-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DO0lcHY/QQUe1BL6Vbpc6kubPm53clDLGu4tSDxYvqmDyuREh3tffkoAt1LBx/Qo G5lcNtbyHAuqTaSHwxm1GA== /in/edgar/work/0000719413-00-000020/0000719413-00-000020.txt : 20001114 0000719413-00-000020.hdr.sgml : 20001114 ACCESSION NUMBER: 0000719413-00-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HECLA MINING CO/DE/ CENTRAL INDEX KEY: 0000719413 STANDARD INDUSTRIAL CLASSIFICATION: [1400 ] IRS NUMBER: 820126240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08491 FILM NUMBER: 760365 BUSINESS ADDRESS: STREET 1: 6500 MINERAL DRIVE STREET 2: NONE CITY: COEUR D'ALENE STATE: ID ZIP: 83815-8788 BUSINESS PHONE: 2087694100 MAIL ADDRESS: STREET 1: 6500 MINERAL DRIVE STREET 2: NONE CITY: COEUR D'ALENE STATE: ID ZIP: 83815-8788 10-Q 1 0001.txt HECLA MINING COMPANY - FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 Commission file number 1-8491 --------------------------------------------------------- HECLA MINING COMPANY - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 82-0126240 - --------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 - ---------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) 208-769-4100 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for at least the past 90 days. Yes XX . No . ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding October 31, 2000 - -------------------------- ---------------------------- Common stock, par value 66,797,641 shares $0.25 per share 2 Hecla Mining Company and Subsidiaries Form 10-Q For the Quarter Ended September 30, 2000 I N D E X* Page PART I. - Financial Information Item l - Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 3 - Consolidated Statements of Operations and Comprehensive Loss - Three Months and Nine Months Ended September 30, 2000 and 1999 4 - Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 5 - Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. - Other Information Item 1 - Legal Proceedings 32 Item 6 - Exhibits and Reports on Form 8-K 36 *Items omitted are not applicable. -2- 3 Part I - Financial Information Hecla Mining Company and Subsidiaries Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
September 30, December 31, 2000 1999 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 4,486 $ 2,719 Accounts and notes receivable 26,801 29,202 Inventories 17,824 24,033 Other current assets 3,529 2,548 ---------- ---------- Total current assets 52,640 58,502 Investments 793 2,130 Restricted investments 6,262 5,998 Properties, plants and equipment, net 173,028 191,026 Other noncurrent assets 11,679 10,701 ---------- ---------- Total assets $ 244,402 $ 268,357 ========== ========== LIABILITIES Current liabilities: Accounts payable and accrued expenses $ 11,260 $ 12,135 Accrued payroll and related benefits 6,220 4,394 Preferred stock dividends payable 2,012 2,012 Current portion of long-term debt 57,000 782 Accrued taxes 2,500 2,369 Accrued reclamation and closure costs 15,563 8,384 ---------- ---------- Total current liabilities 94,555 30,076 Deferred income taxes 300 300 Long-term bank debt 11,704 55,095 Accrued reclamation and closure costs 30,190 40,941 Other noncurrent liabilities 8,558 9,244 ---------- ---------- Total liabilities 145,307 135,656 ---------- ---------- SHAREHOLDERS' EQUITY Preferred stock, $0.25 par value, authorized 5,000,000 shares; issued and outstanding - 2,300,000 shares, liquidation preference $117,012 575 575 Common stock, $0.25 par value, authorized 100,000,000 shares; issued 2000 - 66,859,752 shares, issued 1999 - 66,844,575 shares 16,715 16,711 Capital surplus 400,236 400,205 Accumulated deficit (312,224) (278,533) Accumulated other comprehensive loss (4,807) (4,871) Less stock held by grantor trust; 2000 - 139,467, 1999 - 132,290 common shares (514) (500) Less treasury stock, at cost; 2000 and 1999 - 62,111 common shares (886) (886) ---------- ---------- Total shareholders' equity 99,095 132,701 ---------- ---------- Total liabilities and shareholders' equity $ 244,402 $ 268,357 ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
-3- 4 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Dollars and shares in thousands, except for per-share amounts)
Three Months Ended Nine Months Ended ----------------------------- ----------------------------- Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999 ------------- ------------- ------------- ------------- Sales of products $ 37,916 $ 38,305 $ 118,490 $ 126,021 --------- --------- --------- --------- Cost of sales and other direct production costs 31,028 30,281 98,967 96,708 Depreciation, depletion and amortization 5,000 5,404 17,076 17,348 --------- --------- --------- --------- 36,028 35,685 116,043 114,056 --------- --------- --------- --------- Gross profit 1,888 2,620 2,447 11,965 --------- --------- --------- --------- Other operating expenses: General and administrative 1,735 1,835 6,092 5,648 Exploration 1,992 1,739 5,378 3,919 Depreciation and amortization 69 75 213 248 Provision for closed operations and environmental matters 522 27,923 4,020 28,533 Reduction in carrying value of mining properties - - 4,077 9,072 4,077 --------- --------- --------- --------- 4,318 35,649 24,775 42,425 --------- --------- --------- --------- Loss from operations (2,430) (33,029) (22,328) (30,460) --------- --------- --------- --------- Other income (expense): Interest and other income 1,508 772 3,975 3,291 Miscellaneous expense (531) (349) (2,632) (1,180) Loss on investments - - (96) - - (96) Interest expense: Total interest cost (2,116) (1,234) (5,843) (3,116) Less amount capitalized - - 19 - - 19 --------- --------- --------- --------- (1,139) (888) (4,500) (1,082) --------- --------- --------- --------- Loss before income taxes, cumulative effect of change in accounting principle and extraordinary item (3,569) (33,917) (26,828) (31,542) Income tax provision (53) (85) (178) (239) --------- --------- --------- --------- Loss before cumulative effect of change in accounting principle and extraordinary item (3,622) (34,002) (27,006) (31,781) Extraordinary item, net of income tax - - - - (647) - - Cumulative effect of change in accounting principle, net of income tax - - - - - - (1,385) --------- --------- --------- --------- Net loss (3,622) (34,002) (27,653) (33,166) Preferred stock dividends (2,013) (2,013) (6,038) (6,038) --------- --------- --------- --------- Loss applicable to common shareholders (5,635) (36,015) (33,691) (39,204) --------- --------- --------- --------- Other comprehensive income (loss), net of tax: Unrealized holding gains (losses) on securities (150) - - 64 40 Reclassification adjustment for loss included in net loss - - 96 - - 96 --------- --------- --------- --------- Other comprehensive income (loss) (150) 96 64 136 --------- --------- --------- --------- Comprehensive loss applicable to common shareholders $ (5,785) $ (35,919) $ (33,627) $ (39,068) ========= ========= ========= ========= Basic and diluted loss per common share before cumulative effect of change in accounting principle $ (0.08) $ (0.54) $ (0.49) $ (0.62) Extraordinary item - - - - (0.01) - - Cumulative effect of change in accounting principle - - - - - - (0.02) --------- --------- --------- --------- Basic and diluted loss per common share $ (0.08) $ (0.54) $ (0.50) $ (0.64) ========= ========= ========= ========= Cash dividends per common share $ - - $ - - $ - - $ - - ========= ========= ========= ========= Weighted average number of common shares outstanding 66,798 66,716 66,789 60,868 ========= ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements.
-4- 5 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Nine Months Ended ----------------------------- Sept 30, 2000 Sept 30, 1999 ------------- ------------- Operating activities: Net loss $ (27,653) $ (33,166) Noncash elements included in net loss: Depreciation, depletion and amortization 17,289 17,596 Cumulative effect of change in accounting principle - - 1,385 Extraordinary charge 647 - - Loss on sale of MWP division of MWCA 929 - - Gain on disposition of properties, plants and equipment (1,292) (1,548) Loss on investments - - 96 Reduction in carrying value of mining properties 9,072 4,077 Provision for reclamation and closure costs 2,124 28,049 Change in assets and liabilities net of effects from purchase of Monarch Resources Investments Limited: Accounts and notes receivable 2,510 (5,199) Income tax refund receivable - - 1,079 Inventories (1,829) 1,466 Other current and noncurrent assets (578) (1,341) Accounts payable and accrued expenses (1,472) (5,874) Accrued payroll and related benefits 1,826 1,640 Accrued taxes 131 1,737 Accrued reclamation and other noncurrent liabilities (6,410) (5,590) --------- --------- Net cash provided (used) by operating activities (4,706) 4,407 --------- --------- Investing activities: Proceeds from sale of MWCA 9,677 - - Purchase of Monarch Resources Investments Limited, net of cash acquired - - (9,183) Additions to properties, plants and equipment (11,455) (9,512) Proceeds from disposition of properties, plants and equipment 1,946 1,991 Proceeds from the sale of investments 283 311 Decrease (increase) in restricted investments (264) 369 Purchase of investments and change in cash surrender value of life insurance, net 1,114 11 Other, net 175 325 --------- --------- Net cash provided (used) by investing activities 1,476 (15,688) --------- --------- Financing activities: Common stock issued under stock and stock option plans 35 20 Issuance of common stock, net of offering costs - - 12,104 Preferred stock dividends (6,038) (6,038) Payment for debt issuance costs (1,811) (995) Borrowings against cash surrender value of life insurance - - 925 Borrowings on long-term debt 79,500 45,536 Repayments on long-term debt (66,689) (36,652) --------- --------- Net cash provided by financing activities 4,997 14,900 --------- --------- Net increase in cash and cash equivalents 1,767 3,619 Cash and cash equivalents at beginning of period 2,719 2,480 --------- --------- Cash and cash equivalents at end of period $ 4,486 $ 6,099 ========= ========= The accompanying notes are an integral part of the consolidated financial statements.
