compared to balances at December 31, 1995.
Cash used in investment activities during the first quarter of 1996
pertains to additions to plant, property and equipment, including development
activities at Gilt Edge Mine and Stibnite Mine.
Cash provided by financing activities during the first three months of
1996 included approximately $13.7 million of proceeds, net of offering costs,
from the sale of Special Warrants. The Company also repaid approximately
$90,000 of its pro rata share of certain long-term debt obligations of Golden
Reward L.P. In total the Company repaid borrowings of $125,898 during the
first quarter of 1996.
During the next three years, the Company anticipates that its aggregate
costs for land holding, expansion of existing mining facilities, exploration
on existing properties and obtaining new operating permits will approximate
$13.7 million. The Company anticipates that these capital requirements will
be funded from the proceeds of the sale of the Special Warrants sold in
February, 1996 and from cash flows from operations. The Company also
anticipates that it will meet its repayment obligations under a short-term
borrowing arrangement of $1.16 million and under various long-term debt
agreements principally from cash flows generated by operating activities.
GILT EDGE MINE
The Company has recommenced operations at Gilt Edge Mine in the second
quarter of 1996 through the development of the Anchor Hill oxide deposit
which consists of 8.58 million tons of ore containing approximately 222,000
ounces of gold. Average gold recoveries are estimated to be 71.6% and
average cash operating costs per ounce are expected to approximate $250 per
ounce produced. Depreciation, including future development costs as noted
below, is estimated to be $60 per ounce. Anchor Hill is expected to generate
an operating profit over its four-year mine life.
The Company has all requisite state and county operating permits to
allow for the development of the Anchor Hill oxide deposit. The ultimate
Anchor Hill open pit design contemplates that approximately 37 acres of
public lands will be disturbed, principally for pit wall layback and waste
removal. Accordingly, the Company is required to complete an Environmental
Impact Statement ("EIS"). The EIS, which has been underway since January
1994, was delayed in 1995 pending receipt of the state and county operating
permits. Management now expects to finalize the EIS by fall 1996. Mining
activities from Anchor Hill can be conducted for approximately two years
prior to any disturbance of public lands. Completion of the EIS is expected
to cost approximately $165,000.
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The Company has begun mining and processing activities at Anchor Hill.
The Company has hired a mining contractor to conduct all mining and earthwork
activities and is utilizing its existing heap leach production facilities to
process ores. Initially, capital costs have been limited to the enlargement
of the present heap leach pad, offloading previously leached and neutralized
spent ore and purchasing certain equipment.
The South Dakota Department of Environment and Natural Resources
("DENR") has conducted a Preliminary Assessment on behalf of the United
States Environmental Protection Agency ("EPA") of Gilt Edge Mine activities
including the approximately 406 acres permitted under the Company's South
Dakota state mining permit. At this time, EPA has not made a determination
as to whether any further study needs to be made of the site. Accordingly,
the Company is not able to determine what impact, if any, further action by
DENR or EPA in connection with the Preliminary Assessment may have on the
site. The Company does not know when the EPA may reach a decision on the
Preliminary Assessment.
In April 1993, the DENR issued the DENR Order regarding remediation
efforts related to acid rock drainage at Gilt Edge Mine. The DENR Order
remains in effect and the Company is in full compliance. The DENR Order
principally requires that, unless discharge water meets certain permitted
terms and conditions, there shall be no discharge of acid mine drainage. On
January 19, 1996, the Company received final approval of an updated and
amended reclamation plan from the State of South Dakota. Under the
conditions of the revised reclamation plan, the Company plans to reclaim
waste depositories and other areas by capping these areas with impervious
materials available from the overburden associated with the Anchor Hill oxide
deposit. Such capping will prevent any continued migration of acid mine
drainage. The Company has estimated that its future capping costs will
approximate $3.2 million, which costs were fully accrued at December 31,
1995. Funding of this obligation will be made from operating cash flow
derived from processing the Anchor Hill oxide deposit.
The Company has provided the State of South Dakota with a form of
financial assurance in the amount of $7.9 million in connection with the
reclamation and remediation plan in the form of cash deposits of $2.4 million
and a demand note as proof of financial assurance in the amount of $5.5
million. The Company expects its actual costs of completing the reclamation
and remediation plan to be substantially less than the financial assurance
amount.
At a future date when the Company provides notice to the State of South
Dakota that the Gilt Edge Mine will close and that post closure care is to
begin, the Company will be obligated to convert a portion of its financial
assurance into a post-closure fund in a form acceptable to the State to
ensure long term treatment and maintenance of the site. The amount of the
post-closure financial assurance is not expected to be less than $3.0 million
although no final determination will be made until the mine actually closes.
As of March 31, 1996, the investment in property, plant and equipment at
Gilt Edge Mine approximated $7.0 million of which $1.7 million is attributed
to the sulfide development potential of the property which is not currently
subject to amortization. Based upon a $400 per ounce gold price, an
independent engineering study and past operating experiences, the Company
believes that mining and processing the Anchor Hill oxide deposit and the
substantial sulfide deposit will generate sufficient operating margins to
ensure the recovery of the Company's remaining investment in Gilt Edge Mine.
STIBNITE MINE
Operations at Stibnite Mine were suspended in 1993 and 1994 pending
resolution of various permitting matters. The Company obtained the necessary
permits to resume mining operations in July 1995 and to conduct mining
activities through 1996. Operations subsequent to 1996 are subject to the
completion of an EIS which is expected to be completed in the fall of 1996.
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The Company has identified sufficient mineralized oxide materials at
Stibnite Mine to conduct operations at or above historic annual production
rates of approximately 40,000 ounces of gold during 1996 and has drill
indicated mineralized material which management believes will allow for
several additional years of operations. The drill indicated areas will
require further development drilling at a cost of approximately $300,000 per
year. Drilling activities, including reverse circulation drilling to further
delineate the Cinnamid prospect, will be financed from the proceeds of the
sale of Special Warrants and from mine generated cash flows.
As in the past, the Company has hired an outside contractor to conduct
all 1996 mining activities. Stibnite Mine was in production from 1986 to
1992; as such all production facilities necessary to conduct operations are
in place and only minimal refurbishment and maintenance is required to
continue operations.
In response to a Preliminary Assessment/Site Investigation ("PA/SI")
conducted by United States Forest Service in 1993 relating to an historic
smelter tailings repository at Stibnite Mine (which existed prior to the
Company's activities), the Company has engaged an independent environmental
services organization to assist it in preparing a voluntary preventative
action plan to reclaim the tailings. The Company has concluded that
continued mining activities represent the most economic manner to stabilize
and ultimately reclaim these historic tailings.
On July 10, 1995, the Company entered into a voluntary Administrative
Order of Consent with EPA regarding the tailings area (the "Meadow Creek
Plan"). Approximately 50% of the work under the Meadow Creek Plan was
completed in 1995. Management estimates that approximately $833,000 of costs
will be incurred in 1996 in order to complete the Meadow Creek Plan. Such
costs will be funded from operating cash flows. The Company has apprised
previous owners and operators of the property of the Meadow Creek Plan and
believes that a substantial portion of such reclamation costs may be
recoverable from these parties.
The Company's investment in mining assets at Stibnite Mine as of March
31, 1996 is approximately $7.2 million of which approximately $1.9 million
has been attributed to the sulfide ore potential of the property and is not
currently subject to amortization. Future depreciation will approximate $44
per ounce. Based upon a $400 per ounce gold price and its past operating
experience, the Company believes Stibnite Mine's future operating margins
should ensure the recovery of its remaining investment in mining assets.
GOLDEN REWARD MINE
Golden Reward Mine, in which the Company has a 40% interest, with the
remaining 60% interest being owned by two subsidiaries of Wharf Resources
Ltd. ("Wharf"), has sufficient permitted reserves to continue its operations
through October 1996. The Company's share of estimated production in 1996 is
expected to be approximately 20,000 ounces of gold at an average cash cost of
$262 per ounce.
In order to access additional reserves and mineralized materials, Golden
Reward Mine will be required to relocate its existing crusher facility and
reduce by approximately 25% its leach pad capacity or to acquire or otherwise
compensate third parties to acquire or remove their facilities.
13
<PAGE>
On December 18, 1995 Wharf announced a write-down of its investment in
the Golden Reward Mine due in part to "...increased uncertainties arising
from the proximity of Golden Reward's unpermitted reserves to a ski hill..."
Discussions have been ongoing for some time and have continued after the
announcement by Wharf regarding the possible acquisition of the interests in
the ski hill not currently owned by Golden Reward L.P. Based upon these
discussions, the Company believes that a transaction to acquire the remaining
ski hill interests can be completed on economic terms. However, terms of any
such transaction have not yet been agreed to with such owners, or between the
Company and Wharf. See Note 5 of Notes to Consolidated Financial Statements.
The Golden Reward L.P. is actively pursuing the removal of encumbrances,
including the aforementioned acquisition of the remaining interests in the
ski hill, and permitting of its proven and probable reserves, and the
exploration and development of other mineable resources. The Company
believes that Golden Reward L.P. will ultimately be successful in removing
these encumbrances, obtaining permits to mine such reserves, and developing
other mineable resources. Based upon gold prices of approximately $400 per
ounce and past operating experience, the Company also believes that the
Golden Reward Mine's future operating margins will be sufficient to recover
Dakota's remaining investment in Golden Reward Mine of approximately $9.4
million at March 31, 1996. However, there are significant uncertainties
which could affect the recoverability of the Company's investment in Golden
Reward Mine, the outcome of which is not presently determinable. No
adjustments for the effect of these uncertainties has been made to the
Company's investment in mining assets at Golden Reward Mine. No assurance
can be given that the Golden Reward L.P. will be successful in removing the
encumbrances affecting the aforementioned resources. In such circumstances,
mining operations could cease at the end of 1996 and the Company would be
required to reduce the carrying value in Golden Reward Mine by approximately
$6.6 million.
The Company estimates that its share of future costs related to removing
the encumbrances could be in excess of $2 million, which costs may be paid
out of the proceeds from the sale of the Special Warrants or from future
operating cash flows if mining activities are permitted, extending the
present mine life. Golden Reward L.P. will also be required to obtain new
operating permits in order to mine certain of these encumbered reserves. The
Company estimates that it will take between 9 and 15 months from commencement
of the application process to obtain said permits. The Company's share of
capital expenditures for development drilling of approximately $400,000
annually together with its share of project debt repayment obligations are
expected to be paid from project cash flows.
OTHER ENVIRONMENTAL MATTERS
In connection with its mining and milling activities, the Company is
required to comply with various federal, state and local laws and regulations
pertaining to the discharge of materials into the environment or otherwise
relating to the protection of the environment. The Company believes that it
has obtained, or is taking the steps necessary to obtain, such environmental
permits, licenses or approvals required for its operations. Management is not
aware of any material violations of environmental permits, licenses or
approvals issued with respect to the Company's operations other than the DENR
Order issued to the Company in respect of the Gilt Edge Mine by the South
Dakota DENR regarding acid rock drainage emanating from the waste depository.
See "Liquidity and Capital Resources" above.
14
<PAGE>
Environmental laws and regulations may be enacted and adopted in the
future which may have an impact upon the Company's operations. The Company
cannot now accurately predict or estimate the impact of any such future laws
or regulations on its operations.
RESULTS OF OPERATIONS - FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995
GENERAL
Effective September 15, 1993, the Company completed a financial
reorganization pursuant to a plan of arrangement under the CANADA BUSINESS
CORPORATIONS ACT (the "Arrangement"). See Note 6 of Notes to Consolidated
Financial Statements. Under Canadian generally accepted accounting
principles ("GAAP"), the Arrangement was accounted for as a financial
reorganization utilizing "fresh start" accounting. Accordingly, results of
operations and cash flow activities prior to September 15, 1993, the
effective date of the Arrangement, have not been included in the consolidated
statements of operations and cash flows; rather the consolidated financial
statements are limited to the post-Arrangement period commencing September
16, 1993.
The Arrangement would be accounted for as a quasi-reorganization under
U. S. GAAP and the pre-Arrangement results of operations and cash flow
activities would have been combined with the post-Arrangement financial
reorganization activities.
REVENUES AND DIRECT OPERATING COSTS
The Company recorded a consolidated net loss of $945,433, or $0.04 per
share, for the first quarter of 1996. This compares to a consolidated net
loss of $1,224,208, or $0.06 per share, during the first quarter of 1995.
Shown below is the Company's share of metals sales (in ounces) for each
respective quarter:
METAL SALES
THREE MONTHS ENDED (1)
MARCH 31,
----------------------
1996 1995
---- ----
Ounces of gold sold:
Cactus Mine (25%) 84 376
Gilt Edge Mine 2,120 -
Golden Reward Mine (40%) 3,569 4,844
Stibnite Mine 2,234 -
----- ------
8,007 5,220
----- ------
----- ------
(1) Precious metals production for each of the joint venture operations
includes the Company's pro rata share.
15
<PAGE>
Operating results for the first quarters of the last two years are summarized
in the following table:
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
---- ----
Operating revenue $3,196,715 $2,642,694
---------- ----------
---------- ----------
Average net price per ounce of gold realized $399 $377
---- ----
---- ----
Average London PM fix per ounce of gold $396 $379
---- ----
---- ----
Mine, Mill and Administration(1)
QUARTER ENDED
MARCH 31,
---------------------
1996 1995
---- ----
Gilt Edge Mine $ 598,037 $ 675,249
Golden Reward Mine 1,241,192 1,210,147
Stibnite Mine 782,786 142,745
Cactus Mine 23,963 112,464
---------- ----------
Subtotal 2,645,978 2,140,605
Reclassified to holding and standby - (675,249)
---------- ----------
Total mine, mill and administration $2,645,978 $1,465,356
---------- ----------
---------- ----------
Average cash cost per ounce of gold sold(2) $330 $281
---- ----
---- ----
(1) Cash costs include mining, milling, project administration, on-property
exploration, and all holding and standby costs.
Overall, gold production and related operating revenues increased
principally due to the recommencement of operations at Stibnite Mine in
August 1995 after the successful completion of various permit matters.
Leaching certain stockpiled ores at Gilt Edge Mine also contributed to higher
production and operating revenues than reported during the first quarter of
1995. This increase was partially offset by a decrease in production at
Golden Reward Mine due to inclement weather during January and February.
Mine, mill and administrative costs increased 81% to $2,645,978 in the
first quarter of 1996 when compared to the same period of 1995 after
reclassification of all expenses at Gilt Edge Mine to holding and standby
costs. Actual costs at Gilt Edge Mine remained relatively flat with the
processing of stockpiled sulfide ores as noted above. Costs at Stibnite Mine
increased $640,000, or 448%, during the first quarter of 1996 as a result of
the recommencement of operating activities. Costs at Golden Reward were
relatively unchanged, however, sales were lower in the first quarter of 1996,
causing the average cash cost per ounce of gold sold to increase. Costs at
Cactus Mine are lower in the first quarter of 1996 than in the same period of
1995 and relate to wind-up and reclamation activities. Such costs will
continue to decline in the future as final reclamation activities continue.
The increase in depreciation, depletion and amortization in 1996 when
compared to 1995 is due to an increase in the depletion rate at Golden Reward
Mine resulting from a reduction in
16
<PAGE>
estimated recoverable reserves at December 31, 1995. Increases in depletion
at Gilt Edge Mine and Stibnite Mine are attributable to units of production
amortization as each mine sold ounces during the first quarter of 1996, while
there were no sales for these mines during the first quarter of 1995.
Royalties vary from mine-to-mine and within the specific area being
mined in accordance with various agreements with landowners. Effective in
1995, the State of South Dakota adjusted its methods for calculating
severance taxes, the result of which was to significantly lower the effective
rate. Overall, royalties and severance taxes generally relate directly to
revenues earned. Therefore higher revenues in the first quarter of 1996
resulted in higher royalty and severance taxes than during the same period of
1995.
Reclamation costs in the first quarter of 1996 pertain principally to
Golden Reward and increased by $34,820 to $108,148.
General corporate costs increased in 1996 when compared to 1995 due to
additions in staff, legal expenses, travel activities, and in the use of
outside professional services. These increases are due, in part, to overall
increases in corporate activity in the first quarter of 1996 compared to the
same period of 1995.
Investment income is higher in the first quarter of 1996 due principally
to interest earned on higher cash balances available for investment purposes.
Interest expense is slightly higher in 1996 due to higher vendor
interest because of larger outstanding payable balances during the first
month of the quarter.
The Company does not anticipate that its U.S. operations will be subject
to alternative minimum tax during 1996.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULT UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
17
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.18 Revolving Loan Agreement with Gerald Metals dated
April 12, 1996
Exhibit 10.19 Secured Loan Note with D.H. Blattner & Sons dated
April 12, 1996
Exhibit 10.20 Subordination Agreement between Gerald Metals Inc. and
D.H. Blattner & Sons dated April 12, 1996
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) The Company did not file a current report on Form 8-K during the
quarter ended March, 1996
18
<PAGE>
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
DAKOTA MINING CORPORATION
c/s Alan R. Bell Date May 10, 1996
- - -------------------------------------
Alan R. Bell
President and Chief Executive Officer
c/s Robert R. Gilmore Date May 10, 1996
- - -------------------------------------
Robert R. Gilmore
Vice President Finance
and Chief Financial Officer
19
<PAGE>
EXHIBIT 10.18
REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT (as the same may be amended from time to
time, "this Agreement") is made as of the 12th day of April, 1996, among GERALD
METALS, INC., a Delaware corporation with its principal place of business at
High Ridge Park, P.O. Box 10134, Stamford, Connecticut 06904 ("Lender"), and
DAKOTA MINING CORPORATION, a federal corporation organized under the Canada
Business Corporation Act ("Dakota"), BROHM MINING CORP., a South Dakota
corporation ("Brohm"), STIBNITE MINE INC., a Delaware corporation ("Stibnite"),
and BARRIER REEF INC., a Delaware corporation ("Barrier" and, jointly and
severally with Dakota, Brohm and Stibnite, "Borrower"), all with principal
offices at 410 Seventeenth Street, Suite 2450, Denver, Colorado 80202.
W I T N E S S E T H T H A T:
Borrower has requested that Lender provide Borrower with a secured
revolving credit loan in an aggregate principal amount not to exceed Four
Million Dollars ($4,000,000) at any time outstanding, (the "Loan(s)") and Lender
has agreed to extend such Loan upon the terms and subject to the conditions
hereinafter set forth. Capitalized terms used herein are defined in Section 1
of this Agreement. To effectuate this arrangement, Lender and Borrower agree as
follows:
1. DEFINITIONS. For the purposes of this Agreement:
"AFFILIATE" shall mean any Person which
directly or indirectly controls, is controlled by,
or is under common control with, Borrower or any
Subsidiary. For purposes of this Agreement,
"control" shall mean the possession, directly or
indirectly, of the power to (i) vote twenty percent
(20%) or more of the securities having ordinary
voting power for the election of directors of such
Person or (ii) direct or cause the direction of
management and policies of such Person, whether
through the ownership of voting securities, by
contract or otherwise and either alone or in
conjunction with others or any group.
"BORROWER" shall have the meaning given to such
term in the preamble.
"BUSINESS DAY" shall mean any day of the year
other than a day on which banking institutions in
the States of New York or Colorado are authorized by
law to close.
"CODE" shall mean the Internal Revenue Code of
1986, as amended.
"COLLATERAL" shall mean any and all assets,
rights and interests in or to property of Borrower
pledged or mortgaged to Lender, or in which a
security interest is granted to Lender, from time to
time, as security pursuant to the Security
Documents, whether now owned or hereafter acquired.
<PAGE>
"COMMITMENT" shall have the meaning given to
such term in Section 2(a) of this Agreement.
"CONTROLLED PREMISES" shall have the meaning
given to such term in Section 8(k)(iii) of this
Agreement.
"DATE OF ACCELERATION" shall have the meaning
given to such term in Section 12 of this Agreement.
"DEFAULT" shall mean an event, condition or
default which with the giving of notice, the passage
of time, or both, would be an Event of Default.
"DOLLAR(S)" and the sign "$" shall mean lawful
money of the United States of America.
"ELIGIBLE ACCOUNTS RECEIVABLE" shall mean the
aggregate face amount (less the aggregate amount of
all returns, discounts, claims, credits, charges and
allowances of any nature and all reserves for slow
paying accounts or foreign sales) of such of
Borrower's trade accounts receivable for inventory
of Borrower sold in the ordinary course of its
business, on terms usual to the business of
Borrower, which satisfy at all times each of the
following requirements:
(i) the subject inventory has been
shipped or delivered to (and accepted by) an
account debtor on an absolute final sale basis
and not on consignment, on approval or on a
sale-or-return basis or subject to any other
repurchase or return agreement, or on an open
account basis, or on a "bill and hold" or a
delayed billing basis, and no part of the
subject inventory has been returned, rejected,
lost or damaged; the account is not evidenced
by chattel paper or an instrument of any kind
unless such chattel paper or instrument has
been delivered to Lender and endorsed or
assigned to Lender's order; and said account
debtor is not insolvent or the subject of any
bankruptcy or insolvency proceeding of any
kind;
(ii) if the account debtor is located
outside of the United States, either:
(a) the subject inventory shall have
been shipped after receipt by Borrower
from the account debtor of an irrevocable
letter of credit, which letter of credit
shall have been confirmed by a domestic
financial institution reasonably
acceptable to Lender and shall be in form
and substance acceptable to Lender payable
in the full amount of the face value of
the account receivable in United States
dollars; or
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<PAGE>
(b) the account receivable in
question is insured by credit insurance
satisfactory to Lender and the account
receivable is otherwise acceptable to
Lender;
(iii) it is a valid, legally enforceable
obligation of the account debtor thereunder and
is not subject to any offset (other than
discount for prompt payment), dispute, claim of
reduction, counterclaim, credit, allowance,
reserve or other defense of any nature on the
part of such account debtor or to any claim on
the part of such account debtor denying
liability thereunder;
(iv) it is subject to no Lien whatsoever,
except for Permitted Liens and the security
interest of Lender under the Security
Documents;
(v) it has not remained unpaid for a
period exceeding sixty (60) days from the date
of invoice;
(vi) it does not arise out of a
transaction with an Affiliate; and
(vii) it is not otherwise determined by
Lender in the reasonable application of its
sole discretion to be difficult to collect or
uncollectible.
"ENVIRONMENTAL REQUIREMENT(S)" shall mean any
present or future law, statute, ordinance, rule,
regulation, order, code, license, permit, decree,
judgment or directive of or by any Governmental
Authority and relating to or addressing the
protection of human health or the environment,
including, without limitation, all laws relating to
emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation,
air, surface water, ground water or land), or
otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous
substances or wastes.
"EVENT OF DEFAULT" shall have the meaning given
to such term in Section 12 of this Agreement.
"FAIR MARKET VALUE" on any day shall mean the
Second London Gold Fixing for that day (if such
Fixing does not occur on such day, the Fixing for
the immediately preceding day for which it is
available).
"GOVERNMENTAL AUTHORITY" shall mean the federal
government of the United States of America or Canada
and the government of any province, state, county,
municipality or other political subdivision thereof
or any governmental body, agency, authority,
department or commission (including, without
limitation, any taxing authority) or any
instrumentality or officer thereof (including, without
-3-
<PAGE>
limitation, any court or tribunal)
exercising executive, legislative, judicial,
regulatory or administrative functions of or
pertaining to government and any corporation,
partnership or other entity directly or indirectly
owned by or controlled by the foregoing.
"GUARANTOR" shall mean MinVen Gold (USA)
Corporation, a Delaware corporation.
"GUARANTY" shall mean that certain guaranty of
even date herewith of Guarantor in favor of Lender,
as such guaranty may be supplemented or amended from
time to time.
"HAZARDOUS MATERIAL" shall mean any material or
substance (i) which, whether by its nature or use,
is now or hereafter defined as a hazardous waste,
hazardous substance, hazardous material, pollutant
or contaminant under any Environmental Requirement,
including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), 42 U.S.C. Section 9601(14)
and (33), the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. Section 6903(5), and the laws of
the States of Idaho or South Dakota, (ii) which is
toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise
hazardous to human health or the environment, (iii)
which is or contains petroleum or any fraction
thereof, including crude oil, heating oil, gasoline
or diesel fuel, or (iv) the presence of which
requires investigation or remediation under any
Environmental Requirement.
"INTEREST" shall have the meaning given to such
term in Section 3(a) of this Agreement.
"LEASES" shall have the meaning given to such
term in Section 10(i) of this Agreement.
"LENDER" shall have the meaning given to such
term in the preamble of this Agreement.
"LIENS" shall mean any lien, claim, charge,
pledge, security interest, mortgage, deed of trust
or other encumbrance.
"LIBOR" shall mean the overnight London
Interbank Offered Rate quoted by Telerate, as of
11:00 a.m. British Standard Time, or as otherwise
mutually agreed.
"LOAN DOCUMENTS" shall mean this Agreement, the
Note, the Security Documents and all other documents
or instruments executed and delivered by or on
behalf of Borrower in connection with the Loans and
the transactions
-4-
<PAGE>
contemplated hereby, as the same
may hereafter be amended, supplemented, restated or
otherwise modified from time to time.
"LOAN(S)" shall have the meaning given to such
term in the preamble of this Agreement.
"LOAN BALANCE" at any particular time shall
mean the aggregate principal amount of Loans then
outstanding under this Agreement from time to time.
"MARKET VALUE" on any day shall mean the Second
London Gold Fixing for that day (if such Fixing does
not occur on such day, the Fixing for the
immediately preceding day for which it is
available).
"MATURITY DATE" shall mean April 11, 1997.
"NOTE" shall mean the secured revolving loan
note provided for in Section 4 of this Agreement.
"NOTICE" or "NOTICES" shall mean all requests,
demands and other communications, in writing
(including telegraphic and facsimile transmissions),
sent by overnight delivery service, telegraph,
facsimile transmission or hand-delivery to the other
party at that party's Principal Office.
"PERMITTED LIENS" shall mean certain existing
liens identified on EXHIBIT C hereto.
"PERSON" shall mean any individual,
corporation, partnership, joint venture, limited
liability company, trust or unincorporated
organization, or any Governmental Authority.
"PREMISES" shall mean the Stibnite property in
Valley County, Idaho and the Gilt Edge property
(including, without limitation, the Anchor Hill
Mine) in Lawrence County, South Dakota
"PRIME RATE" shall mean the rate of interest
from time to time established by The Chase Manhattan
Bank, N.A., at its principal office in New York, New
York, as its prime rate for U.S. domestic commercial
loans; any change in the Prime Rate to be effective
as of the opening of business on the day on which
such change becomes effective; it being understood
and agreed that the Prime Rate is a reference rate
only and does not necessarily represent the lowest
or best rate actually charged to any customers of
such banking institution.