-5- 6 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Notes to Consolidated Financial Statements Note 1. The notes to the consolidated financial statements as of December 31, 1999, as set forth in Hecla Mining Company's (Hecla) 1999 Annual Report on Form 10-K, substantially apply to these interim consolidated financial statements and are not repeated here. For additional information, please refer to such notes. Note 2. The financial information given in the accompanying unaudited interim consolidated financial statements reflects all adjustments which, in the opinion of management, are necessary to a fair statement of the results for the interim periods reported. All such adjustments are of a normal recurring nature with the exception of an adjustment recognized in 2000 for the early extinguishment of debt as described in Note 8 and an adjustment recognized in 1999 for the cumulative effect of a change in accounting principle. All financial statements presented herein are unaudited. However, the balance sheet as of December 31, 1999, was derived from the audited consolidated balance sheet referenced in Note 1 above. Certain consolidated financial statement amounts have been reclassified to conform to the 2000 presentation. These reclassifications had no effect on the net loss or accumulated deficit as previously reported. Note 3. On March 15, 2000, Hecla completed the sale of its MWCA - Mountain West Products (MWP) division for $8.5 million in cash. The sale of MWP resulted in a loss on disposal of $0.9 million. The proceeds from the sale were used to pay down amounts outstanding under Hecla's previously existing revolving credit facility. On June 5, 2000 Hecla completed a sale of the landscape operations of the Colorado Aggregate Division (CAC) of MWCA for $1.1 million in cash. The sale of the CAC landscape operations did not result in a gain or loss. Hecla is currently negotiating with third parties for a potential sale of the remaining assets of the Colorado Aggregate division of MWCA, although there can be no assurance that a sales transaction will be completed. Note 4. In the second quarter of 2000, Hecla recorded adjustments totaling $10.3 million for asset write-downs and future reclamation and closure costs. This total includes an asset write-down for the property, plant, and equipment and supply inventory at the Rosebud mine, in which Hecla owns an approximate 51% interest, of $4.4 million. The adjustment at Rosebud -6- 7 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries was necessitated due to the closure of the Rosebud mine previously announced by Hecla and Newmont, Hecla's joint venture partner. The Rosebud mine completed mining activity on July 31, 2000, with the completion of milling activities in August 2000. An adjustment for future closure costs and reclamation activities totaling approximately $0.7 million was also recorded for the Rosebud mine. An asset write-down of $4.7 million was recorded for previously capitalized development costs at the Noche Buena gold property in Mexico. Development activity at the Noche Buena property was previously suspended due to low gold prices. The continuation of lower gold prices resulted in Hecla's decision to reduce the carrying value of Noche Buena. Additionally, Hecla recorded $0.6 million in accruals for reclamation and environmental matters at various other properties in the second quarter. Note 5. The components of the income tax provision for the nine months ended September 30, 2000 and 1999 were as follows (in thousands): 2000 1999 ------ ------ Current: State income taxes $ 166 $ 204 Federal income taxes - - 2 Foreign income taxes 12 33 ------ ------ Total $ 178 $ 239 ====== ====== Hecla's income tax provision for the first nine months of 2000 and 1999 varies from the amount that would have been provided by applying the statutory rate to the income (loss) before income taxes primarily due to the inability to use tax losses in 2000 and 1999. Note 6. Inventories consist of the following (in thousands): Sept. 30, Dec. 31, 2000 1999 --------- -------- Concentrates, bullion, metals in transit and other products $ 6,535 $ 3,947 Industrial mineral products 3,171 9,275 Materials and supplies 8,118 10,811 -------- -------- $ 17,824 $ 24,033 ======== ======== -7- 8 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries At September 30, 2000, Hecla had forward sales commitments through December 31, 2004 for 244,605 ounces of gold at an average price of $288.23 per ounce and forward sales commitments through December 29, 2000 for 300,000 ounces of silver at an average price of $5.51 per ounce. Also at September 30, 2000, Hecla had swap contracts through December 2000 for 1,500 metric tons of zinc at an average price of $0.519 per pound. All of the aforementioned contracts were designated as hedges at September 30, 2000. Hecla is exposed to certain losses, generally the amount by which the contract price exceeds the spot price of a commodity, in the event of nonperformance by the counterparties to these agreements. The London Final gold price at September 29, 2000 was $273.65 per ounce. The Handy & Harman silver price at September 29, 2000 was $4.93 per ounce. At September 29, 2000, the LME cash zinc price was $0.538 per pound. Note 7. Contingencies - - Bunker Hill Superfund Site In 1994, Hecla, as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), entered into a consent decree with the Environmental Protection Agency (EPA) and the state of Idaho, concerning environmental remediation obligations at the Bunker Hill Superfund site located at Kellogg, Idaho. The consent decree settled Hecla's response-cost liability under CERCLA at the Bunker Hill site. As of September 30, 2000, Hecla has estimated and accrued an allowance for liability for remedial activity costs at the Bunker Hill site of $6.1 million. These estimated expenditures are anticipated to be made over the next three to five years. Although Hecla believes the allowance is adequate based upon current estimates of aggregate costs, Hecla will reassess its obligations under the consent decree as new information is developed. Depending on the results of any reassessment, it is reasonably possible that Hecla's estimate of its obligations may change in the near or longer term. - - Coeur d'Alene River Basin Natural Resource Damage Claims - Coeur d'Alene Tribe Claims In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under CERCLA, in Idaho Federal District Court against Hecla and a number of other mining companies asserting claims for damages to natural resources downstream from the Bunker Hill site over which the tribe alleges some ownership or control. Hecla answered the Tribe's complaint denying liability for natural resource damages. In October 1996, following a court imposed four-year suspension of the proceeding, the Tribe's natural resource damage litigation was consolidated -8- 9 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries with the United States Natural Resources Damage litigation described below for discovery and other limited pretrial purposes. - U.S. Government Claims In March 1996, the United States filed a lawsuit in Idaho Federal District Court against certain mining companies that conducted historic mining operations in the Silver Valley of northern Idaho, including Hecla. The lawsuit asserts claims under CERCLA and the Clean Water Act and seeks recovery for alleged damages to or loss of natural resources located in the Coeur d'Alene River Basin in northern Idaho for which the United States asserts to be the trustee under CERCLA. The lawsuit asserts that the defendants' historic mining activity resulted in releases of hazardous substances and damaged natural resources within the Basin. The suit also seeks declaratory relief that Hecla and other defendants are jointly and severally liable for response costs under CERCLA for historic mining impacts in the Basin outside the Bunker Hill site. Hecla answered the complaint in May 1996, denying liability to the United States under CERCLA and the Clean Water Act and asserted a counterclaim against the United States for the federal government's involvement in mining activities in the Basin which contributed to the releases and damages alleged by the United States. Hecla believes it also has a number of defenses to the United States' claims. In May 1998, the EPA announced that it had commenced a remedial investigation/feasibility study under CERCLA for the entire Basin, including Lake Coeur d'Alene, in support of its response cost claims asserted in its March 1996 lawsuit. On September 30, 1998, the Federal District Court granted Hecla's summary judgment motion with respect to the applicable statute of limitations and dismissed the United States' natural resources damage claims due to the failure of the EPA to comply with federal law and EPA regulations in expanding the national priority list site boundaries to include the entire Coeur d'Alene River/Lake Coeur d'Alene Basin which would have the effect of extending the statute of limitations. In an opinion issued June 15, 2000, the Ninth Circuit Court of Appeals vacated the District Court's ruling stating that the District Court did not have jurisdiction to determine the scope of the Bunker Hill Superfund site. On September 30, 1999, the court issued an order on one of the defendant's challenges to the constitutionality of the retroactive application of liability under CERCLA. Although the court held that the statute did not facially violate the due process or taking clauses of the U.S. Constitution, the court also stated that the constitutionality of retroactive application of liability to the defendants in this case cannot be resolved at this stage of litigation as genuine issues of material fact exist and liability has not been established. -9- 10 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries The Federal District Court case is proceeding through discovery. A number of Summary Judgement motions filed by both the plaintiffs and the defendants are currently pending before the court. Trial is currently scheduled for January 2001. The Company is also involved in settlement negotiations with representatives of the U.S. Government and the Coeur d'Alene Tribe. The Company is also participating with certain of the other defendants in the litigation in a state of Idaho led settlement effort. - - Insurance Coverage Litigation In 1991, Hecla initiated litigation in the Idaho State District Court in Kootenai County, Idaho, against a number of insurance companies which provided comprehensive general liability insurance coverage to Hecla and its predecessors. Hecla believes that the insurance companies have a duty to defend and indemnify Hecla under their policies of insurance for all liabilities and claims asserted against Hecla by the EPA and the tribe under CERCLA related to the Bunker Hill site and the Basin in northern Idaho. In 1992, the Idaho State District Court ruled that the primary insurance companies had a duty to defend Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into settlement agreements with a number of the insurance carriers named in the litigation. Hecla has received a total of approximately $7.2 million under the terms of the settlement agreements. Thirty percent of these settlements were paid to the EPA to reimburse the U.S. government for past costs under the Bunker Hill site consent decree. Litigation is still pending against one insurer with trial suspended until the underlying