"PRINCIPAL OFFICE" shall mean:
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<PAGE>
For Lender:
Gerald Metals, Inc.
High Ridge Park
P.O. Box 10134
Stamford, Connecticut 06904
Attention: Susan Scoggins, cc: Treasurer
FAX No.: (203) 329-4844
For Borrower:
Dakota Mining Corporation, Brohm Mining Corp.,
Stibnite Mine Inc. and Barrier Reef Inc.
c/o Dakota Mining Corporation
410 Seventeen Street, Suite 2450
Denver, Colorado 80202
Attention: Robert R. Gilmore
FAX No.: (303) 573-1012
"SECURITY AGREEMENT(S)" shall mean those
certain Security Agreements of even date herewith
made by Dakota, Brohm, Stibnite and Barrier in favor
of Lender, as the same may be amended, supplemented,
restated or otherwise modified from time to time.
"SECURITY DOCUMENTS" shall have the meaning
given to such term in Section 7 of this Agreement.
"SUBSIDIARY" shall mean (i) any corporation in
an unbroken chain of corporations beginning with
Borrower if all of the corporations (other than the
last corporation in the unbroken chain) in the
aggregate then own stock possessing fifty percent
(50%) or more of the total combined voting power of
all classes of stock in one of the other
corporations in such chain, (ii) any partnership or
nominee realty trust in which Borrower (or any
Subsidiary) is a general partner, or (iii) any
partnership in which Borrower (or any Subsidiary)
possesses a fifty percent (50%) or greater interest
in the total capital or total income of such
partnership.
2. LOANS. (a) Subject to all of the terms and conditions contained in
this Agreement and provided no Default or Event of Default has occurred,
Lender agrees to make loans to Borrower from time to time until the Maturity
Date or the Date of Acceleration, whichever first occurs, in an aggregate
amount not to exceed the Commitment (as hereinafter defined). For purposes
hereof, the Commitment shall be equal to the lesser of:
(i) Four Million Dollars ($4,000,000); or
-6-
<PAGE>
(ii) Ninety percent (90%) of the sum of (A)
Eligible Accounts Receivable, (B) the Fair Market
Value of the gold content of ore of Borrower
stockpiled or on the pad and all other gold
inventory of Borrower whether in process or in
finished form at locations as to which Uniform
Commercial Code financing statements executed by
Borrower in favor of Lender have been filed and
recorded (in such manner and form as Lender may
require from time to time) in respect of the
Collateral and (C) all other current assets approved
in writing by Lender from time to time.
Subject to all of the terms and conditions contained in this Agreement,
Borrower may borrow, repay and reborrow under the provisions of this Section.
Each Loan shall be in a minimum amount of $250,000 and each repayment of
Dollars shall be in an amount of $250,000 or more and as otherwise provided
in Section 5 hereof.
(b) The entire Loan Balance (PLUS all outstanding interest and all
other obligations of Borrower under this Agreement, the Note and the Security
Documents) shall be paid in full on the Maturity Date.
(c) Loans will be made by Lender within one (1) Business Day after
Lender's receipt of a written request for a Loan in the form of EXHIBIT B
hereto, signed by a duly authorized officer of Borrower indicating the date
and amount of the Loan requested and acknowledging the principal balance
outstanding on the Loans, as of the said date after taking into consideration
the amount of the Loan as so requested. Such written request for a Loan may
be delivered by any reasonable means, including facsimile transmission.
(d) On the date of execution and delivery of this Agreement,
Borrower will (i) pay Lender an arrangement fee in the amount of $100,000 and
(ii) grant Lender a gold call option for five thousand (5,000) troy ounces of
gold at Four Hundred Ten Dollars ($410) per troy ounce expiring October 29,
1996 for value October 31, 1996.
3. INTEREST PAYMENTS. (a) The outstanding principal balance of Loans
shall bear interest, from the date a Loan is made until payment in full, at
LIBOR PLUS two and three quarters percent (2 3/4%) per annum ("Interest").
Interest payments by Borrower to Lender shall be made monthly on the first
Business Day immediately following the month for which such Interest is
calculated and with a final payment on the date of completion of the
repayment of the Loans hereunder. Interest shall be calculated on the basis
of the actual number of days elapsed over a year of three hundred sixty (360)
days.
(b) Payments and any prepayments (including premiums thereon) of
the principal amount of the Loans, Interest and other payments hereunder may
be made in Dollars. Payment shall be made in immediately available funds at
the principal office of The Chase Manhattan Bank, N.A., New York, New York
for the account of Lender (Account No. 910-120-1995, ABA No. 021000021),
initiated by bank wire transfer not later than 12:00 noon New York time on
the date on which such payment shall become due (each such payment initiated
after such time on such
-7-
<PAGE>
due date to be deemed to have been made on the next succeeding Business Day)
or such other account at the same or such other bank as Lender shall direct.
(c) Borrower shall pay interest with respect to all amounts not
paid when due under this Agreement or the Note at a rate equal to four
percent (4%) greater than the Prime Rate, computed from the date due and
calculated on the basis of the actual number of days elapsed over a year of
three hundred sixty (360) days.
(d) The payment obligations of Borrower under this Agreement are
absolute and unconditional and shall not be affected by reason of, but not
limited to, FORCE MAJEURE.
(e) Notwithstanding anything herein contained, if any law,
regulation, treaty or official directive, or any change therein or in the
interpretation or application thereof by any Governmental Authority, shall
make it unlawful for Lender to give effect to any of its obligations as
contemplated hereby, Lender, by Notice to Borrower, may declare that Lender
shall be released from such obligations (but without in any way releasing
Borrower from any of its obligations hereunder). To the extent that such
requirement or illegality obligates Lender to require repayment of the Loan,
Borrower will repay the Loans at such time or times, and in such manner, as
necessary to satisfy such requirement or illegality and as designated by
Lender by Notice to Borrower together with any accrued Interest and other
amounts payable by Borrower to Lender under this Agreement and the Note.
(f) Borrower hereby agrees to indemnify and save Lender harmless
from and against any liability (either directly or by way of deduction,
withholding or otherwise) for any present or future tax, duty, levy, impost,
fee or charge in respect of, or arising out of, the execution and delivery of
or performance under this Agreement, or the making of the Loans hereunder or
the consummation of any of the transactions contemplated by this Agreement,
other than taxes which are assessed on a net income basis and remitted by
Lender to the United States of America and any political subdivision or
taxing authority thereof or therein in respect of, or arising out of, the
making of the Loans hereunder and the entering into of the transactions
described above. In particular, without limitation, if Borrower should be
required or compelled to make any deduction or withholding of any tax or
other amount as aforesaid from any Interest or other payments or deliveries
payable to Lender hereunder, Borrower will promptly and without any
requirement of notice by Lender, pay to Lender a sum which, after deduction
of all applicable taxes thereon, shall result in Lender's receiving one
hundred percent (100%) of the amounts of interest or other payment which
would have been received by Lender if such deduction or withholding were not
required. Borrower shall also deliver to Lender within thirty (30) days
after Borrower has made any payment from which it is required by law to make
any such withholding or deduction a receipt issued by the applicable taxing
or other authorities evidencing the deduction or withholding of all amounts
required to be deducted or withheld from such payment. Upon receipt by
Lender of (i) such tax receipts and other related information and documents
and (ii) the benefit of any reduction in federal or any other income tax
liability as determined by Lender, in its reasonable discretion, resulting
from the crediting or deducting of such withholding taxes in the computation
of such tax, Lender will forthwith reimburse Borrower an amount so that
Lender shall be in the same position it would have been if such withholding
taxes had not been
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<PAGE>
imposed. It is agreed that such determination may be revised and Borrower
will make an appropriate adjustment with Lender after any disallowance of
such credit or deduction upon audit. The obligations of Borrower and Lender,
and their respective obligations to pay any sums which may become payable,
under this Section 3(f) will survive the expiration or other termination of
this Agreement.
4. NOTE. The Loans shall be evidenced by the Secured Revolving Loan
Note of Borrower in favor of Lender of even date herewith in the principal
amount of up to $4,000,000, as the same may be amended, modified or restated
from time to time, which shall be substantially in the form attached hereto
as EXHIBIT A, which promissory note is hereby incorporated herein by
reference and made a part hereof (the "Note").
5. PREPAYMENT. (a) If at any time the Loan Balance shall exceed the
Commitment, then Borrower shall immediately prepay the Loans in an amount
equal to such excess.
(b) Subject to the provisions hereof, Borrower may prepay the
Loans in whole or in part upon not less than seven (7) days' prior written
notice to Lender. Such notice shall specify the prepayment date and the
amount of the prepayment (which shall be at least $250,000) and shall be
irrevocable. Interest on the amount prepaid, accrued to the prepayment date,
shall be paid on the prepayment date.
(c) Prepayments shall be applied first to all outstanding
Interest, and then to outstanding principal.
6. APPLICATION OF PROCEEDS. The proceeds of the Loans shall be used
solely for development of the Premises and general corporate purposes related
thereto. None of such proceeds shall be used to purchase or carry margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock.
7. SECURITY. Payment and performance of all indebtedness, liabilities
and obligations of Borrower to Lender and any other indebtedness and
liabilities of Borrower to Lender, whether under the Note or otherwise, shall
be secured by:
(a) a first priority security interest in the
Collateral pursuant to the terms of the Security Agreements;
(b) the Guaranty;
(c) a pledge agreement of Guarantor in favor
of Lender covering all shares of Brohm, Stibnite and
Barrier;
(d) a mortgage executed by Stibnite and
Barrier granting thereby a first priority mortgage
lien on the real estate and all improvements thereon
located at the Stibnite Mine;
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<PAGE>
(e) a mortgage executed by Brohm granting
thereby a first priority mortgage lien on the real
estate and all improvements thereon known as the
Gilt Edge property of Brohm (including, without
limitation, the Archor Hill Mine);
(f) such other security documents as may be
required by Lender and necessary to attach or
perfect a Lien in the items covered by Subsections
(a) through (e) above.
All agreements and instruments described in this Section 7, together
with any and all other agreements and instruments now or hereafter securing
the Note, are sometimes hereinafter referred to collectively as the "Security
Documents" and individually as a "Security Document".
8. REPRESENTATIONS AND WARRANTIES. To induce Lender to enter into this
Agreement and to make the Loans, Borrower hereby represents and warrants to
Lender (which representations and warranties shall survive the delivery of
the Note and the making of the Loans) that:
(a) Borrower (i) is duly organized, validly
existing and in good standing under the laws of the
state or country of its incorporation, (ii) has full
power and authority to own its properties and to
carry on business as now being conducted and is
qualified to do business in every jurisdiction in
which the nature of its assets and the business
carried on make such qualification necessary or
advisable and (iii) has full power to execute,
deliver and perform its obligations, respectively,
under this Agreement and the Note;
(b) The execution and delivery and performance
by Borrower of its obligations under this Agreement
and the Note have been duly authorized by all
requisite action and will not violate any provision
of law, any order of any court or other agency of
government, the corporate charter or by-laws of
Borrower or any indenture, agreement or other
instrument to which it is a party, or by which it is
bound, or be in conflict with, result in a breach
of, or constitute (with due notice or lapse of time
or both) a default under, or except as may be
provided by this Agreement, result in the creation
or imposition of any Lien of any nature whatsoever
upon any of the property or assets of Borrower
pursuant to, any such indenture, agreement or
instrument;
(c) Borrower is not required to obtain any
consent, approval or authorization from, or to file
any declaration or statement with, any governmental
instrumentality or other agency in connection with
or as a condition to the execution, delivery or
performance of this Agreement or the Note;
(d) There is no action, suit or proceeding at
law or in equity or by or before any governmental
instrumentality or other agency now pending or, to
the knowledge of Borrower, threatened against or
affecting Borrower;
-10-
<PAGE>
(e) Borrower has good title to all of its
properties and assets, free and clear of all Liens
of any kind (except (i) Permitted Liens and (ii)
restrictions, easements and minor irregularities in
title which do not and will not interfere with the
occupation, use and enjoyment by Borrower of such
properties and assets in the normal course of its
business as presently conducted or materially impair
the value of such properties and assets for the
purpose of such business);
(f) Any borrowings made by Borrower under this
Agreement do not and will not render Borrower
insolvent; Borrower is not contemplating either the
filing of a petition by it under any state or
federal bankruptcy or insolvency laws or the
liquidating of all or a major portion of its
property, and Borrower has no knowledge of any
person contemplating the filing of any such petition
against it;
(g) No statement of fact made by or on behalf
of Borrower in this Agreement or in any certificate
or schedule furnished to Lender pursuant hereto,
contains any untrue statement of a material fact or
omits to state any material fact necessary to make
statements contained therein or herein not
misleading. There is no fact presently known to
Borrower which has not been disclosed to Lender
which materially affects adversely, nor as far as
Borrower can foresee, will materially affect
adversely the property, business, operations or
condition (financial or otherwise) of Borrower;
(h) Borrower has filed all federal, state and
local tax returns required to be filed and has paid
or made adequate provision for the payment of all
federal, state and local taxes, charges and
assessments;
(i) All work performed and other actions or
omissions to act at the mines and other properties
owned and/or operated by Borrower, and the current
condition of such mines, comply in all material
respects with all applicable laws (including,
without limitation, all federal mining safety and
health acts and all local, state, provincial and
federal environmental laws), ordinances, rules and
regulations of any governmental agency and with all
directions, rules and regulations of officers of
every governmental agency having jurisdiction over
such mines and other properties and there are no
existing material violations of any such applicable
laws, ordinances, directions, rules or regulations;
(j) There are no threatened proceedings or any
situation which (to Borrower's knowledge) would give
rise to proceedings against Borrower in respect of
air, water, surface or subsurface environmental
conditions resulting directly or indirectly from the
use, transportation, storage or discharge of
pollutants in, about or relating to assets or
business of Borrower which, if adversely determined,
would have a material adverse effect on the business
and operations of Borrower; and
(k) Borrower:
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<PAGE>
(i) has obtained all permits, licenses
and other authorizations which are required
under all Environmental Requirements;
(ii) is in compliance in all material
respects with all terms and conditions of the
required permits, licenses and authorizations,
and is also in compliance with all other
Environmental Requirements or requirements
contained in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved
thereunder;
(iii) has never caused or, to its
knowledge, permitted or suffered to exist any
Hazardous Material to be spilled, placed, held,
located or disposed of on, under or about the
Premises or released Hazardous Material into
the atmosphere, any body of water or any
wetlands in excess of maximum permitted
regulatory levels or about which a Governmental
Authority might require corrective action nor
are any now existing on, under or about the
Premises or any other premises owned or leased
by Borrower while such Controlled Premises were
owned or leased by Borrower (collectively the
"Controlled Premises");
(iv) has no knowledge that the Controlled
Premises have ever been used (whether by
Borrower or, to the best knowledge of Borrower,
by any other Person) as a treatment, storage or
disposal (whether permanent or temporary) site
for any Hazardous Material in excess of maximum
permitted regulatory levels or which is
otherwise not in compliance with applicable
Environmental Requirements;
(v) has not received any notice from any
Governmental Authority or any tenant, occupant
or operator of the Controlled Premises or from
any other Person with respect to the
environmental condition of the Controlled
Premises, the improvements thereon or any other
property which was previously included in the
property description of the Controlled Premises
or such other real property, or with respect to
the release of Hazardous Material at, upon,
under or within the Controlled Premises, the
improvements or such other real property, or
the past or ongoing migration of Hazardous
Material from neighboring lands or to the
Controlled Premises or improvements thereto;
and
(vi) has no knowledge of any underground
storage tanks, asbestos-containing materials,
PCBs, radon gas or urea formaldehyde foam
insulation at, upon, under or within the
Controlled Premises or improvements thereon.