environmental claims against Hecla are resolved or settled. The remaining insurer in the litigation with a second insurer not named in the litigation is providing Hecla with a partial defense in all Basin environmental litigation. As of September 30, 2000, Hecla had not reduced its accrual for reclamation and closure costs to reflect the receipt of any anticipated insurance proceeds. - - Other Claims In 1997, Hecla's subsidiary, Kentucky-Tennessee Clay Company (K-T Clay), terminated shipments of 1% of annual ball clay production, sold to animal feed producers, when the Food and Drug Administration determined trace elements of dioxin were present in poultry. Dioxin is inherently present in ball clays generally. On September 22, 1999, Riceland Foods (the primary purchaser of ball clay from K-T Clay used in animal feed) commenced litigation against K-T Clay in State Court in Arkansas to recover their losses and their insurance company's payments to downstream users of their animal feed. The complaint alleges negligence, strict liability and breach of implied warranties. -10- 11 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Legal counsel retained by the insurance company for K-T Clay has had the case removed to Federal Court in Arkansas and has answered the complaint denying liability. In July 2000, a second complaint was filed against K-T Clay and Hecla in Arkansas State Court by another purchaser of animal feed containing ball clay sold by K-T Clay. A third complaint was filed in the United States District Court in Arkansas on August 31, 2000, by a successor in interest to a third purchaser of ball clay sold by K-T Clay and used in the animal feed industry. The plaintiffs together allege damages totaling approximately $8.5 million. These complaints contain similar allegations to the Riceland Foods' case and legal counsel retained by the insurance carrier is defending K-T Clay and Hecla in these lawsuits. The Company believes that these claims comprise substantially all the potential claims related to this matter. The defense of these lawsuits is also expected to be covered by insurance. The Company believes that $11.0 million of insurance coverage is available to cover these claims. Although the outcome of the litigation or insurance coverage cannot be assured, Hecla currently believes that there will be no material adverse effect on Hecla's results of operations, financial condition or cash flows from this matter. Hecla is subject to other legal proceedings and claims which have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters and the proceedings disclosed above, it is the opinion of Hecla's management that the outcome of these matters will not have a material adverse effect on the financial condition of Hecla. However, it is possible that these matters could have a material effect on quarterly or annual operating results and cash flows, when they are resolved, in future periods. Note 8. On March 31, 2000, Hecla entered into a new $55.0 million term loan facility due on April 10, 2001. Proceeds from the term loan facility were utilized to repay amounts outstanding under the previous bank credit agreement, to fund a restricted account to repay revenue bonds, to repay the subordinated debt, and to fund general corporate purposes. As security for the loan, Hecla pledged the common stock of certain of Hecla's subsidiaries and certain other assets. Interest rates are to be based on LIBOR plus 2.25%. At September 30, 2000, $55.0 million was outstanding under the new term loan facility and classified as current portion of long-term debt. As part of the refinancing, $9.9 million of the proceeds from the new term loan credit facility were placed into a restricted investment account to repay the $9.8 million in -11- 12 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries outstanding revenue bonds. On May 1, 2000, the revenue bonds were repaid. In connection with refinancing the previously existing debt, Hecla recorded a $0.6 million extraordinary charge in the first quarter of 2000 to write-off capitalized issuance costs associated with the extinguished debt. Due to the availability of net operating losses, there was no tax effect associated with the charge. On June 30, 2000, Hecla entered into a new $3.0 million subordinated debt facility. Proceeds from the subordinated debt are available for general corporate purposes. Interest rates are to be based on LIBOR plus a margin of 4.0%. The loan is to be repaid in equal installments on June 30, 2003, December 31, 2003, and June 30, 2004. At September 30, 2000, Hecla's wholly owned subsidiary, HRIL, had $10.6 million outstanding under a credit agreement utilized to finance the acquisition of the La Camorra gold mine in Venezuela. At September 30, 2000, HRIL was in compliance with restrictive covenants related to the available ore reserves and financial performance of the La Camorra mine. At September 30, 2000, $8.6 million of the project financing debt was classified as long-term debt, with the remaining $2.0 million classified as current portion of long-term debt. On October 12, 2000, Hecla entered into a $2.0 million revolving credit facility through January 15, 2001. This revolving credit facility is secured by Hecla's corporate office building. As of October 31, 2000, no amounts were outstanding under the revolving credit facility. At September 30, 2000, Hecla had a working capital deficit of $41.9 million. In order to improve its financial condition, Hecla is considering alternatives available to repay or restructure the $55.0 million in indebtedness due in April 2001, including refinancings, public offerings of equity and/or debt securities and possible asset sales. There can be no assurance that Hecla will be successful in refinancing its debt, issuing equity, or selling assets. If Hecla is unsuccessful in these efforts, there can be no assurance that Hecla will be able to repay its debt and fund continuing operations. Note 9. The following table presents a reconciliation of the numerators (net income or net loss) and denominators (shares) used in the basic and diluted loss per common share computations. Also shown is the effect that has been given to preferred stock dividends in arriving at loss applicable to common shareholders -12- 13 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries for the three and nine months ended September 30, 2000 and 1999 in computing basic and diluted loss per common share (dollars and shares in thousands, except per-share amounts).
Three Months Ended September 30, -------------------------------------------------------------------- 2000 1999 --------------------------------- -------------------------------- Net Per-Share Net Per-Share Loss Shares Amount Loss Shares Amount --------- ------ ------ --------- ------ ------ Net loss before preferred stock dividends $ (3,622) $ (34,002) Less: Preferred stock dividends (2,013) (2,013) --------- --------- Basic loss applicable to common shareholders (5,635) 66,798 $(0.08) (36,015) 66,716 $(0.54) Effect of dilutive securities - - - - - - - - - - - - --------- ------ ------ --------- ------ ------ Diluted loss applicable to common shareholders $ (5,635) 66,798 $(0.08) $ (36,015) 66,716 $(0.54) ========= ====== ====== ========= ====== ====== Nine Months Ended September 30, -------------------------------------------------------------------- 2000 1999 -------------------------------- -------------------------------- Net Per-Share Net Per-Share Loss Shares Amount Income (loss) Shares Amount --------- ------ ------ ------------- ------ ------ Net income (loss) before preferred stock dividends $ (27,653) $ (33,166) Less: Preferred stock dividends (6,038) (6,038) --------- --------- Basic loss applicable to common shareholders (33,691) 66,789 $(0.50) (39,204) 60,868 $(0.64) Effect of dilutive securities - - - - - - - - - - - - --------- ------ ------ --------- ------ ------ Diluted loss applicable to common shareholders $ (33,691) 66,789 $(0.50) $ (39,204) 60,868 $(0.64) ========= ====== ====== ========= ====== ======
These calculations of diluted earnings per share for the three months and nine months ended September 30, 2000 and 1999 exclude the effects of $115,000,000 of convertible preferred stock as such conversion would be antidilutive. Also excluded from these calculations are the effects of common stock issuable upon exercise of stock options as of September 30, 2000 and 1999, as their exercise would be antidilutive, as follows: -13- 14 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Three Months Ended Nine Months Ended ---------------------- ---------------------- September 30, September 30, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- 2,168,000 2,316,000 2,168,000 2,316,000 The calculations of diluted earnings per share for the three and nine months ended September 30, 2000 and 1999, also exclude 1,506,998 warrants to purchase common stock, as their exercise would be antidilutive. Note 10. Hecla is organized and managed primarily on the basis of the principal products being produced from its ten operating units. Three of the operating units have been aggregated into the Metals-Gold segment, two of the operating units have been aggregated into the Metals-Silver segment, and six operating units have been combined to form the Industrial Minerals segment. Two of the operating units in the gold segment have completed operations, including the La Choya mine where mining activities were completed in December 1998, and the Rosebud mine where mining and milling activities were completed in the third quarter of 2000. On March 15, 2000, Hecla sold the MWCA - Mountain West Products division. Following the sale, the Industrial Minerals segment consists of five operating units. General corporate activities not associated with operating units as well as idle properties are presented as Other. The following tables present information about reportable segments for the three months and nine months ended September 30 (in thousands):
Three Months Ended Nine Months Ended ------------------- --------------------- September 30, September 30, 2000 1999 2000 1999 --------- -------- --------- --------- Net sales to unaffiliated customers: Metals-Gold $ 8,439 $ 3,913 $ 23,192 $ 15,904 Metals-Silver 11,605 13,384 35,485 37,743 Industrial Minerals 17,872 21,008 59,813 72,374 -------- -------- --------- --------- $ 37,916 $ 38,305 $ 118,490 $ 126,021 ======== ======== ========= ==-======
-14- 15 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries
Three Months Ended Nine Months Ended ------------------- -------------------- September 30, September 30, 2000 1999 2000 1999 -------- --------- -------- -------- Income (loss) from operations: Metals-Gold $ (842) $ (3,308) $(15,147) $ (4,483) Metals-Silver (1,182) 1,075 (2,284) 2,734 Industrial Minerals 1,920 (788) 4,759 5,893 Other (2,326) (30,008) (9,656) (34,604) -------- -------- -------- -------- $ (2,430) $(33,029) $(22,328) $(30,460) ======== ======== ======== ========