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<PAGE>
9. CONDITIONS OF MAKING THE LOANS. The obligation of Lender to make the
Loans hereunder is subject to the satisfaction of the following conditions
precedent:
(a) The representations and warranties set
forth in Section 8 hereof and in all other Loan
Documents shall be true and correct on and as of the
date hereof and the date of each Loan.
(b) Borrower shall have executed and delivered
to Lender, or caused to be executed and delivered to
Lender, on or prior to the date of execution of this
Agreement, the following:
(i) The Note;
(ii) A certificate of the Secretary or
Assistant Secretary of Borrower certifying to
the votes of Borrower's Board of Directors
authorizing the execution and delivery of this
Agreement, the Note and the Loan Documents;
(iii) A certificate of the Secretary or
Assistant Secretary of Borrower which shall
certify the names of the officers of Borrower
authorized to sign this Agreement, the Note and
any other documents or certificates to be
delivered pursuant to this Agreement by
Borrower or any of its officers, together with
the true signatures of such officers. Lender
may conclusively rely on such certificate until
it shall receive a further certificate of the
Secretary or an Assistant Secretary of Borrower
canceling or amending the prior certificate and
submitting the signatures of the officers named
in such further certificate;
(iv) Certificates of the appropriate
Governmental Authority, dated reasonably near
the date of the Loan, of the jurisdiction of
incorporation or organization of Borrower and
of each jurisdiction in which Borrower is
qualified to do business stating that Borrower
is duly incorporated (or qualified) and in good
standing in such jurisdiction and has filed all
annual reports and has paid all franchise and
other taxes required to be filed or paid to the
date of such certificate;
(v) Each of the Security Documents,
together with any other documents required by
the terms thereof;
(vi) Pledge Agreements of even date
herewith of Guarantor in favor of Lender with
respect to all of the outstanding shares of
Brohm, Stibnite and Barrier;
(vii) A favorable written opinion of
counsel to the Borrower, dated the date hereof
in the form attached hereto as EXHIBIT D; and
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<PAGE>
(viii) Such other supporting documents,
agreements and certificates as Lender or its
counsel may reasonably request.
(c) All legal matters incident to the
transactions hereby contemplated shall be
satisfactory in all respects to counsel for Lender.
(d) No Default or Event of Default shall have
occurred.
10. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, from
the date hereof and until payment in full of the principal of, and interest
on, the Note and any other indebtedness of Borrower to Lender, whether now
existing or arising hereafter, Borrower will:
(a) Do or cause to be done all things
necessary to preserve, renew and keep in full force
and effect its corporate existence, rights,
licenses, permits and franchises and comply with all
laws and regulations applicable to it; at all times
maintain, preserve and protect all franchises and
trade names and preserve all the remainder of its
property used or useful in the conduct of its
business and keep the same in good working order and
condition, and from time to time, make, or cause to
be made, all needful and proper repairs, renewals,
replacements, betterments and improvements thereto,
as is consistent with Borrower's ordinary course of
business;
(b) Comply with all applicable laws, rules,
regulations, ordinances and orders whether now in
effect or hereafter enacted or promulgated by any
Governmental Authority having jurisdiction over the
properties of Borrower;
(c) Pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental
charges or levies imposed upon it or upon its
respective income and profits or upon any of its
property, real, personal or mixed, or upon any part
thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might
become a lien or charge upon such properties or any
part thereof;
(d) Give prompt written notice to Lender, as
soon as possible and in any event within ten (10)
days after Borrower has knowledge of any proceedings
instituted against it by or in any federal or state
court or before any commission or other regulatory
body, whether federal, state or local, which, if
adversely determined, would have an adverse effect
upon its business, operations, properties, assets,
or condition, financial or otherwise;
(e) Permit agents or representatives of
Lender, at any reasonable time during normal
business hours and from time to time and, at
Borrower's expense, at all such times as a Default
or Event of Default has occurred and is continuing,
(i) to examine and make copies of and abstracts from
the records and books of
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<PAGE>
account of Borrower; and (ii) to discuss the affairs, finances and accounts
of Borrower with its independent accountants and with any of its officers and
directors;
(f) Immediately advise Lender of any material
adverse change in its condition, financial or
otherwise, or of the occurrence of any Default or
Event of Default;
(g) Furnish to Lender, promptly after the
filing or receiving thereof, copies of all notices
which Borrower receives from any Governmental
Authority alleging its noncompliance with
environmental laws or regulations and any replies of
Borrower filed in response thereto, and take all
necessary remedial action as required by such
Governmental Authority;
(h) Promptly notify Lender of any evidence of
hazardous waste, toxic or similar contamination
which requires notification to any Governmental
Authority at any property owned or leased by
Borrower and, in compliance with all Governmental
Authority requirements, diligently prosecute to
completion (subject to the right of Borrower to
contest in good faith the existence of such
noncompliance, the amount of damages caused thereby
or the extent of its liability therefor by
appropriate proceedings diligently pursued which
shall operate during the pendency thereof to prevent
(i) the sale or loss of any property and the
imposition of any lien thereon and (ii) any
interference with the use or operation of Borrower's
property) the removal of any such contamination;
(i) Perform and observe, or cause to be
performed and observed, all of the terms, covenants
and conditions on the part of Borrower to be
performed and observed under all leases for mining
properties ("Leases"); not do or permit anything to
be done within its control, the doing of which, or
refrain from doing anything, the omission of which
would be legal and valid grounds for any landlord
under a Lease, or its successors or assigns, to
terminate such Leases; promptly notify Lender in
writing of any known default on the part of Borrower
in the performance of any of the terms, covenants
and conditions under any Leases and of any legal
proceedings instituted against it by any other party
to any of the Leases; and not cancel or terminate
any Leases, or amend or modify the same, directly or
indirectly in any respect whatsoever, without in
each case the prior written consent of Lender;
(j) Borrower will maintain at all times
insurance coverage in respect of the properties and
assets of Borrower in amounts, on terms and with
such financially sound and reputable insurers
reasonably acceptable to Lender, as is consistent
with Borrower's ordinary course of business. Such
coverage shall include, without limitation, fire and
extended coverage insurance for the full insurable
value of all buildings and other improvements
located on Borrower's properties and public
liability, business interruption and worker's
compensation insurance, all in amounts
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<PAGE>
not less than the amount of the coverage
maintained immediate prior to the execution
of this Agreement and under
policies in form and content reasonably acceptable
to Lender. All policies of insurance shall name
Lender as an additional insured pursuant to an
endorsement as set out in EXHIBIT E hereto, and
shall provide:
(i) that proceeds of insurance shall be
payable to Lender in accordance with the terms
hereof notwithstanding any act or negligence of
Borrower, which might otherwise result in
forfeiture of said insurance;
(ii) a waiver by the insurer of all
rights of setoff, counterclaim or deductions
against Borrower;
(iii) a provision precluding cancellation
or amendment save on not less than sixty (60)
days' prior written notice to Lender.
Any surplus remaining from any such insurance
in excess of all indebtedness, liabilities and
obligations of Borrower to Lender shall be delivered
to Borrower, or its successors or assigns.
Borrower shall furnish Lender with an original
copy of all policies of insurance. If Lender
permits Borrower to provide any of the required
insurance through blanket policies, then Borrower
shall furnish Lender with a certificate of insurance
for each such policy setting forth the coverage, the
limits of liability, the name of the carrier, the
policy number, and the expiration date.
(k) With respect to environmental matters:
(i) comply strictly and in all respects
with all Environmental Requirements, including,
but not limited to, wetlands laws, laws
pertaining to the registration of underground
storage tanks, asbestos and asbestos-containing
materials, PCBs, radon gas and urea
formaldehyde foam insulation; notify Lender
promptly after the discovery of any release,
spill, hazardous waste pollution or
contamination affecting Controlled Premises or
the discovery of the presence of asbestos and
asbestos-containing materials, PCBs, radon gas
and urea formaldehyde foam insulation; notify
Lender promptly of any notice relating to
environmental matters received from any
Governmental Authority, tenant, occupant,
operator or other Person; and pay promptly when
due any fine or assessment against Controlled
Premises;
(ii) not become involved, and will take
steps to prevent any tenant of Controlled
Premises from becoming involved, in any
operations at Controlled Premises generating,
storing, disposing or handling Hazardous
Material in violation of applicable law or any
other activity that could lead
-16-
<PAGE>
to the imposition on Borrower, Lender or the
Controlled Premises of any liability or lien
under any Environmental Requirement;
(iii) immediately contain, remediate
and/or remove any Hazardous Material found on
Controlled Premises and correct any violation
of Environmental Requirements found on
Controlled Premises, which work must be done in
compliance with applicable laws and at
Borrower's expense; and agrees that Lender has
the right, at its sole option but at Borrower's
expense, to have an environmental engineer or
other representative review the work being
done; and
(iv) promptly upon the request of Lender
after the occurrence of an Event of Default or
at any time prior to such occurrence based upon
Lender's reasonable belief that a hazardous
waste or other environmental problem exists
with respect to Controlled Premises, provide
Lender with an environmental site assessment
report or an update of any existing report, all
in scope, form and content and performed by
such company as may be reasonably satisfactory
to Lender, PROVIDED, HOWEVER, that Borrower
also hereby grants to Lender the right to go on
the Controlled Premises and have such a report
or update done (at Borrower's expense).
11. NEGATIVE COVENANTS. Borrower covenants and agrees
that, until payment in full of the principal of, and interest
on, the Note and any other indebtedness of Borrower to Lender,
whether now existing or arising hereafter, Borrower will not,
directly or indirectly:
(a) Create, incur, assume or suffer to exist
any Lien of any nature whatsoever on any of its
assets or properties, now or hereafter owned, other
than Permitted Liens;
(b) Guarantee, endorse or otherwise in anyway
become or be responsible for obligations of any
other person, except endorsements of negotiable
instruments for collection in the ordinary course of
business;
(c) Sell, lease, transfer or otherwise dispose
of its properties, assets, rights, licenses and
franchises to any person, except in the ordinary
course of its business, or turn over the management
of such properties, assets, rights, licenses and
franchises;
(d) Enter into any arrangement, directly or
indirectly, with any person whereby it shall sell or
transfer any property, real, personal or mixed, used
or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease
such property, except as is consistent with
Borrower's ordinary course of business;
-17-
<PAGE>
(e) Dissolve, liquidate, consolidate with or
merge with, or otherwise acquire (without the prior
written consent of Lender, which consent will not be
unreasonably withheld) all or substantially all of
the assets or properties of, any corporation; make
any substantial change in its executive management;
or alter or modify its corporate name, mailing
address or principal place of business; or
(f) Without the prior written consent of
Lender, which consent will not be unreasonably
withheld, declare or pay any dividends, or make any
distribution of cash or property, or both, to
holders of shares of its capital stock, or directly
or indirectly, redeem, purchase or otherwise acquire
for a consideration, any shares of its capital
stock, of any class.