The table below presents identifiable assets by reportable segment as of September 30, 2000, and December 31, 1999 (in thousands): September 30, December 31, 2000 1999 ------------- ------------ Identifiable assets: Metals-Gold $ 45,603 $ 56,018 Metals-Silver 115,871 121,814 Industrial Minerals 57,776 65,580 Other 25,152 24,945 --------- --------- $ 244,402 $ 268,357 ========= ========= Note 11. In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" was issued. SFAS 137 defers the effective date of SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000; however, earlier application is encouraged as of the beginning of any fiscal quarter. Hecla is presently evaluating the effect the adoption of this standard will have on Hecla's financial condition, results of operations, and cash flows. -15- 16 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction Hecla Mining Company is involved in the exploration, development, mining, and processing of gold, silver, lead, zinc, and industrial minerals. Hecla's gold and silver segment revenues and profitability are strongly influenced by world prices of gold, silver, lead, and zinc, which fluctuate widely and are affected by numerous factors beyond Hecla's control, including inflation and worldwide forces of supply and demand for precious and base metals. The aggregate effect of these factors is not possible to accurately predict. In the current metals price environment, Hecla's industrial minerals segment has been a significant contributor to overall revenues, including 50% of total revenue during the first nine months of 2000. In the following descriptions, where there are changes that are attributable to more than one factor, Hecla presents each attribute in descending order relative to the attribute's importance to the overall change. Except for the historical information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations, the matters discussed below are forward-looking statements that involve risks and uncertainties, including: - the timely development of existing properties and reserves and future projects, - the impact of metal prices and metal production volatility, - changing market conditions and the regulatory environment, - limited access to capital markets, - potential asset sales, - ability to repay indebtedness, and - the other risks detailed from time to time in Hecla's Form 10-K and Form 10-Qs filed with the Securities and Exchange Commission (see also "Investment Considerations" of Part I, Item 1 of Hecla's 1998 Annual Report on Form 10-K). As a result of the above factors and potentially others, actual results may differ materially from those projected, forecasted or implied. These forward- looking statements -16- 17 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries represent Hecla's judgment as of the date of this filing. Hecla disclaims, however, any intent or obligation to update these forward-looking statements as circumstances may change or develop. During the first nine months of 2000, Hecla produced approximately 112,000 ounces of gold compared to approximately 76,000 ounces of gold production in the first nine months of 1999. The following table displays the actual gold production (in ounces) by operation for the nine months ended September 30, 2000 and 1999, projected gold production for the year ending December 31, 2000, and actual gold production for the year ended December 31, 1999:
Actual Actual Projected Actual Sept. 30, Sept. 30, Dec. 31, Dec. 31, Operation 2000 1999 2000 1999 - --------- --------- --------- --------------- --------- La Camorra (1) 68,000 - - 88,000-91,000 17,000 Greens Creek(3) 19,000 19,000 23,000-24,000 24,000 Rosebud(3)(4) 24,000 46,000 24,000 56,000 Other(2) 1,000 11,000 1,000 13,000 -------- ------- --------------- -------- Totals 112,000 76,000 136,000-140,000 110,000 ======== ======= =============== ========
(1) Production commenced under Hecla's ownership in October of 1999 at the La Camorra mine. (2) Includes production from the La Choya mine, which completed mining in December 1998, and other sources. (3) Reflects Hecla's portion. (4) The Rosebud mine completed mining operations in July 2000 and milling operations in August 2000. In the first nine months of 2000, Hecla produced approximately 6.1 million ounces of silver compared to approximately 5.7 million ounces in the first nine months of 1999. The following table displays the actual silver production (in ounces) by operation for the nine months ended September 30, 2000 and 1999, projected silver production for the year ending December 31, 2000, and actual silver production for the year ended December 31, 1999 (in thousands): -17- 18 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries
Actual Actual Projected Actual Sept. 30, Sept, 30, Dec. 31, Dec. 31, Operation 2000 1999 2000 1999 - --------- --------- --------- ------------- -------- Lucky Friday 3,904 3,343 5,100-5,300 4,441 Greens Creek(1) 2,091 2,247 2,750-2,900 3,051 Rosebud(1)(2) 56 104 56 124 Other sources - - 1 - - 1 -------- ------- ------------- -------- Totals 6,051 5,695 7,906-8,256 7,617 ======== ======= ============= ========
(1) Reflects Hecla's portion. (2) The Rosebud mine completed mining operations in July 2000 and milling operations in August 2000. In 1999, Hecla shipped approximately 1,072,000 tons of product, which included ball clay, kaolin, and feldspar, from the Kentucky-Tennessee Clay group. Hecla's shipments of industrial minerals from the Kentucky-Tennessee Clay group are expected to increase to approximately 1,147,000 tons in 2000. During the first nine months of 2000, Hecla shipped approximately 56,000 tons of specialty aggregates from the Colorado Aggregate division of our subsidiary MWCA, and approximately 130,000 cubic yards of landscape material from the Mountain West Products (MWP) division of MWCA. On March 15, 2000, Hecla sold substantially all of the assets of its MWP division of MWCA for $8.5 million in cash. The sale of MWP resulted in a loss on disposal of $0.9 million. The proceeds from the sales transaction were used to pay down amounts outstanding under Hecla's previously existing revolving credit facility. On June 5, 2000 Hecla completed a sale of the landscape operations of the Colorado Aggregate Division (CAC) of MWCA for $1.1 million in cash. The sale of the CAC landscape operations did not result in a gain or loss. Hecla is currently negotiating with third parties for a potential sale of the remaining assets of the Colorado Aggregate division of MWCA, although there can be no assurance that a sales transaction will be completed. Results of Operations First Nine Months 2000 Compared to First Nine Months 1999 Hecla recorded a net loss, before an extraordinary charge and preferred stock dividends, of approximately $27.0 million, or $0.41 per common share, in the first nine months of 2000 compared to a loss of approximately $31.8 million, or $0.52 per common -18- 19 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries share, before a cumulative effect of a change in accounting principle and preferred stock dividends for the same period of 1999. After recognizing a $0.6 million extraordinary charge for the write-off of debt issuance costs related to extinguished debt, and after $6.0 million in dividends to holders of Hecla's Series B Cumulative Convertible Preferred Stock, Hecla's loss applicable to common shareholders for the first nine months of 2000 was approximately $33.7 million, or $0.50 per common share, compared to a loss of $39.2 million, or $0.64 per common share, in the comparable 1999 period, after recognizing a $1.4 million charge to write off unamortized start-up costs associated with the Greens Creek mine, and after $6.0 million in dividends to holders of Hecla's Series B Cumulative Convertible Preferred Stock. Sales of products decreased by approximately $7.5 million, or 6%, in the first nine months of 2000 as compared to the same period in 1999 primarily due to: - decreased sales totaling approximately $12.6 million from Hecla's industrial minerals segment, principally the result of decreased shipments at the MWCA group of $15.2 million due to the sale of the MWP division of MWCA on March 15, 2000 and the sale of the landscape operations of CAC on June 5, 2000. The decreases from MWCA were partly offset by increased sales of $2.6 million from the K-T Clay group, - decreased sales totaling approximately $2.2 million from silver operations primarily due to lower lead and silver prices, partly offset by an increased zinc price and increased production of silver, lead, and zinc, and - increased sales of $7.3 million from gold operations principally a result of the acquisition of the La Camorra mine in June 2000 partly offset by lower gold production at the Rosebud mine in 2000. The following table compares the average metal prices for the first nine months of 2000 with the comparable 1999 period: Metal 2000 1999 $ Change % Change ----------------------------- ------- ------- -------- -------- Gold-Realized ($/oz.) $ 286 $ 284 $ 2 1% Gold-London Final ($/oz.) 282 273 9 3 Silver-Handy & Harman ($/oz.) 5.08 5.24 (0.16) (3) Lead-LME Cash (cents/pound) 0.203 0.231 (0.028) (12) Zinc-LME Cash (cents/pound) 0.520 0.475 0.045 9 Adjustments to the carrying value of mining properties increased $5.0 million to $9.1 million in 2000 compared with an asset write-down totaling $4.1 million during 1999, principally -19- 20 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries for a write-down at MWCA. Adjustments in 2000 consist of $4.4 million for properties, plants, and equipment and supply inventory at the Rosebud mine, and $4.7 million for previously capitalized deferred development costs at the Noche Buena gold property. The $4.4 million adjustment at the Rosebud mine was necessitated due to the closure of the Rosebud mine previously announced by Hecla and Newmont, Hecla's joint venture partner. The Rosebud mine completed mining activity in July 2000 and milling activities in August 2000. At the Noche Buena property, Hecla suspended activities in 1999 due to a low price for gold. Based upon the continuation of the lower gold price an adjustment to the carrying value of the Noche Buena property was recorded in the second quarter of 2000. Interest expense increased $2.7 million in the first nine months of 2000 as compared to the same period in 1999. The $2.7 million increase was the result of increased average borrowings due to the $11.0 million of La Camorra project financing put in place in June 1999, $3.0 million of subordinated debt that was outstanding for three additional months in 2000, and the new $55.0 million term loan facility put in place in March 2000 which replaced a revolving $55.0 million credit facility that was in place in 1999. Higher average interest rates, and increased loan fees also contributed to the increase in interest expense as compared to the 1999 period. Exploration expense increased $1.5 million, or 37%, during the first nine months of 2000 as compared to the same period of 1999 principally due to increased expenditures at the Saladillo property in Mexico ($1.3 million), increased expenditures at the Rosebud mine ($0.7 million), and increased exploration at La Camorra ($0.4 million). These increases were partly offset by decreased expenditures at the Cacique property ($0.4 million) and other targets in Mexico and other properties ($0.5 million). Cost of sales and other direct production costs increased approximately $2.2 million, or 2%, from the first nine months of 1999 to the comparable 2000 period primarily due to: - increased cost of sales from gold operations of $6.3 million due to the acquisition of the La Camorra mine in June 1999 partly offset by lower costs of sales at the La Choya mine and the Rosebud mine due to lower gold production, - increased cost of sales from silver operations of $2.8 million resulting from increased production of silver, lead, and zinc at the Lucky Friday and Greens Creek mines, and -20- 21 