12. DEFAULTS/RIGHTS AND REMEDIES OF LENDER UPON DEFAULT.
In each case of happening of any of the following events (each
of which is herein and in the Note and the Security Documents
sometimes called an "Event of Default"):
(a) default in the payment of any amount of
the Loan Balance or any mandatory prepayment or
other amount (including, without limitation,
Interest) due under this Agreement or the Note,
which shall remain unremedied for a period of two
(2) Business Days after written notice from Lender
to Borrower that such amount is due and payable;
(b) default in the due observance or
performance of any covenant, condition or agreement
contained in Sections 10 or 11 hereof, in the Note
or in any instrument granting security to Lender for
the Note, and such default shall continue unremedied
for thirty (30) days after written notice thereof by
Lender to Borrower;
(c) default in the due observance or
performance of any other covenant, condition or
agreement, on the part of Borrower to be observed or
performed pursuant to the terms hereof (except as
specifically referred to in this Section 12), and
such default shall continue unremedied for twenty
(20) days after written notice thereof by Lender to
Borrower;
(d) any representation or warranty made herein
or in any report, certificate, financial statement
or other instrument furnished in connection with
this Agreement, or the making of the Loans by Lender
hereunder, shall prove to be false or misleading in
any material respect when made;
(e) default with respect to any evidence of
indebtedness of Borrower (other than to Lender), if
the effect of such default is to accelerate the
maturity of such indebtedness or to permit the
holder thereof to cause such indebtedness to become
due prior to the stated maturity thereof, or if any
indebtedness of Borrower (other than to Lender) is
not paid, when due and payable, whether at the due
date thereof or a date fixed for prepayment or
otherwise;
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<PAGE>
(f) Borrower shall (i) discontinue or abandon
operation of its business; (ii) apply for or consent
to the appointment of a receiver, trustee, custodian
or liquidator of it or any of its property, (iii)
admit in writing its inability to pay its debts as
they mature, (iv) make a general assignment for the
benefit of creditors, (v) file, or have filed
against it a petition for relief under Title 11 of
the United States Code or (vi) file, or have filed
against it, a petition in bankruptcy, or a petition
or an answer seeking reorganization or an
arrangement with creditors or to take advantage of
any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law
or statute, or an answer admitting the material
allegations of a petition filed against it in any
proceeding under any such law or if corporate action
shall be taken for the purpose of effecting any of
the foregoing;
(g) any order, judgment or decree shall be
entered, without the application, approval or
consent of Borrower by any court of competent
jurisdiction, approving a petition seeking
reorganization of either Borrower or appointing a
receiver, trustee, custodian or liquidator of
Borrower or of all or a substantial part of the
assets of Borrower, and such order, judgment or
decree shall continue unstayed and in effect for any
period of thirty (30) days;
(h) final judgment for the payment of money in
excess of an aggregate of Fifty Thousand Dollars
($50,000) shall be rendered against Borrower, and
the same shall remain undischarged for a period of
thirty (30) consecutive days, during which execution
shall not be effectively stayed;
(i) the occurrence of any attachment of any
deposits or other property of Borrower in the hands
or possession of Lender, or the occurrence of any
attachment of any other property of Borrower in an
amount exceeding Twenty-Five Thousand Dollars
($25,000) which shall not be discharged within
thirty (30) days of the date of such attachment
unless being contested in good faith by appropriate
proceedings and as to which adequate reserves have
been provided on the books of Borrower;
(j) the occurrence of any event or condition
described in paragraph (d), (e), (f), (g) or (h) of
this Section 12 with respect to (1) Guarantor or (2)
any other Person liable, in whole or in part, for
payment or performance hereof or of the Note;
(k) for any reason, any Security Document at
any time shall not be in full force and effect in
all material respects or shall not be enforceable in
all material respects in accordance with its terms,
or any Lien or charge granted pursuant thereto shall
fail to be perfected, or Borrower shall contest the
validity, enforceability or perfection of any Lien
granted pursuant thereto, or Borrower shall seek to
disaffirm, terminate, limit or reduce its
obligations under any Security Documents;
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<PAGE>
(l) the occurrence of any Event of Default (as
defined therein) under any of the Security
Documents;
(m) for any reason Guarantor shall terminate
or seek to terminate or limit, by written or verbal
notice, its Guaranty or shall be in default of
Guarantor's own obligations to Lender; or
(n) the occurrence of any Event of Default
under (i) a certain Trading Agreement between Lender
and Dakota dated September 12, 1994, as amended or
modified from time to time or (ii) certain Refining
Agreements of even date herewith between Lender and
each Borrower, as amended or modified from time to
time;
then, upon the occurrence of any such Event of Default which has not been
cured by Borrower or waived in writing by Lender, Lender may, by notice to
Borrower, declare all indebtedness, liabilities and obligations of Borrower
to Lender to be immediately due and payable. Upon Lender's declaration (the
"Date of Acceleration"), such indebtedness shall be immediately due and
payable, both as to principal and/or interest, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Note or in any other evidence of such
indebtedness to the contrary notwithstanding (except with respect to any
Event of Default set forth in Section 12(f), in which case all indebtedness,
liabilities and obligations shall automatically become immediately due and
payable without the necessity of any notice or other demand). Lender, in
such instance, may enforce payment of the same, may liquidate any or all of
the then open positions of Borrower with Lender (including, without
limitation, option or forward contracts), and may exercise any or all of the
rights, powers and remedies possessed by Lender under the Note, this
Agreement, the Security Documents or under any agreement securing the
obligations of Borrower to Lender, whether afforded by law or in equity. The
remedies provided for herein are cumulative and are not exclusive of any
other remedies provided by law. Borrower agrees to pay Lender's reasonable
attorneys' fees and legal expenses incurred in enforcing Lender's rights,
powers and remedies under this Agreement, the Note and any Security Documents.
13. MISCELLANEOUS. (a) This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto, shall survive the execution and delivery to Lender of this
Agreement and the Note, and shall continue in full force and effect so long
as the Note or any other indebtedness or obligations of Borrower to Lender is
outstanding and unpaid. In this Agreement, reference to a party shall be
deemed to include the successors and assigns of such party; PROVIDED,
HOWEVER, that Borrower shall not assign its rights hereunder or any interest
herein to any other party without the prior written consent of Lender and any
such purported assignment shall be void. All covenants, agreements and
indemnities in this Agreement and the Note by or on behalf of Borrower shall
inure to the benefit of the successors and assigns of Lender and no
assignment of this Agreement and the Note will affect any of Borrower's
representations and warranties hereunder or thereunder. Borrower acknowledges
and agrees that from time to time Lender may assign its rights under this
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<PAGE>
this Agreement and the Note or any interest herein or therein to one or more
financial institutions. Any assignee of the Note shall take the Note free
and clear of all offsets, counterclaims or defenses of any nature whatsoever
which Borrower may have against any assignor of the Note, and no such offset,
counterclaim or defense shall be interposed or asserted by Borrower in any
action or proceeding brought by any such assignee upon the Note or under this
Agreement, and any such right to interpose or assert any such offset,
counterclaim or defense in any such action or proceeding is hereby expressly
waived by Borrower. The foregoing shall not be deemed or construed to limit
the liability of a prior holder of the Note for damages relating to any such
offset, counterclaim or defense.
(b) Borrower will reimburse Lender upon demand for all
out-of-pocket costs, charges and expenses of Lender (including reasonable
fees and disbursements of counsel to Lender) in connection with (i) the
preparation, execution and delivery of this Agreement, the Note and any
Security Documents and the making of the Loan (such fees and expenses not to
exceed $20,000), (ii) any amendments, modifications, consents or waivers in
respect thereof, (iii) enforcing or defending Lender's rights under or in
respect of this Agreement, the Note and the Security Documents and any other
document or instrument now or hereafter executed in connection herewith, (iv)
foreclosing or otherwise collecting upon the Security Documents and (v)
obtaining legal, accounting or other advice in connection with any of the
foregoing.
(c) This Agreement and the Note shall be construed in accordance
with and governed by the laws of the State of New York without giving effect
to principles of conflict of law.
(d) No modification or waiver of any provision of this Agreement,
or of the Note, nor consent to any departure by Borrower therefrom, shall in
any event be effective unless the same shall be in writing, and then such
waiver or consent shall be effective only in the specific instance, and for
the purpose, for which given. No notice to, or demand, on Borrower, in any
case, shall entitle Borrower to any other or future notice or demand in the
same, similar or other circumstances.
(e) Neither any failure nor any delay on the part of Lender in
exercising any right, power or privilege hereunder, or under the Note, or any
other instrument given as security therefor, shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
future exercise, or the exercise of any other right, power or privilege.
(f) All Notices, communications and distributions hereunder shall
be given or made to the intended recipient at its Principal Office; or at
such other address as the addressee may hereafter specify for the purpose by
written notice to the other party hereto. Such Notices and other
communications (including, without limitation, any modifications of, or
waivers or consents under, this Agreement) shall be given or made in writing
(including telegraphic or facsimile transmissions), sent by overnight
delivery service, telegraph, facsimile transmission or hand-delivered to the
other party at that party's Principal Office. All such Notices and other
communications shall be deemed to have been duly given when transmitted by
facsimile
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<PAGE>
transmission, delivered to the telegraph office or personally
delivered or, in the case of overnight delivery, upon receipt, in each case
given or addressed as aforesaid.
(g) This Agreement shall be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and assigns, except
that Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of Lender.
(h) Borrower hereby submits to the jurisdiction of the courts of
the State of New York and the United States District Court for the Southern
District of New York, as well as to the jurisdiction of all courts to which
an appeal may be taken or other review sought from the aforesaid courts, for
the purpose of any suit, action or other proceeding arising out of any of
Borrower's obligations under or with respect to this Agreement, the Note, or
with respect to the transactions contemplated hereby and Borrower expressly
waives any and all objections it may have as to venue in any such courts.
Borrower also waives any objection it might now or hereafter have on the
ground that any such action or proceeding in such federal or state court has
been brought in an inconvenient forum. BORROWER AND LENDER EACH WAIVES TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM
AGAINST THE OTHER ON ANY MATTER WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS AGREEMENT, ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN). Borrower hereby
irrevocably designates and appoints CT Corporation System, 1675 Broadway,
Denver, Colorado 80202, as its attorney-in-fact to receive service of process
in any suit, action or proceeding arising out of any of its obligations under
or with respect to this Agreement or the transactions contemplated hereby, it
being expressly stipulated and agreed by Borrower that service upon such
attorney-in-fact shall constitute personal service upon it. Concurrently
with the service of process upon such attorney-in-fact, copies of the papers
so served shall be sent to Borrower. In the event such attorney-in-fact at
any time is incapable of acting or resigns such appointment, then Borrower
shall immediately appoint a successor and give notice thereof to Lender.
Nothing herein shall affect the right of Lender to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against Borrower in any other jurisdiction.
(i) Upon the occurrence and during the continuance of any Event of
Default, Lender is hereby authorized at any time and from time to time,
without notice to Borrower (any such notice being expressly waived by
Borrower), to set off and apply any and all deposits (general or special,
time `or demand, provisional or final) at any time held and other
indebtedness at any time owing by Lender to or for the credit or the account
of Borrower, against any and all of the indebtedness, liabilities, and
obligations of Borrower now or hereafter existing under this Agreement or the
Note and although such obligations may be contingent and unmatured. Lender
agrees promptly to notify Borrower after any such setoff and application,
PROVIDED that the failure to give such notice shall not affect the validity
of such setoff and application. The rights of Lender under this section are
in addition to any other rights and remedies (including, without limitation,
other rights of setoff) which Lender may have.
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<PAGE>
(j) All agreements between Borrower and Lender are hereby
expressly limited so that in no contingency or event whatsoever whether by
reason of acceleration of the maturity of indebtedness or otherwise shall the
amount paid or agreed to be paid to Lender for the use, forbearance or
detention of the indebtedness evidenced hereby or by the Note exceed the
maximum permissible under applicable law. As used herein, the term
"applicable law" shall mean the law in effect as of the date hereof,
provided, however, that in the event there is a change in the law which
results in a higher permissible rate of interest, then this Agreement and the
Note shall be governed by such new law as of its effective date. If, from
any circumstance whatsoever, fulfillment of any provisions hereof or of the
Note at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then, IPSO FACTO, the
obligation to be fulfilled shall be reduced to the limit of such validity,
and if from any circumstance Lender should ever receive as interest an amount
which would exceed the highest lawful rate, such amount which would be
excessive interest shall be applied to the reduction of the principal balance
of the Note and not to the payment of interest. This provision shall control
every other provision of all agreements between Borrower and Lender.
(k) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
(l) Any Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose. As used in this Agreement, the term "person"
shall include any individual, corporation, partnership, joint venture, trust,
or unincorporated organization, or a government or any agency or political
subdivision thereof.