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries - decreased cost of sales at the industrial minerals segment of $6.9 million principally due to the partial sale of MWCA, partly offset by increased costs at the K-T Clay group resulting from increased sales and increased energy costs. Cost of sales and other direct production costs as a percentage of sales from products increased from 77% in the first nine months of 1999 to 84% in the comparable 2000 period. The increase was principally a result of decreased margins in all three segments. In the gold segment, decreased gold production and higher unit cash costs at the Rosebud mine negatively impacted the gross margin. In the silver segment, lower hedging revenues combined with lower average lead and silver prices led to the reduced margins. The industrial minerals segment also saw reduced margins due to higher unit costs at MWCA and at the K-T Clay group. Miscellaneous expense increased $1.4 million, from $1.2 million in the 1999 period to $2.6 million in the 2000 period. The increase in 2000 was principally the result of a loss on the sale of the Mountain West Products division of MWCA ($0.9 million) and increased severance costs ($0.4 million). An extraordinary charge of $0.6 million was recorded in 2000 to write off previously unamortized debt issuance costs associated with the extinguishment of Hecla's previous $55.0 million credit facility. General and administrative expense increased $0.5 million, from $5.6 million in the 1999 period to $6.1 million in the 2000 period. The increase in 2000 was principally the result of increased incentive compensation and increased relocation and recruiting expenses. Hecla's provision for closed operations and environmental matters decreased $24.5 million from $28.5 million in the first nine months of 1999 to $4.0 million in the 2000 period. The decrease resulted principally from the 1999 environmental and reclamation accruals totaling $27.3 million for future environmental and reclamation expenditures at the Grouse Creek mine and the Bunker Hill Superfund site. The decrease is partially offset by a $1.5 million provision during the first nine months of 2000 at Grouse Creek, combined with reclamation and closure cost accruals of $668,000 for the Rosebud mine and $590,000 for various other properties. The cumulative effect of change in accounting principle totaled $1.4 million in 1999, due to the write off of unamortized start-up costs relating to Hecla's 29.7% ownership interest in the Greens Creek mine. The adjustment was the result of application -21- 22 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries of Statement of Position No. 98-5, "Accounting for Start-up Activities." Cash operating and total cash cost per gold ounce increased from $177 and $190 for the first nine months of 1999 to $213 and $216 for the first nine months of 2000, respectively. The increases were primarily attributable to higher costs per ounce at the Rosebud mine associated with mining of lower grade ore in 2000. Total production cost per gold ounce decreased slightly from $290 for the first nine months of 1999 to $281 for the first nine months of 2000. This decrease was principally due to production from the lower cost La Camorra mine in 2000 and due to the write-down of the carrying value of the Rosebud mine in the second quarter of 2000, which eliminated the depreciation, depletion and amortization component of the total production cost per ounce at Rosebud in the third quarter of 2000. Cash operating, total cash and total production cost per silver ounce increased from $3.66, $3.67 and $5.21 in the first nine months of 1999 to $3.90, $3.91 and $5.35 in the first nine months of 2000, respectively. The increases in the cost per silver ounce are due primarily to lower average lead prices which negatively impacted by-product credits, partly offset by increased production and a favorable zinc price. Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 Hecla recorded a net loss of approximately $3.6 million, or $0.05 per common share, in the third quarter of 2000 compared to a net loss of approximately $34.0 million, or $0.51 per common share, in the same period of 1999. After $2.0 million in dividends to holders of Hecla's Series B Cumulative Convertible Preferred Stock, Hecla's loss applicable to common shareholders for the third quarter of 2000 was approximately $5.6 million, or $0.08 per common share, compared to $36.0 million, or $0.54 per common share, in the comparable 1999 period. The decreased loss in 2000 compared to the same period in 1999 was due to a variety of factors, the most significant of which were 1999 environmental and reclamation accruals totaling $27.3 million for future environmental and reclamation expenditures at the Grouse Creek mine and the Bunker Hill Superfund site, and asset write-downs totaling $4.1 million, principally for the write-down of MWCA. Interest and other income increased $0.7 million from $0.8 million in the third quarter of 1999 to $1.5 million in the 2000 period. The increase was principally due to the receipt of approximately $0.7 million in interest from the Mexican Hacienda associated with claims for past due value added tax refunds in Mexico. -22- 23 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Exploration expense increased $0.3 million, or 14.5%, during the third quarter of 2000 as compared to the same period of 1999 principally due to increased expenditures at the Saladillo property in Mexico ($0.5 million). This increase was partly offset by decreased expenditures in Peru ($0.1 million) and at the Rosebud mine ($0.1 million). Interest expense, net of amounts capitalized, increased $0.9 million in the third quarter of 2000 as compared to the third quarter of 1999. The increase was the result of increased average borrowings due to the $11.0 million of La Camorra project financing put in place in June 1999 and the new $55.0 million term loan facility put in place in March 2000 which replaced a revolving $55.0 million credit facility that was in place in 1999. Higher average interest rates and increased loan fees also contributed to the increase in interest expense as compared to the 1999 period. Cost of sales and other direct production costs increased approximately $0.7 million, or 2%, from the third quarter of 1999 to the comparable 2000 period primarily due to: - increased cost of sales from gold operations of $1.7 million due to the acquisition of the La Camorra mine in June 1999 ($1.8 million), an increase at Rosebud ($0.4 million), partly offset by lower costs of sales at the La Choya mine, - increased cost of sales from silver operations of $0.8 million resulting from increased production and shipments of silver, lead, and zinc at the Lucky Friday and Greens Creek mines, and - decreased cost of sales at the industrial minerals segment ($1.7 million) principally due to the partial sale of MWCA. Cost of sales and other direct production costs as a percentage of sales from products increased from 79.1% in the third quarter of 1999 to 81.8% in the comparable 2000 period. The increase was principally a result of decreased margins in all three segments. In the gold segment, decreased gold production and higher unit cash costs at the Rosebud mine negatively impacted the gross margin. In the silver segment, lower hedging revenues combined with lower average lead and silver prices led to the reduced margins. The industrial minerals segment also saw reduced margins due to higher unit costs at MWCA and at the K-T Clay group. -23 24 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Sales of products decreased by approximately $0.4 million, or 1%, in the third quarter of 2000 as compared to the same period in 1999 primarily due to: - decreased sales totaling approximately $3.1 million from Hecla's industrial minerals segment principally the result of decreased shipments at the MWCA group ($4.3 million) due to the sale of the MWP division of MWCA on March 15, 2000 and the sale of the landscape operations of CAC on June 5, 2000. The decreases from MWCA were partly offset by increased sales of $1.2 million from the K-T Clay group, - decreased sales totaling approximately $1.8 million from silver operations primarily due to decreased shipments from the Lucky Friday and Greens Creek mines and lower lead and silver prices, and - increased sales of $4.5 million from gold operations principally a result of the acquisition of the La Camorra mine in June 2000 partly offset by lower gold production at the Rosebud mine in 2000. The following table compares the average metal prices for the third quarter of 2000 with the comparable 1999 period: Metal 2000 1999 $ Change % Change ---------------------------- ------- ------ -------- --------- Gold-Realized ($/oz.) $ 281 $ 258 $ 23 9% Gold-London Final ($/oz.) 277 259 18 7 Silver-Handy & Harman ($/oz.) 4.96 5.27 (0.31) (6) Lead-LME Cash (cents/pound) 0.213 0.228 (0.015) (7) Zinc-LME Cash (cents/pound) 0.533 0.513 0.020 4 Cash operating, total cash and total production cost per gold ounce decreased from $227, $238 and $338 for the third quarter of 1999 to $192, $195 and $239 for the third quarter of 2000, respectively. The decreases in the cash operating and total cash cost per gold ounce were primarily attributable to lower cost production from the La Camorra mine. The decrease in total production cost per gold ounce was attributable to decreased depreciation charges associated with the Rosebud mine due to the write-down of the carrying value of Rosebud in the second quarter of 2000. Cash operating, total cash, and total production cost per silver ounce increased from $3.55, $3.56 and $5.08 in the third quarter of 1999 to $4.23, $4.25 and $5.79 in the third quarter of 2000, respectively. The increases in the cost per silver ounce are due primarily to lower silver production and lower average -24- 25 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries lead prices which negatively impact by-product credits, partly offset by a favorable zinc price. Gold, lead, and zinc are by-products of Hecla's silver production, the revenues from which are netted against production costs in the calculation of production cost per ounce of silver. FINANCIAL CONDITION AND LIQUIDITY A substantial portion of the Hecla's revenue is derived from the sale of products, the prices of which are affected by numerous factors beyond Hecla's control. Prices may change dramatically in short periods of time and such changes have a significant effect on revenues, profits and liquidity of Hecla. Hecla is subject to many of the same inflationary pressures as the U.S. economy in general. Hecla continues to implement cost-cutting measures in an effort to reduce per unit production costs. Management believes, however, that Hecla may not be able to continue to offset the impact of inflation over the long term through cost reductions alone. However, the market prices for products produced by Hecla have a much greater impact than inflation on Hecla's revenues and profitability. Moreover, the discovery, development and acquisition of mineral properties are in many instances unpredictable events. Future metals prices, the success of exploration programs, changes in legal and regulatory requirements, and other property transactions can have a significant impact on the need for capital. At September 30, 2000, assets totaled approximately $244.4 million and shareholders' equity totaled approximately $99.1 million. Cash and cash equivalents