(m) Borrower hereby agrees to indemnify, defend and hold harmless
Lender and its officers, directors, employees and agents (collectively the
"Indemnified Parties") against, and agrees to hold the Indemnified Parties
harmless from, any and all liability, losses (excluding loss of profits),
damages and expenses (including reasonable counsel fees and expenses) of any
kind whatsoever which may be incurred by any of the Indemnified Parties
arising out of, in any way connected with, or as a result of (i) any breach
of any of the representations or warranties made by Borrower in Section 8
hereof and any breach of any covenant made by Borrower in Sections 10 and 11
hereof, (ii) any claim, action, suit, investigation or proceeding relating to
Borrower, whether or not any Indemnified Party is a party thereto or target
thereof; provided that the foregoing indemnity shall not apply to any such
liability, losses, damages or expenses of an Indemnified Party to the extent
arising from willful misconduct or gross negligence of such Indemnified Party
or (iii) any losses, claims, damages, liabilities, judgments or expenses
arising out of, or in any way related to (A) the presence, disposal,
spillage, discharge, leakage, release or threatened release of any hazardous
material about, from or affecting any property of Borrower, (B) any personal
injury or property damage arising out of or related to any hazardous material
or (C) any violation of any environmental law or requirement. Borrower's
obligations set forth in
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<PAGE>
this Section 13(m) shall survive any termination of this Agreement and the
payment in full of all indebtedness, liabilities and obligations of Borrower
to Lender.
All indemnities set forth herein, including, without limitation,
this Section 13(m), shall survive the execution and delivery of this
Agreement and the Note and the making and repayment of the Loan.
(n) Lender represents and warrants to Borrower that:
(i) Lender (A) is duly organized, validly
existing and in good standing under the laws of the
state of its incorporation, (B) has full power and
authority to own its properties and to carry on
business as now being conducted and (C) has full
power to execute, deliver and perform its
obligations hereunder; and
(ii) The execution and delivery and
performance by Lender of its obligations under this
Agreement have been duly authorized by all requisite
action and will not violate any provision of law,
any order of any court or other agency of
government, the corporate charter or by-laws of
Lender or any indenture, agreement or other
instrument to which it is a party or by which it is
bound.
(o) This Agreement may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which
when so executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all as of the day and year
first above written.
Borrower:
DAKOTA MINING CORPORATION
By c/s ROBERT R. GILMORE
--------------------------------
Title VICE PRESIDENT, FINANCE & CFO
BROHM MINING CORP.
By c/s ROBERT R. GILMORE
--------------------------------
Title VICE PRESIDENT
(Signature pages continued on page 25)
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<PAGE>
STIBNITE MINE INC.
By c/s ROBERT R. GILMORE
--------------------------------
Title Vice President
BARRIER REEF, INC.
By c/s ROBERT R. GILMORE
--------------------------------
Title VICE PRESIDENT
Lender:
GERALD METALS, INC.
By c/s ROBERT KAESER
-------------------------------
Title VICE PRESIDENT
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<PAGE>
EXHIBITS TO REVOLVING LOAN AGREEMENT
EXHIBIT A Note
EXHIBIT B Request for Loan
EXHIBIT C Permitted Liens
EXHIBIT D Opinion of Borrower's counsel (not included)
EXHIBIT E Insurance Endorsement
<PAGE>
EXHIBIT B
REQUEST FOR LOAN
__________________, 199
Gerald Metals, Inc.
High Ridge Park
Stamford, Connecticut 06904
FAX No.: (203) 329-4844
Attention:
Ladies and Gentlemen:
Pursuant to the provisions of Section 2(a) of the Revolving Loan
Agreement dated as of April ___, 1996, between the undersigned and Gerald
Metals, Inc., as amended or modified from time to time (the "Agreement"), the
undersigned, as borrower, hereby requests a Loan of
_______________________________________ Dollars ($_______) to be made on
___________, 199__, which Loan shall be evidenced by the undersigned's
Secured Revolving Loan Note dated April ___, 1996. The principal balance
outstanding under said Secured Revolving Loan Note, after taking into
consideration the amount of the Loan requested hereunder, is
__________________________________________ Dollars ($_________).
The undersigned hereby represents and warrants that (i) no event has
occurred and is continuing, or would result from the proposed Loan, which
constitutes an "Event of Default" or a "Default" as each term is defined in
the Agreement and (ii) the representations and warranties in Section 8 of the
Agreement are true and correct as of the date hereof. The undersigned
further represents and warrants that the financial condition of the
undersigned has not materially adversely changed since the submission of the
undersigned's most recent financial information to Lender.
The officer signing below hereby individually represents that he/she is
an authorized officer of the undersigned Borrower and is authorized to
request the Loan on behalf of such Borrower.
Very truly yours,
DAKOTA MINING CORPORATION
By
------------------------------
Title
---------------------------
<PAGE>
BROHM MINING CORP.
By
------------------------------
Title
---------------------------
STIBNITE MINE INC.
By
------------------------------
Title
---------------------------
BARRIER REEF, INC.
By
------------------------------
Title
---------------------------
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<PAGE>
EXHIBIT C
PERMITTED LIENS
(A) Property described in the following financing statements on file on
date hereof:
<TABLE>
<CAPTION>
File
Filing Office Secured Party File No. Date Collateral Description
- - ------------- ------------------- -------- ---- ----------------------
<S> <C> <C> <C> <C>
Colorado Sanwa Leasing 952041920 6/2/95 Computers
Secretary Corporation
of State
Pitney Bowes Credit 952053190 7/18/95 Equipment
Corporation
South Dakota Arrowhead Industrial 951090900531 4/19/95 Specific equipment
Secretary Water
of State
Butler Machinery 951421102189 5/22/95 Specific equipment
Company
Butler Machinery 951600900336 6/9/95 Specific equipment
Company
</TABLE>
(B) Liens securing the payment of taxes, either not yet due or the validity
of which is being contested in good faith by appropriate proceedings, and
as to which it shall have set aside on its books adequate reserves;
(C) Deposits under worker's compensation, unemployment insurance and social
security laws, or to secure the performance of bids, tenders, contracts
(other than for the repayment of borrowed money) or leases, or to secure
statutory obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business;
(D) Liens imposed by law, such as carriers', warehousemen's or mechanics'
liens, incurred by it in good faith in the ordinary course of business, and
liens arising out of a judgment or award against it with respect to which
it shall currently be prosecuting an appeal, a stay of execution pending
such appeal having been secured;
(E) Uniform Commercial Code financing statements to be filed in favor
of D.H. Blattner & Son, Inc. with the Secretaries of State of Colorado
and Idaho, County Recorder of Valley County, Idaho subsequent to the
filing of Uniform Commercial Code financing statements to be filed
in favor of Lender in such States and County; and
(F) Because the WS lode claims and the MS millsites were located after the
execution of the Sublease listed as Item 7 of SCHEDULE A of that certain
First Mortgage, Assignment of
<PAGE>
Rents and Royalties, Security Agreement and Financing Statements among
Stibnite, Barrier and Lender of even date herewith, Stibnite and Barrier
have not yet obtained record documentation of their subleasehold interest
in such claims.
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<PAGE>
EXHIBIT E
LOSS PAYABLE ENDORSEMENT
Policy No.:
Named Insured:
--------------------------------------------------------
Name of Loss Payee and Additional Insured: Gerald Metals, Inc.
Address: High Ridge Park
P.O. Box 10134
Stamford, Connecticut 06904
Interest/Description of Property:
Loss under this policy will be payable to the above named Loss
Payee and Additional Insured as Lender or mortgagee as its
interests may appear.
The Loss Payee and Additional Insured now has or will acquire
from time to time an insurable interest in certain property insured
under this policy. Such interests will be established by
documentary or other written evidence (including, without
limitation, a security agreement).
The interest of the Loss Payee and Additional Insured will not
be impaired by:
1. any act or neglect of the borrower, mortgagor or
owner of the above described property except as
provided in the last paragraph of this
endorsement;
2. any change in the title or ownership of the
property; or
3. a more hazardous occupancy of the premises where
the property is located than is permitted by this
policy.
We reserve the right to cancel this policy at any time as
provided by its terms. If we do so, this policy will continue
in force for the benefit only of the Loss Payee and Additional
Insured for sixty (60) days after notice to the Loss Payee and
Additional Insured of such cancellation and will then cease.
Whenever we will pay the Loss Payee and Additional
Insured any sum for loss or damage under this policy and claim
that, as to the borrower, mortgagor or owner, no liability
existed then
<PAGE>
we will, to the extent of such payment, be legally subrogated to
all the rights of the party to whom the payment will be made, under
all securities held as collateral to the debt. At our option, we
may pay the Loss Payee and Additional Insured the whole principal
due or to grow due on the debt with interest, and thereupon receive
a full assignment and transfer of the debt and of the mortgage and
all of such other securities as evidence of the interest of the
Loss Payee and Additional Insured in the described property.
However, no subrogation will impair the Loss Payee and Additional
Insured's right to recover the full amount of its claim against the
borrower, mortgagor or owner.
All other provisions of the policy apply.
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<PAGE>
EXHIBIT 10.19
SECURED LOAN NOTE
$1,157,991 April 12, 1996
FOR VALUE RECEIVED, STIBNITE MINE INC. and BARRIER REEF INC., each a
Delaware corporation (jointly and severally, "Borrower"), promise to pay to
D.H. BLATTNER & SONS, INC., a Minnesota corporation ("Lender"), or to its
order, at its principal office at 16733 Co. Rd. #9, Avon, Minnesota 56310,
the principal sum of One Million One Hundred Fifty-Seven Thousand Nine
Hundred Ninety One Dollars ($1,157,991), together with interest in arrears on
any and all principal amounts outstanding and remaining unpaid hereunder from
time to time from the date hereof until payment in full hereof at the rates
hereinafter provided. Interest shall be calculated on the basis of the actual
number of days elapsed over a year of three hundred sixty (360) days and
shall be at an annual rate (whether before or after maturity except as
hereinafter provided) equal to 8 1/2%. Principal and Interest shall be
payable monthly on the first day of each month commencing May 1, 1996, and
continuing on the same day of each successive month, at a rate of
Seventy-Five Thousand Dollars ($75,000) per month. All payments shall be
applied first to accrued but unpaid interest and then to reduce the
outstanding principal amount hereof.
METHODS OF PAYMENT. Payments of both principal and interest as required
hereunder shall be made in lawful money of the United States of America in
immediately available funds at the principal office of Lender by check or
bank wire transfer received by Lender not later than 12:00 noon Colorado time
on the date on which such payment shall become due (each such payment
initiated after such time on such due date to be deemed to have been made on
the next succeeding day which is not a Saturday, Sunday, or legal holiday in
Colorado or Minnesota (collectively, a "Holiday")) or such other address
account as Lender shall direct in writing. If any payment of principal or
interest shall become due on a Holiday, such payment shall be made on the
next succeeding day which is not a Holiday and such extension of time shall
in such case be included in computing interest in connection with such
payment.
PREPAYMENT. This Note may be prepaid in whole or in part without premium
or penalty. Any payments received on this Note shall be applied first to any
unpaid fees or expenses incurred in connection with the making of the advances
hereunder, next to accrued but unpaid interest and then to principal amounts
outstanding.
RELATED DOCUMENTS; SUBORDINATION. This Note is secured by that certain
Security Agreement dated as of July 8, 1992 made by the Borrower in favor of
the Lender as amended by that certain Amendment No. 1 to Security Agreement
dated as of April 12, 1996 (as so amended, the "Security Agreement") and by
that certain Mortgage, Security Agreement, Fixture Financing Statement and
Assignment of Leases and Rents dated as of July 8, 1992 made by the Borrower
in favor of the Lender and filed for record in the Office of the Valley
County, Idaho County Recorder on November 19, 1992 as Document No. 192358 as
amended by that certain Amendment No. 1 to Mortgage, Security Agreement,
Fixture Financing Statement and Assignment of Leases and Rents dated as of
April 12, 1996 (as so amended, the "Mortgage"). The payment of this Note is
guaranteed by that certain Guaranty dated as April 12, 1996 (the "Guaranty";
and together with this Note, the
<PAGE>
Security Agreement and the Mortgage being sometimes hereinafter referred to
collectively as the "Loan Documents" and individually as a "Loan Document").
This Note is subordinate to certain Senior Indebtedness as defined in, and in
accordance with the terms of, that certain Subordination and Intercreditor
Agreement dated April __, 1996 among Borrower, Lender, Brohm Mining Corp., a
South Dakota corporation, and Gerald Metals, Inc., a Delaware corporation.
REMEDIES AFTER DEFAULT. If an Event of Default as defined in the
Security Agreement (an "Event of Default") has occurred and is continuing,
the entire unpaid principal balance hereunder, and all other sums paid by
Lender to or on behalf of Borrower pursuant to the terms of this Note,
together with unpaid interest thereon, shall at the option of Lender become
immediately due and payable without further notice or demand and Lender may
forthwith exercise the remedies available to Lender at law and in equity as
well as those remedies set forth in this Note and/or any other Loan Document
and one or more executions may forthwith issue on any judgment or judgments
obtained by virtue thereof; and no failure on the part of Lender to exercise
any of Lender's rights hereunder or under any other Loan Document shall be
deemed a waiver of any such rights or of any default.
WAIVERS. Borrower hereby waives presentment for payment, protest and
demand, and notice of protest, demand and/or dishonor and nonpayment of this
Note, notice of any default hereunder or under the Mortgage except as
specifically provided therein, and all other notices or demands otherwise
required by law that Borrower may lawfully waive. Borrower expressly agrees
that this Note, or any payment hereunder, may be extended from time to time,
without in any way affecting the liability of Borrower. No unilateral consent
or waiver by Lender with respect to any action or failure to act which,
without consent, would constitute a breach of any provision of this Note
shall be valid and binding unless in writing and signed by Lender.
GOVERNING LAW. The rights and obligations of Borrower and all provisions
hereof shall be governed by and construed in accordance with the laws of the
State of Minnesota without giving effect to principles of conflict of laws.
CONSENT TO JURISDICTION; JURY TRIAL WAIVER. Borrower hereby submits to
the jurisdiction of the courts of the State of Minnesota and the United
States District Court for the District of Minnesota, as well as to the
jurisdiction of all courts to which an appeal may be taken or other review
sought from the aforesaid courts, for the purpose of any suit, action or
other proceeding arising out of Borrower's obligations under or with respect
to this Note, and expressly waives any and all obligations it may have as to
venue in any of such courts. BORROWER AND LENDER EACH HEREBY WAIVES TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM
AGAINST THE OTHER ON ANY MATTERS WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY
CONFLICTING WITH THIS NOTE, THE MORTGAGE OR ANY OTHER AGREEMENTS EXECUTED IN
CONNECTION HEREWITH OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR
THEREIN). No party to this Note, including but not limited to any assignee of
or successor to Borrower or Lender, shall seek a jury trial in any lawsuit,
proceeding, counterclaim, or any other litigation procedure based upon, or
arising out of, this Note, the Mortgage or any related instruments or the
relationship between the parties. No party will seek to consolidate any such
action, in which a jury trial has been waived, with any other action in
<PAGE>
which a jury trial cannot be or has not been waived. THE PROVISIONS OF THIS
PARAGRAPH HAVE BEEN FULLY DISCUSSED BY BORROWER AND LENDER, AND THESE PROVISIONS
SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR
REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES.
SAVINGS CLAUSE. All agreements between Borrower and Lender are
hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to Lender for
the use, forbearance or detention of the indebtedness evidenced hereby exceed
the maximum permissible under applicable law. As used herein, the term
"applicable law" shall mean the law in effect as of the date hereof,
PROVIDED, HOWEVER, that in the event there is a change in the law which
results in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date. In this regard, it is
expressly agreed that it is the intent of Borrower and Lender in the
execution, delivery and acceptance of this Note to contract in strict
compliance with the laws of the State of Minnesota from time to time in
effect. If, from any circumstance whatsoever, fulfillment of any provision
hereof or of any other Loan Document at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if from any circumstances Lender
should ever receive as interest an amount which would exceed the highest
lawful rate, such amount which would be excessive interest shall be applied
to the reduction of the principal balance evidenced hereby and not to the
payment of interest. This provision shall control every other provision of
all agreements between Borrower and Lender.
ATTORNEYS' FEES. If this Note shall not be paid when due and shall be
placed by the holder hereof in the hands of any attorney for collection,
through legal proceedings or otherwise, Borrower will pay a reasonable
attorney's fee to the holder hereof together with reasonable costs and
expenses of collection.
CONTINUED LIABILITY. Borrower shall remain primarily liable on this
Note and the other Loan Documents until full payment, unaffected by any
agreement or transaction between Lender and any subsequent Borrower as to
payment of principal, interest or other moneys, by any forbearance or extension
of time, guaranty or assumption by others, or by any other matter, as to all of
which notice is hereby waived by Borrower.
SECTION HEADINGS. Any section headings in this Note are included herein
for convenience of reference only and shall not constitute a part of this Note
for any other purpose.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
duly authorized officer as of the day and year first above written.
STIBNITE MINE INC.
By: c/s ROBERT R. GILMORE
----------------------------------
Name: Robert R. Gilmore
Title: Vice President
BARRIER REEF INC.
By c/s ROBERT R. GILMORE
------------------------------------
Name: Robert R. Gilmore
Title: Vice President
<PAGE>
EXHIBIT 10.20
SUBORDINATION AND INTERCREDITOR AGREEMENT
THIS SUBORDINATION AND INTERCREDITOR AGREEMENT ("this Agreement") is dated
as of April 12, 1995, among BARRIER REEF INC., a Delaware corporation
("Barrier"), STIBNITE MINE INC., a Delaware corporation ("Stibnite"), and BROHM
MINING CORP., a South Dakota corporation ("Brohm" and, jointly and severally
with Barrier and Stibnite, "Borrower"), D.H. BLATTNER & SONS, INC., a Minnesota
corporation ("Subordinated Lender"), and GERALD METALS, INC., a Delaware
corporation ("Gerald").
W I T N E S S E T H T H A T:
In order to induce Gerald to make financial accommodations to Borrower and
for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Borrower and Subordinated Lender hereby agree with Gerald
that, so long as any Senior Indebtedness (as hereinafter defined) is outstanding
or committed to be loaned, each such party will comply with such of the
following provisions as are applicable to it:
1. CERTAIN DEFINITIONS.
1.1 SENIOR INDEBTEDNESS. The term "Senior Indebtedness" shall mean, and
be limited to, any and all loans, Loans (as defined in the Loan Agreement, as
hereinafter defined), extensions of credit and other indebtedness, liabilities
and obligations, now existing or hereafter arising, of Borrower to Gerald
outstanding from time to time pursuant to (i) that certain Revolving Loan
Agreement among Borrower, DAKOTA MINING CORPORATION, a federal corporation
organized under the Canada Business Corporations Act ("Dakota"), and Gerald of
even date herewith (the "Loan Agreement"), as amended or otherwise modified from
time to time, (ii) that certain $4,000,000 Secured Revolving Loan Note issued by
Borrower and Dakota to Gerald of even date herewith, as amended or modified from
time to time (the "Note") and (iii) the Security Documents (as defined in the
Loan Agreement), as amended or modified from time to time, together with
interest thereon and all fees, expenses and other amounts (including costs of
collection and reasonable attorneys' fees) at any time owing to Gerald in
connection with the Loan Agreement, the Note or the Security Documents
(regardless of the extent to which the Loan Agreement, the Note or such other
indebtedness is enforceable against Borrower and regardless of the extent to
which such amounts are allowed as claims against Borrower in any Reorganization
(as hereinafter defined), and including any interest thereon accruing after the
commencement of any Reorganization and any other interest that would have
accrued thereon but for the commencement of such Reorganization). All Senior
Indebtedness shall be entitled to the benefits of this Agreement without notice
thereof being given to Subordinated Lender.
1.2 SUBORDINATED INDEBTEDNESS. The term "Subordinated Indebtedness" shall
mean all existing and hereafter arising indebtedness, liabilities and
obligations of Borrower to Subordinated Lender under a certain $1,157,991
Secured Loan Note of Borrower in favor of Subordinated Lender dated April 12,
1996 (the "Blattner Note"). The term "Subordinated Security Documents" shall
mean all obligations of each party (other than Subordinated Lender) to, under
<PAGE>
or in respect of any agreement or instrument securing any Subordinated
Indebtedness, including, without limitation, a certain Mortgage, Security
Agreement, Fixture Financing Statement and Assignment of Leases and Rents dated
as of July 8, 1992 from Borrower in favor of Subordinated Lender and filed for
record in the Office of the County Recorder of Valley County, Idaho on
November 19, 1992 as Document No. 192358, as amended by Amendment No. 1 to
Mortgage, Security Agreement, Fixture Financing Statement and Assignment of
Leases and Rents dated as of April 12, 1996 and filed for record in the Office
of the County Recorder of Valley County, Idaho on April 22, 1996 as Document No.
217637 (the "Subordinated Mortgage"), and a certain Security Agreement dated as
of July 8, 1992 between Borrower and Subordinated Lender, as amended by
Amendment No. 1 to Security Agreement dated as of April 12, 1996 and certain
Uniform Commercial Code financing statements of Borrower in favor of
Subordinated Lender listed on EXHIBIT A hereto (collectively, the "Subordinated
Security Documents") (the Subordinated Security Documents and any other
agreement evidencing or relating to the Subordinated Indebtedness being
hereinafter collectively referred to as the "Subordinated Agreements").
2. REPRESENTATIONS AND WARRANTIES.
2.1 REPRESENTATIONS AND WARRANTIES OF SUBORDINATED LENDER AND BORROWER.
Subordinated Lender and Borrower hereby represent and warrant to Gerald that, at
the date hereof, the total outstanding and unpaid amount of Subordinated
Indebtedness owing by Borrower to Subordinated Lender pursuant to the
Subordinated Agreements is $1,157,991, which amount includes interest accrued
through April 12, 1996.
2.2 REPRESENTATIONS AND WARRANTIES OF SUBORDINATED LENDER. Subordinated
Lender hereby represents and warrants to Gerald that Subordinated Lender is the
holder of the Subordinated Agreements and Subordinated Indebtedness free and
clear of all liens, claims and encumbrances (except for the grant of a security
interest therein in favor of First Bank National Association ("FBNA") (the "FBNA
Security Interest")), and Subordinated Lender is not subject to any contractual
limitation or restriction which would impair in any way its ability to execute
or perform its obligations under this Agreement.
3. TERMS OF SUBORDINATION.
3.1 NO TRANSFER. Subordinated Lender will not sell or otherwise dispose
of any of the Subordinated Indebtedness, except (a) for the grant of the FBNA
Security Interest, (b) with the consent of Gerald (which consent shall not be
unreasonably withheld) and (c) to a person who agrees in advance in writing,
pursuant to an agreement in form acceptable to Gerald, to become a party hereto.
Subordinated Lender shall give Gerald at least twenty (20) days prior written
notice of any such proposed transfer stating the identity of the transferee and
providing such other information as Gerald shall reasonably require.
3.2 PAYMENT SUBORDINATED. Anything in the Subordinated Agreements to the
contrary notwithstanding, the payment of the Subordinated Indebtedness is and
shall be expressly subordinate and junior in right of payment and exercise of
remedies to the prior payment in full of
-2-
<PAGE>
the Senior Indebtedness. In furtherance of the foregoing, except as
expressly provided in Section 3.5 hereof, Borrower will not make, and no
holder of Subordinated Indebtedness will accept or receive, any payment of
Subordinated Indebtedness until all the Senior Indebtedness has been paid in
full.
3.3 DISTRIBUTIONS IN REORGANIZATION. In the event of any distribution of
the assets of Borrower upon any voluntary or involuntary dissolution, winding-
up, total or partial liquidation or reorganization, or bankruptcy, insolvency,
receivership or other statutory or common law proceedings or arrangements
involving Borrower or the readjustment of the liabilities of Borrower or any
assignment for the benefit of creditors or any marshalling of the assets or
liabilities of Borrower (collectively called a "Reorganization") relative to
Borrower or its property, all of the Senior Indebtedness shall first be paid in
full before any payment on account of principal, premium or interest or
otherwise is made upon or in respect of the Subordinated Indebtedness, and in
any such proceedings any payment or distribution of any kind or character,
whether of property or securities which may be payable or deliverable in respect
of the Subordinated Indebtedness shall be paid or delivered directly to Gerald
for application in payment of the Senior Indebtedness, unless and until all such
Senior Indebtedness shall have been paid and satisfied in full. The holder of
the Subordinated Indebtedness does hereby irrevocably authorize Gerald to prove
and vote any and all claims in such proceedings on the Subordinated
Indebtedness, and to accept and receive any payment or distribution, and to do
any and all things and to execute all instruments necessary to effectuate the
foregoing. In the event that, notwithstanding the foregoing, upon any such
Reorganization, any payment or distribution of assets of Borrower of any kind or
character, whether in cash, property or securities, shall be received by the
holder of the Subordinated Indebtedness before all Senior Indebtedness is paid
in full, such payment or distribution shall be immediately paid over to the
holder of the Senior Indebtedness, for application to the payment of all Senior
Indebtedness remaining unpaid until all such Senior Indebtedness shall have been
paid in full, after giving effect to any concurrent payment or distribution to
the holder of such Senior Indebtedness.
3.4 EFFECT OF PROVISIONS. The provisions hereof as to subordination are
solely for the purpose of defining the relative rights of the holder of Senior
Indebtedness on the one hand, and the holder of the Subordinated Indebtedness on
the other hand, and none of such provisions shall impair, as between Borrower
and the holder of the Subordinated Indebtedness, the obligations of Borrower to
pay to such holder all of the Subordinated Indebtedness in accordance with the
terms thereof, nor, except as provided in Section 7 below, shall any such
provisions prevent the holder of Subordinated Indebtedness from exercising all
remedies otherwise permitted by applicable law or under the terms of such
Subordinated Indebtedness upon a default thereunder, subject to the rights, if
any, of the holder of Senior Indebtedness under the foregoing provisions of this
Agreement.
3.5 PERMITTED PAYMENTS OF SUBORDINATED INDEBTEDNESS. Borrower may, from
time to time, pay or cause to be paid to Subordinated Lender and Subordinated
Lender may accept and retain as and when due the regularly scheduled monthly
payments of Seventy-Five Thousand Dollars ($75,000) each under the Blattner
Note; PROVIDED, HOWEVER, that no such payments shall be
-3-
<PAGE>
made once Gerald gives notice (as provided in Section 12 hereof) to
Subordinated Lender that an Event of Default exists under the Loan Agreement.
4. AGREEMENT TO HOLD IN TRUST. If the holder of Subordinated Indebtedness
shall receive any payment on account of the Subordinated Indebtedness in
violation of this Agreement (including, without limitation, any payment received
after Gerald gives notice to Subordinated Lender that an Event of Default exists
under the Loan Agreement), it shall hold such payment in trust for the benefit
of the holder of the Senior Indebtedness and, promptly upon discovery or notice
of such violation, pay it over to such holder for application in payment of the
Senior Indebtedness.
5. AMENDMENTS TO SUBORDINATED AGREEMENTS/LIENS ON COLLATERAL.
Subordinated Lender covenants and agrees that, unless Gerald otherwise consents
thereto in writing, it will not amend or modify any provision of any of the
Subordinated Agreements or obtain any additional liens or security interests on
the assets of Borrower as security for the Subordinated Indebtedness. Upon
payment in full of the Senior Indebtedness, the liens and security interests of
Gerald securing the Senior Indebtedness shall terminate.