increased by $1.8 million to $4.5 million at September 30, 2000 from $2.7 million at December 31, 1999. During the first nine months of 2000, approximately $5.0 million of cash was provided by financing activities. The major sources of cash were borrowings of long-term debt of $79.5 million. These sources were partially offset by repayments of long-term debt of $66.7 million, and payment of preferred stock dividends totaling $6.0 million. Hecla's investing activities provided $1.5 million of cash during the first nine months of 2000. The most significant sources of cash were proceeds from the sale of MWP and the CAC landscape operations of $9.7 million, proceeds from the sale of other assets of $1.9 million, and cash provided from termination of life insurance policies of $1.1 million. These sources were partly offset by additions to properties, plants, and equipment totaling $11.5 million, including significant additions at the industrial minerals segment, principally for the Mexican plant expansion project ($3.7 million), at the La Camorra mine ($3.1 million), at the Greens Creek mine ($3.2 million), and at the Lucky Friday mine ($1.2 million). -25- 26 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries Operating activities used approximately $4.7 million of cash during the first nine months of 2000. Significant uses of cash included (1) cash required for reclamation activities and other noncurrent liabilities of $6.4 million, (2) increases in inventories of $1.8 million primarily due to product inventory increases at La Camorra and Rosebud, and (3) decreased accounts payable and accrued expenses of $1.5 million. Principal noncash charges included depreciation, depletion and amortization of $17.3 million, reduction in carrying value of mining properties for the Rosebud mine and Noche Buena property of $9.1 million, provisions for reclamation and closure costs of $2.1 million, a $0.9 million loss on the sale of MWP, and an extraordinary charge of $0.6 million for the write off of debt issuance costs related to extinguished debt. Hecla estimates that minimum capital expenditures to be incurred during the remainder of 2000 will be approximately $3.3 million. These capital expenditures consist primarily of: Property Expenditure --------------------------- ------------ Lucky Friday $0.2 million Greens Creek (29.7% interest) $1.6 million La Camorra $1.4 million Other $0.1 million These planned capital expenditures will depend, in large part, on Hecla's ability to obtain the required funds from operating activities, potential asset sales, additional borrowing, and the possible issuance of additional equity. There can be no assurance that actual capital expenditures will be as projected based upon the uncertainties associated with the estimates for capital projects, uncertainties associated with possible development projects, board of director approval, and Hecla's ability to generate adequate funding for the projected capital expenditures. On March 31, 2000, Hecla entered into a new $55.0 million term loan facility due on April 10, 2001. Proceeds from the term loan facility were utilized to repay amounts outstanding under the previous bank credit agreement, to repay revenue bonds, to repay the subordinated debt, and to fund general corporate purposes. As security for the loan, Hecla pledged the common stock of certain of Hecla's subsidiaries and certain other assets. Interest rates are to be based on LIBOR plus a margin of 2.25%. At September 30, 2000, $55.0 million was outstanding under the new term loan facility and classified as current portion of long-term debt. On June 30, 2000, Hecla entered into a new $3.0 million subordinated debt facility. Proceeds from the subordinated debt -26- 27 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries are available for general corporate purposes. Interest rates are to be based on LIBOR plus a margin of 4.0%. The loan is to be repaid in equal installments on June 30, 2003, December 31, 2003, and June 30, 2004. At September 30, 2000, Hecla's wholly owned subsidiary, HRIL, had $10.6 million outstanding under a credit agreement utilized to finance the acquisition of the La Camorra gold mine in Venezuela. At September 30, 2000, HRIL was in compliance with restrictive covenants related to the available ore reserves and financial performance of the La Camorra mine. At September 30, 2000, $8.6 million of the project financing debt was classified as long-term debt, with the remaining $2.0 million classified as current portion of long-term debt. On October 12, 2000, Hecla entered into a $2.0 million revolving credit facility through January 15, 2001. This revolving credit facility is secured by Hecla's corporate office building. As of October 31, 2000, no amounts were outstanding under the revolving credit facility. At September 30, 2000, Hecla has a working capital deficit of $41.9 million. In order to improve its financial condition, Hecla is considering alternatives available to it to repay or restructure the $55.0 million in indebtedness due in April 2001, including refinancings, public offerings of equity and/or debt securities, and possible asset sales. On July 18, 2000, Hecla announced that is has decided to carry out a formal review of its strategic options in regard to Kentucky-Tennessee Clay Company, its wholly owned subsidiary. Hecla has received a number of expressions of interest in K-T Clay and has hired an investment-banking firm to assist management in considering possible strategies, including the potential sale of K-T Clay. Hecla is continuing to evaluate the possible sale of K-T Clay. There can be no assurance that Hecla will be successful in refinancing its debt, issuing equity, or selling assets. If Hecla is unsuccessful in these efforts, there can be no assurance that Hecla will be able to repay its debt and fund continuing operations. As of September 30, 2000, Hecla's unrestricted cash balance totaled $4.5 million. Based upon Hecla's estimate of metal prices and metal production for the remainder of 2000, Hecla believes that its operating cash flows, current unrestricted cash balance, proceeds available from the new $2.0 million revolving credit facility, and potential proceeds from asset sales should be adequate to fund its anticipated cash requirements for the year 2000, including anticipated capital expenditures, idle property expenditures, and exploration expenditures. The Company's management continues to evaluate and implement additional cash conservation measures to better ensure the -27- 28 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries continued liquidity of Hecla, including the deferral of the fourth quarter dividend to holders of Hecla's preferred stock of $2.0 million, as well as continuing to pursue the sale of the remaining assets of the MWCA - Colorado Aggregate Division, considering other asset sales, and pursuing equity offerings in order to provide funds for possible expansion projects, acquisition, or other cash requirements. On August 21, 2000, Hecla was notified by the New York Stock Exchange that the common stock price had been below $1.00 per share for more than 30 days and that Hecla has six months to increase the stock price. If Hecla's stock price has not increased to an average closing price of $1.00 or more per share for a 30-day period following the end of the six-month notification period, or the Company has not otherwise completed steps to increase its stock price, it is possible that the New York Stock Exchange will commence delisting procedures for Hecla's common stock under the rules and regulations of the New York Stock Exchange. Pursuant to a Registration Statement filed with the Securities and Exchange Commission and declared effective in the third quarter of 1995, Hecla can, at its option, issue debt securities, common shares, preferred shares or warrants in an amount not to exceed $100.0 million in the aggregate. As of September 30, 2000, Hecla has issued $62.2 million of Hecla's common shares and warrants under the Registration Statement. Due to the current market capitalization of the Company, there can be no assurance as to the availability of this Registration Statement. Reserves for closure costs, reclamation and environmental matters totaled $45.8 million at September 30, 2000. Hecla anticipates that expenditures relating to these reserves will be made over the next several years. Although Hecla believes the allowance is adequate based on current estimates of aggregate costs, Hecla plans to periodically reassess its environmental and reclamation obligations as new information is developed. Depending on the results of any reassessment, it is reasonably possible that Hecla's estimate of its obligations may change in the near term. For information on hedged positions and derivative instruments, see Item 7A "Quantitative and Qualitative Disclosure About Market Risk." Hecla is subject to legal proceedings and claims which have arisen in the ordinary course of its business and have not been finally adjudicated (see Part II. Item 1. Legal Proceedings and Note 7 of Notes to Consolidated Financial Statements). Although the ultimate disposition of these matters and various other -28- 29 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries pending legal actions and claims is not presently determinable, it is the opinion of Hecla's management that the outcome of these matters will not have a material adverse effect on the financial position of Hecla and its subsidiaries. However, it is possible that these matters could have a material effect on quarterly or annual operating results and cash flows, when they are resolved, in the future periods. New Accounting Pronouncement In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" was issued. SFAS 137 defers the effective date of SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000; however, earlier application is encouraged as of the beginning of any fiscal quarter. Hecla is presently evaluating the affect the adoption of this standard will have on Hecla's financial condition, results of operations, and cash flows. Item 7A. Quantitative and Qualitative Disclosure About Market Risk The following discussion about Hecla's risk-management activities include "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The following tables summarize the financial instruments and derivative instruments held by Hecla at September 30, 2000, which are sensitive to changes in interest rates and commodity prices. Hecla believes that there has not been a material change in its market risk since the end of its last fiscal year. In the normal course of business, Hecla also faces risks that are either nonfinancial or nonquantifiable (See "Investment Considerations" of Part I, Item 1 of Hecla's 1999 Annual Report on Form 10-K). Interest-Rate Risk Management At September 30, 2000, Hecla's debt is subject to changes in market interest rates and is sensitive to those changes. Hecla currently has no derivative instruments to offset the risk of interest rate changes. Hecla may choose to use derivative -29- 30 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries instruments, such as interest rate swaps to manage the risk associated with interest rate changes. The following table presents principal cash flows for debt outstanding at September 30, 2000, by maturity date and the related average interest rate. The variable rates are estimated based on implied forward rates in the yield curve at the reporting date.