6. LEGEND. Borrower and Subordinated Lender, for itself and its
successors and assigns as holders of Subordinated Indebtedness, covenant to
cause each agreement and instrument representing or evidencing any of the
Subordinated Indebtedness issued or executed by Borrower and held by
Subordinated Lender to have affixed upon it a legend which reads substantially
as follows:
"This instrument/agreement is subject to a Subordination and
Intercreditor Agreement dated as of April 12, 1996 among BARRIER REEF
INC., STIBNITE MINE INC., BROHM MINING CORP., D.H. BLATTNER & SONS,
INC. and GERALD METALS, INC. By its acceptance of this
instrument/agreement, any successor or assignee of D.H. Blattner &
Sons, Inc. hereof agrees to be bound by the provisions of such
Subordination Agreement to the same extent that Subordinated Lender
(as defined therein) is bound."
7. LIMIT ON RIGHT OF ACTION. Subordinated Lender, for itself and its
successors and assigns, agrees for the benefit of the holder of the Senior
Indebtedness that so long as the Senior Indebtedness remains outstanding or
committed to be advanced, Subordinated Lender will not, directly or indirectly,
take any action to accelerate or demand payment by Borrower of the Subordinated
Indebtedness, to exercise any of its remedies in respect of the Subordinated
Indebtedness, to initiate any Reorganization of, or litigation with respect to
the Subordinated Indebtedness against, Borrower, or to foreclose or otherwise
realize on any security given by Borrower or any other person to secure the
Subordinated Indebtedness prior to the earlier of (a) a Reorganization of
Borrower or (b) the acceleration of the Senior Indebtedness by the holder
thereof.
8. SUBORDINATED LENDER FBNA JUNIOR SECURITY. Subordinated Lender hereby
confirms that, until payment in full of the Senior Indebtedness and regardless
of the relative times and
-4-
<PAGE>
method of attachment or perfection thereof or the order of filing of
financing statements, mortgages or other security agreements or documents, or
anything in the Subordinated Agreements or this Agreement to the contrary,
the security interests and liens granted or to be granted from time to time
to secure the Senior Indebtedness (including, without limitation, the pledge
and grant of security interests by MinVen Gold (USA) Corporation ("MinVen")
in all of the shares of outstanding common stock of Barrier Reef Inc.,
Stibnite Mine Inc. and Brohm Mining Corp. to secure the obligations to MinVen
under the Limited Guaranty of MinVen of even date herewith), shall in all
respects be first and senior security interests and liens, superior to any
security interests and liens granted or to be granted to Subordinated Lender
(including, without limitation, all security interests and liens granted
pursuant to the Subordinated Mortgage, as amended or modified from time to
time) or FBNA in assets of, or ownership interests in, Borrower or any other
person pursuant to the Subordinated Agreements or otherwise, it being the
express intention of the parties that until payment in full of the Senior
Indebtedness, notwithstanding anything in this Agreement to the contrary, all
liens and security interests granted to Gerald from time to time shall be
prior and superior to any liens or security interests granted to Subordinated
Lender or FBNA. In foreclosing on Gerald's security interests and liens in
the collateral described in or covered by the Security Documents, Gerald may
proceed to foreclose on Gerald's security interests and liens in any manner
which Gerald, in its sole discretion, chooses, even though a higher price
might have been realized if Gerald had proceeded to foreclose on Gerald's
security interests and liens in another manner; PROVIDED, however, that
Gerald agrees (except in the case of collateral which threatens to decline
speedily in value or is of a type customarily sold on a recognized
commodities or other market) to give Subordinated Lender not less than ten
(10) days prior written notice of the time and place of any public or private
sale of any of Gerald's collateral or five (5) days prior written notice of
Gerald's intent to retain collateral in satisfaction of all or part of the
Senior Indebtedness. The provisions of this Section 8 shall not be deemed to
waive any rights of Subordinated Lender under Section 9-505 of the Uniform
Commercial Code.
9. RIGHTS OF GERALD TO AMEND DOCUMENTS AND DISCONTINUE SENIOR
INDEBTEDNESS. Subject to Gerald's obtaining any necessary consents or
agreements of Borrower, Gerald hereby reserves the right, in its sole
discretion, to modify, amend, waive or release any of the terms of the Loan
Agreement, the Note, the Security Documents or any other document of agreement
at any time executed by Borrower or any other person securing the Senior
Indebtedness or any other document executed in connection with the Senior
Indebtedness or of any other document relative thereto and to exercise or
refrain from exercising any powers or rights which Gerald may have thereunder,
and such modification, amendment, waiver, release, exercise or failure to
exercise shall not affect any of Gerald's rights under this Agreement; PROVIDED,
however, that Gerald agrees that it will not increase the aggregate principal
amount of the Note above $4,000,000 without prior written consent of
Subordinated Lender. Subordinated Lender hereby agrees that Gerald may, subject
to Gerald's obtaining any necessary consents or agreements of Borrower, from
time to time in Gerald's sole discretion amend the instrument and agreements
evidencing the Senior Indebtedness, grant extensions of time of payment or
performance and make compromises and settlements with Borrower, without
affecting the agreements of Subordinated Lender or Borrower hereunder. This
Agreement shall continue in full force and effect until the Senior Indebtedness
shall have been paid in full.
-5-
<PAGE>
10. PAYMENTS OF SUBORDINATED LENDER TO GERALD. Any payment received by
Subordinated Lender on the Subordinated Indebtedness which is required by the
terms of this Agreement to be paid over by Subordinated Lender to Gerald for
application to the Senior Indebtedness shall not be deemed to have reduced the
amount owing on the Subordinated Indebtedness, and Subordinated Lender shall be
entitled to recover the amount of such payment from Borrower or any other
obligor on this Agreement as though it had not been made.
11. FURTHER ASSURANCES. Borrower and Subordinated Lender, each for itself
and its successors and assigns as holders of Subordinated Indebtedness, covenant
to execute and deliver to Gerald such further instruments and documents and take
such further actions as Gerald may from time to time reasonably request, and
Borrower and Gerald agree to execute and deliver to Subordinated Lender such
further instruments and documents and take such further actions as Subordinated
Lender may from time to time reasonably request, in each case for the purpose of
carrying out the provisions and intent of this Agreement.
12. NOTICES. All notices and correspondence hereunder shall be in writing
and sent by certified or registered mail, return receipt requested, or by
overnight delivery service, with all charges prepaid, to the applicable party at
the addresses set forth below, or by facsimile transmission (including, without
limitation, computer generated facsimile), promptly confirmed in writing sent by
first class mail, to the FAX numbers and addresses set forth below.
If to Gerald:
Gerald Metals, Inc.
High Ridge Park
P.O. Box 10134
Stamford, Connecticut 06904
Attention: Susan Scoggins
cc: Treasurer
FAX No.: 203 329-4844
Telex No.: 620226
ANSWERBACK: GENNARD
If to Borrower:
Barrier Reef Inc., Stibnite Mine Inc.
and Brohm Mining Corp.
c/o Dakota Mining Corporation
410 Seventeenth Street, Suite 2450
Denver, Colorado 80202
Attention: Robert R. Gilmore
FAX No.: (303) 573-1012
-6-
<PAGE>
If to Subordinated Lender:
D.H. Blattner & Sons, Inc.
16733 County Road #9
P.O. Box 37
Avon, MN 56310-0037
Attention: David Blattner, Esq.
FAX No.: (612) 356-7392
or, as to each party, at such other address as shall be designated by such
party in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices and correspondence shall be
deemed given upon the earlier to occur of (a) actual receipt, (b) if sent by
certified or registered mail, three (3) business days after being postmarked,
(c) if sent by overnight delivery service, when received at the above stated
addresses or when delivery is refused or (d) if sent by facsimile
transmission, when receipt of such transmission is acknowledged.
13. SUCCESSORS; CONTINUING EFFECT, ETC. This Agreement is being
entered into for the benefit of the holders of the Senior Indebtedness and
the Subordinated Indebtedness, and their respective successors and assigns.
This Agreement shall be a continuing agreement and shall be irrevocable and
shall remain in full force and effect so long as there is Senior Indebtedness
outstanding or committed to be advanced, whether or not any Subordinated
Indebtedness is currently outstanding. The liability of Subordinated Lender
hereunder shall be reinstated and revived, and the rights of the holders of
the Senior Indebtedness shall continue, with respect to any amount at any
time paid on account of the Senior Indebtedness which shall thereafter be
required to be restored or returned by the holders of the Senior Indebtedness
in any Reorganization (including, without limitation, any repayment made
pursuant to any provision of Chapter 5 of Title 11, United States Code), all
as though such amount had not been paid. Subject to the provisions of the
immediately preceding sentence, this Agreement shall terminate upon the
repayment and performance in full of all Senior Indebtedness.
14. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof, and no
modification or waiver of any provision of this Agreement shall in any event
be effective unless the same shall be in writing signed by Gerald and
Subordinated Lender (unless such amendment or modification shall impose any
additional obligations upon Borrower, in which case such amendment or
modification shall also require execution by Borrower).
15. MISCELLANEOUS. This Agreement, which may be executed in any number
of counterparts, shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of
laws. The headings in this Agreement are for convenience of reference only
and shall not alter or otherwise affect the meaning hereof. Borrower and
Subordinated Lender shall reimburse the holders of the Senior Indebtedness
upon demand for all reasonable costs and expenses (including reasonable
attorneys' fees and disbursements) paid or incurred by the holders of the
Senior Indebtedness in connection with any
-7-
<PAGE>
enforcement of this Agreement in favor of the holders of the Senior
Indebtedness. In the event Subordinated Lender shall reimburse the holders
of the Senior Indebtedness at any time as provided in the immediately
preceding sentence, Borrower shall immediately indemnify and reimburse
Subordinated Lender for all such amounts.
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
executed by its duly authorized representative as of the day and year first
above written.
BORROWER:
BARRIER REEF INC.
By c/s ROBERT R. GILMORE
-------------------------------
Title VICE PRESIDENT
STIBNITE MINE INC.
By c/s ROBERT R. GILMORE
-------------------------------
Title VICE PRESIDENT
BROHM MINING CORP.
By c/s ROBERT R. GILMORE
-------------------------------
Title VICE PRESIDENT
SUBORDINATED LENDER:
D.H. BLATTNER & SONS, INC.
By c/s W.H. BLATTNER, JR.
-------------------------------
Title PRESIDENT
GERALD:
GERALD METALS, INC.
By ROBERT KAESER
-------------------------------
Title VICE PRESIDENT
-8-
<PAGE>
EXHIBIT A
UNIFORM COMMERCIAL CODE FINANCING STATEMENTS
<TABLE>
<CAPTION>
COLLATERAL
DEBTOR FILING OFFICE FILE NO. FILE DATE DESCRIPTION
------ ------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Stibnite Mine Inc. Colorado 922056191 8/3/92 Inventory,
Secretary of products and
State proceeds
Idaho Secretary of 527181 8/3/92 Inventory,
State products and
proceeds
Valley County 189546 8/6/92 Inventory,
Recorder products and
proceeds
Barrier Reef Inc. Colorado 922056190 8/3/92 Inventory,
Secretary of State products and
proceeds
Idaho Secretary of 527182 8/3/92 Inventory,
State products and
proceeds
Valley County 189547 8/6/92 Inventory,
Recorder products and
proceeds
Colorado 922056192 8/3/92 Inventory,
Secretary of products and
State proceeds
Brohm Mining Colorado 922056192 8/3/92 Inventory,
Corp. Secretary of State products and
proceeds
</TABLE>
<PAGE>
DAKOTA MINING CORPORATION
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
Three months ended March 31, 1996 and 1995
THREE MONTHS ENDED
MARCH 31,
1996 1995
---- ----
Beginning shares outstanding 26,534,742 21,360,108
Exercise of common share purchase
warrants - -
Exercise of special warrants
Average shares issued for options exercised 47,764 -
----------- -----------
Weighted average shares outstanding 26,582,506 21,360,108
----------- -----------
----------- -----------
Net loss $ (945,433) $(1,224,208)
----------- -----------
----------- -----------
Loss per common share $ (.04) $ (.06)
----------- -----------
----------- -----------
NOTE: All other issued and outstanding options and warrants are antidilutive.
Fully diluted calculation is not different and therefore is not
applicable.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3 and 4 of the Company's form 10-Q for the year-to-date, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,391,247
<SECURITIES> 0
<RECEIVABLES> 72,634
<ALLOWANCES> 0
<INVENTORY> 4,183,787
<CURRENT-ASSETS> 15,591,722
<PP&E> 31,154,432
<DEPRECIATION> (8,313,468)
<TOTAL-ASSETS> 44,484,522
<CURRENT-LIABILITIES> 4,802,351
<BONDS> 0
0
0
<COMMON> 52,741,584
<OTHER-SE> (17,346,366)
<TOTAL-LIABILITY-AND-EQUITY> 44,484,522
<SALES> 3,196,715
<TOTAL-REVENUES> 3,196,715
<CGS> 4,113,854
<TOTAL-COSTS> 4,113,854
<OTHER-EXPENSES> (82,002)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,296
<INCOME-PRETAX> (945,433)
<INCOME-TAX> 0
<INCOME-CONTINUING> (945,433)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