(in thousands) 2000 2001 2002 2003 2004 Thereafter Total Value ------- --------- ------- ------- ------- ------------ -------- --------- Bank credit agreement $ - - $ 55,000 $ - - $ - - $ - - $ - - $ 55,000 $ 55,000 Average interest rate 9.01% 8.81% - - - - - - - - Subordinated debt $ - - $ - - $ - - $ 2,000 $ 1,000 $ - - $ 3,000 $ 3,000 Average interest rate 10.76% 10.52% 10.55% 10.66% 10.81% - - Project financing debt $ 375 $ 3,250 $ 3,000 $ 3,000 $ 1,000 $ - - $ 10,625 $ 10,625 Average interest rate 9.26% 9.02% 9.05% 9.16% 9.31% - -
Commodity-Price Risk Management Hedging Hecla uses commodity forward sales commitments, commodity swap contracts, and commodity put and call option contracts to manage its exposure to fluctuation in the prices of certain metals which it produces. Contract positions are designed to ensure that Hecla will receive a defined minimum price for certain quantities of its production. Hecla uses these instruments to reduce risk by offsetting market exposures. Hecla is exposed to certain losses, generally the amount by which the contract price exceeds the spot price of a commodity, in the event of nonperformance by the counterparties to these agreements. The instruments held by Hecla are not leveraged and are held for purposes other than trading. All of these contracts are designated as hedges at September 30, 2000. The following table provides information about Hecla's forward sales commitments and commodity swap contracts at September 30, 2000. The table presents the notional amount in ounces or tonnes, the average forward sales price, and the total-dollar contract amount expected by the maturity dates, which occur between October 31, 2000, and December 31, 2004. -30- 31 Part I - Financial Information (Continued) Hecla Mining Company and Subsidiaries
Expected Expected Expected Expected Expected Estimated Maturity Maturity Maturity Maturity Maturity Fair 2000 2001 2002 2003 2004 Value -------- -------- -------- -------- -------- --------- Forward contracts: Gold sales (ounces) 13,437 62,010 60,428 59,802 48,928 Future price (per ounce) $ 288 $ 288 $ 288 $ 288 $ 288 Contract amount (in $000's) $ 3,868 $ 17,874 $ 17,418 $ 17,238 $ 14,103 $ (4,284) Silver sales (ounces) 300,000 - - - - - - - - Future price (per ounce) $ 5.51 $ - - $ - - $ - - $ - - Contract amount (in $000's) $ 1,653 $ - - $ - - $ - - $ - - $ 167 Swap contracts: Zinc (tonnes) 1,500 - - - - - - - - Future price (per pound) $ 0.519 $ - - $ - - $ - - $ - - Contract amount (in $000's) $ 1,718 $ - - $ - - $ - - $ - - $ (11)
In addition to the above contracts, Hecla has a quarterly Gold Lease Rate Swap at a fixed rate of 1.5% on 242,205 ounces of the above gold forward contracts. The ounces covered under the swap are adjusted each quarter, commencing June 30, 2000, in accordance with the expiration of the forward gold contracts. The estimated cost to close out the Gold Lease Rate Swap at September 30, 2000 was $151,842. Trading On July 30, 1999, Hecla sold call options for 300,000 ounces of silver through June 30, 2000, at an average strike price of $5.50. Hecla sold the call options to provide additional cash flow. During the first nine months of 2000, Hecla recognized revenue of $66,000 from expired call option contracts. There are no call options outstanding as of September 30, 2000. -31- 32 Part II - Other Information Hecla Mining Company and Subsidiaries Item 1. Legal Proceedings - - Bunker Hill Superfund Site In 1994, Hecla, as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), entered into a consent decree with the Environmental Protection Agency (EPA) and the state of Idaho, concerning environmental remediation obligations at the Bunker Hill Superfund site located at Kellogg, Idaho. The consent decree settled Hecla's response-cost liability under CERCLA at the Bunker Hill site. As of September 30, 2000, Hecla has estimated and accrued an allowance for liability for remedial activity costs at the Bunker Hill site of $6.1 million. These estimated expenditures are anticipated to be made over the next three to five years. Although Hecla believes the allowance is adequate based upon current estimates of aggregate costs, Hecla will reassess its obligations under the consent decree as new information is developed. Depending on the results of any reassessment, it is reasonably possible that Hecla's estimate of its obligations may change in the near or longer term. - - Coeur d'Alene River Basin Natural Resource Damage Claims - Coeur d'Alene Tribe Claims In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under CERCLA, in Idaho Federal District Court against Hecla and a number of other mining companies asserting claims for damages to natural resources downstream from the Bunker Hill site over which the tribe alleges some ownership or control. Hecla answered the Tribe's complaint denying liability for natural resource damages. In October 1996, following a court imposed four-year suspension of the proceeding, the Tribe's natural resource damage litigation was consolidated with the United States Natural Resources Damage litigation described below for discovery and other limited pretrial purposes. - U.S. Government Claims In March 1996, the United States filed a lawsuit in Idaho Federal District Court against certain mining companies that conducted historic mining operations in the Silver Valley of northern Idaho, including Hecla. The lawsuit asserts claims under CERCLA and the Clean Water Act and seeks recovery for alleged damages to or loss of natural resources located in the Coeur d'Alene River Basin in northern Idaho for which the United States asserts to be the trustee under CERCLA. The lawsuit asserts that the defendants' historic mining activity resulted in releases of hazardous substances and damaged natural resources within the Basin. The suit also seeks declaratory relief that -32- 33 Part II - Other Information (Continued) Hecla Mining Company and Subsidiaries Hecla and other defendants are jointly and severally liable for response costs under CERCLA for historic mining impacts in the Basin outside the Bunker Hill site. Hecla answered the complaint in May 1996, denying liability to the United States under CERCLA and the Clean Water Act and asserted a counterclaim against the United States for the federal government's involvement in mining activities in the Basin which contributed to the releases and damages alleged by the United States. Hecla believes it also has a number of defenses to the United States' claims. In May 1998, the EPA announced that it had commenced a remedial investigation/feasibility study under CERCLA for the entire Basin, including Lake Coeur d'Alene, in support of its response cost claims asserted in its March 1996 lawsuit. On September 30, 1998, the Federal District Court granted Hecla's summary judgment motion with respect to the applicable statute of limitations and dismissed the United States' natural resources damage claims due to the failure of the EPA to comply with federal law and EPA regulations in expanding the national priority list site boundaries to include the entire Coeur d'Alene River/Lake Coeur d'Alene Basin which would have the effect of extending the statute of limitations. In an opinion issued June 15, 2000, the Ninth Circuit Court of Appeals vacated the District Court's ruling stating that the District Court did not have jurisdiction to determine the scope of the Bunker Hill Superfund site. On September 30, 1999, the court issued an order on one of the defendant's challenges to the constitutionality of the retroactive application of liability under CERCLA. Although the court held that the statute did not facially violate the due process or taking clauses of the U.S. Constitution, the court also stated that the constitutionality of retroactive application of liability to the defendants in this case cannot be resolved at this stage of litigation as genuine issues of material fact exist and liability has not been established. The Federal District Court case is proceeding through discovery. A number of Summary Judgement motions filed by both the plaintiffs and the defendants are currently pending before the court. Trial is currently scheduled for January 2001. The Company is also involved in settlement negotiations with representatives of the U.S. Government and the Coeur d'Alene Tribe. The Company is also participating with certain of the other defendants in the litigation in a state of Idaho led settlement effort. - - Insurance Coverage Litigation In 1991, Hecla initiated litigation in the Idaho State District Court in Kootenai County, Idaho, against a number of insurance companies which provided comprehensive general -33- 34 Part II - Other Information (Continued) Hecla Mining Company and Subsidiaries liability insurance coverage to Hecla and its predecessors. Hecla believes that the insurance companies have a duty to defend and indemnify Hecla under their policies of insurance for all liabilities and claims asserted against Hecla by the EPA and the tribe under CERCLA related to the Bunker Hill site and the Basin in northern Idaho. In 1992, the Idaho State District Court ruled that the primary insurance companies had a duty to defend Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into settlement agreements with a number of the insurance carriers named in the litigation. Hecla has received a total of approximately $7.2 million under the terms of the settlement agreements. Thirty percent of these settlements were paid to the EPA to reimburse the U.S. government for past costs under the Bunker Hill site consent decree. Litigation is still pending against one insurer with trial suspended until the underlying environmental claims against Hecla are resolved or settled. The remaining insurer in the litigation with a second insurer not named in the litigation is providing Hecla with a partial defense in all Basin environmental litigation. As of September 30, 2000, Hecla had not reduced its accrual for reclamation and closure costs to reflect the receipt of any anticipated insurance proceeds. - - Other Claims In 1997, Hecla's subsidiary, Kentucky-Tennessee Clay Company (K-T Clay), terminated shipments of 1% of annual ball clay production, sold to animal feed producers, when the Food and Drug Administration determined trace elements of dioxin were present in poultry. Dioxin is inherently present in ball clays generally. On September 22, 1999, Riceland Foods (the primary purchaser of ball clay from K-T Clay used in animal feed) commenced litigation against K-T Clay in State Court in Arkansas to recover their losses and their insurance company's payments to downstream users of their animal feed. The complaint alleges negligence, strict liability and breach of implied warranties. Legal counsel retained by the insurance company for K-T Clay has had the case removed to Federal Court in Arkansas and has answered the complaint denying liability. In July 2000, a second complaint was filed against K-T Clay and Hecla in Arkansas State Court by another purchaser of animal feed containing ball clay sold by K-T Clay. A third complaint was filed in the United States District Court in Arkansas on August 31, 2000, by a successor in interest to a third purchaser of ball clay sold by K-T Clay and used in the animal feed industry. The plaintiffs together allege damages totaling approximately $8.5 million. These complaints contain similar allegations to the Riceland Foods' case and legal counsel retained by the insurance carrier is defending K-T Clay and Hecla in these lawsuits. The Company believes that these claims comprise substantially all the -34- 35 Part II - Other Information (Continued) Hecla Mining Company and Subsidiaries potential claims related to this matter. The defense of these lawsuits is also expected to be covered by insurance. The Company believes that $11.0 million of insurance coverage is available to cover these claims. Although the outcome of the litigation or insurance coverage cannot be assured, Hecla currently believes that there will be no material adverse effect on Hecla's results of operations, financial condition or cash flows from this matter. Hecla is subject to other legal proceedings and claims which have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters and the proceedings disclosed above, it is the opinion of Hecla's management that the outcome of these matters will not have a material adverse effect on the financial condition of Hecla. However, it is possible that these matters could have a material effect on quarterly or annual operating results and cash flows, when they are resolved, in future periods. -35- 36 Part II - Other Information (Continued) Hecla Mining Company and Subsidiaries Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.2 - Employment Agreement dated June 1, 2000, between Hecla Mining Company and Arthur Brown. (Registrant has substantially identical agreements with each of Messrs. William B. Booth, J. Gary Childress, Michael B. White and Ms. Vicki J. Veltkamp) 10.14 - Variable Rate Commercial Revolving Loan between Hecla Mining Company and Idaho Independent Bank dated October 12, 2000 12 - Fixed Charge Coverage Ratio Calculation 27 - Financial Data Schedule (b) Reports on Form 8-K September 8, 2000 - News Release Related to No Preferred Dividend Payment Items 2, 3, 4, and 5 of Part II are omitted from this report as inapplicable. -36- 37 Hecla Mining Company and Subsidiaries SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HECLA MINING COMPANY ----------------------------------- (Registrant) Date: November 10, 2000 By /s/ Arthur Brown --------------------------------- Arthur Brown, Chairman, President and Chief Executive Officer Date: November 10, 2000 By /s/ Lewis E. Walde --------------------------------- Lewis E. Walde, Controller (Chief Accounting Officer) -37- 38 Exhibit Index ------------- Exhibit No. Description - -------- ------------- 10.2 Employment Agreement dated June 1, 2000, between Hecla Mining Company and Arthur Brown. (Registrant has substantially identical agreements with each of Messrs. William B. Booth, J. Gary Childress, Michael B. White and Ms. Vicki J. Veltkamp) 10.14 Variable Rate Commercial Revolving Loan between Hecla Mining Company and Idaho Independent Bank dated October 12, 2000 12 Fixed Charge Coverage Ratio Calculation 27 Financial Data Schedule -38- EX-10.2 2 0002.txt EMPLOYMENT AGREEMENT 1 Exhibit 10.2 EMPLOYMENT AGREEMENT AGREEMENT by and between Hecla Mining Company, a Delaware corporation (the "Company") and ARTHUR BROWN (the "Executive") dated as of the 1st day of June, 2000. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company, and to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall be the first date during the "Change of Control Period" (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with the Company is terminated or the Executive ceases to be an officer of the Company prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination of employment (1) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (2) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" is the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the first anniversary of the date hereof, and on each subsequent anniversary of such date (each such anniversary is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2 (c) The "Deemed Retirement Benefit" means the aggregate benefits that would be payable to the Executive under the Hecla Mining Company Qualified Retirement Plan and/or any successor defined benefit plan (the "Retirement Plan") and any supplemental and/or excess retirement plans in which the Executive participates (the "SERP"), assuming that (i) the Executive's age as of the Date of Termination were increased by one year for purposes of calculating the pension reduction but not for purposes of determining covered compensation (as those terms are defined in the Retirement Plan), (ii) the Executive's average annual earnings were calculated by assuming that the Executive had continued to receive the compensation required by Section 4(b) of this Agreement for one year, (iii) the Executive's years of service were increased by one year, and (iv) the Executive's benefits under the Retirement Plan and the SERP were fully vested. (d) The "Actual Retirement Benefit" means the aggregate benefits that actually are payable to the Executive under the Retirement Plan and the SERP as of the Date of Termination, determined in accordance with the applicable terms of the Retirement Plan and the SERP. 2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") becomes the "beneficial owner" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this Section 2(a), the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the Company or approved by the Incumbent Directors, following which such Person owns not more than 40% of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, (II) any acquisition by an underwriter temporarily holding securities pursuant to an offering of such securities, (III) any acquisition by the Company, (IV) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (V) any acquisition pursuant to a transaction which complies with clauses (i), (ii) and (iii) of Section 2(c) below; or 3 (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be considered as though such individual were an Incumbent Director, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation (or similar corporate transaction) involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity (a "Business Combination"), in each case, unless, immediately following such Business Combination, (i) more than 60% of, respectively, the then outstanding shares of common stock and the total voting power of (A) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (B) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 80% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Outstanding Company Common Stock and Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be, were converted pursuant to such Business Combination), and such beneficial ownership of common stock or voting power among the holders thereof is in substantially the same proportion as the beneficial ownership of Outstanding Company Common Stock and the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (ii) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the outstanding shares of common stock and the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation), unless such acquisition is pursuant to a Business Combination that is an acquisition by the Company or a subsidiary of the Company of the assets or Stock of another entity that is approved by the Incumbent Directors, following which such person 4 owns not more than 40% of such outstanding shares and voting power, and (iii) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change of Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Outstanding Company Common Stock or Outstanding Company Voting Securities as a result of the acquisition of Outstanding Company Common Stock or Outstanding Company Voting Securities by the Company which reduces the number of shares of Outstanding Company Common Stock or Outstanding Company Voting Securities; PROVIDED, that if after such acquisition by the Company such person becomes the beneficial owner of additional shares of Outstanding Company Common Stock or Outstanding Company Voting Securities that increases the percentage of Outstanding Company Common Stock or Outstanding Company Voting Securities beneficially owned by such person, a Change of Control of the Company shall then occur. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ for the period commencing on the Effective Date and ending on the first anniversary of such date (the "Employment Period"). The Employment Period shall terminate upon the Executive's termination of employment for any reason. 4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours 5 to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage-personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall. be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies;" includes any company controlled by, controlling or under common control with the Company. (ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the highest bonus paid or payable, including by reason of deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in, which the Effective Date 6 occurs (annualized for any fiscal year during the Employment Period consisting of less than twelve full, months or with respect to which the Executive has been employed by the Company for less than twelve full months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. In addition to Annual Base salary and Annual Bonus payable as hereinabove provided, the Executive shall be entitled to participate during the Employment Period in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event. shall such plans, practices, policies and programs provide the Executive with incentive, savings and retirement benefit opportunities, in each case, less favorable, in the aggregate, than (x) the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date of (y) if more favorable to the Executive, those provided at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent generally applicable to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than (x) the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at: any time after the Effective Date generally to other peer executives of the Company and its affiliated companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in 7 accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office -or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer incentives of the Company and its affiliated companies. 5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its, intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 8 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means the absence of the Executive from the Executive's duties with the Company on a fulltime basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement. as to acceptability not to be withheld unreasonably). (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" means: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties (as contemplated by Section 4(a)) with the Company or any affiliated company (other than any such failure resulting from incapacity due to physical or mental illness or following the Executive's delivery of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company. For purposes of this Section 5(b), no act, or failure to act, on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (excluding the Executive if the Executive is a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Section 5(b)(i) or 5(b)(ii), and specifying the particulars thereof in detail. 9 (c) GOOD REASON. The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason or by the Executive voluntarily without Good Reason. For purposes of this Agreement, "Good Reason" means (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other diminution in such position, authority, duties or responsibilities (whether or not occurring solely as a result of the Company's ceasing to be a publicly traded entity), excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failures not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof, or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive. The Executive's mental or physical incapacity following the occurrence of an event described above in clauses (i) through (v) shall not affect the Executive's ability to terminate employment for Good Reason. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent 10 applicable sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen days after the giving of such notice). In the case of a termination of the Executive's employment for Cause, a Notice of Termination shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive's counsel, to be heard before the Board prior to such vote), finding that in the good faith opinion of the Board the Executive was guilty of conduct constituting Cause. No purported termination of the Executive's employment for Cause shall be effective without a Notice of Termination. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein (which date shall be not more than 30 days after the giving of such notice), as the case may be; provided, however, that (i) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (ii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than the following obligations: (i) payment of the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (ii) payment of the product of (x) the greater of (A) the Annual Bonus paid or payable, including by reason of deferral, (and annualized for any fiscal year consisting of less than twelve full months or for which the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (B) the Recent Annual Bonus (such greater amount hereafter referred to as the "Highest Annual 11 Bonus") and a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) are hereafter referred to as "Accrued Obligations"). All Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. In addition, the Executive's estate or designated beneficiaries shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period. Anything in this Agreement to the contrary notwithstanding, the Executive's estate and family shall be entitled to receive benefits at least equal to the most favorable benefits provided generally by the Company and any of its affiliated companies to the estates and surviving families of peer executives of the Company and such affiliated under such plans, programs, practices and policies relating to death benefits, if any, as in effect generally with respect to other peer executives and their estate and families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death generally with respect to other peer executives of the Company and its affiliated companies and their families. (b) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations. All Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. In addition, the Executive shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; provided, however, that such payments of Annual Base Salary shall be reduced by any benefits paid to the Executive under the Retirement Plan by reason of Disability. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disable executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. 12 (c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period other than for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. (d) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or if the Executive shall terminate employment under this Agreement for Good Reason: (i) the Company shall pay, to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. all Accrued Obligations; and B. the product of (x) one and (y) the sum of (i) Annual Base Salary and (ii) the Highest Annual Bonus; and C. a lump-sum retirement benefit equal to the excess of (a) the actuarial equivalent of the Deemed Retirement Benefit over (b) the actuarial equivalent of the Executive's Actual Retirement Benefit; and for purposes of determining the amount payable pursuant to this Section 5(d)(i)C, the actuarial assumptions utilized shall be no less favorable to the Executive than those in effect with respect to the Retirement Plan and the SERP during the 90-day period immediately prior to the Effective Date; and (ii) for one additional year, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4 (b) (iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies applicable generally to other peer executives and their families during the 90-day period 13 immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families; and for purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed for one additional year, and to have then retired; and (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; PROVIDED, that the cost of such outplacement shall not exceed $20,000; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the Affiliated Companies. Notwithstanding the provisions of clause (ii) of this Section 6(d), if after using its reasonable best efforts to obtain life insurance, long-term disability or travel accident insurance coverage for the Executive as required by said clause (ii) at the lowest available rates, the Company is unable to obtain such coverage for an aggregate annual cost to the Company of not more than two percent of the Annual Base Salary, the Executive shall be required to elect to either (i) waive one or more of such coverages, or (ii) have the amount or duration of one or more of such coverages reduced, in either case so as to reduce such aggregate annual cost to not more than two percent of the Annual Base Salary. If any of such coverages cannot be obtained, or if the Executive elects to waive any of such coverages as provided in the preceding sentence, then the Company shall pay the Executive cash in lieu thereof, in the amount of two-thirds of one percent of the Annual Base Salary for each such coverage that is not provided. 7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other agreements with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such 14 plan, policy, practice or program except as explicitly modified by this Agreement. Notwithstanding the foregoing, if the Executive receives payments and benefits pursuant to Section 6(d) of this Agreement, the Executive shall not be entitled to any severance pay or benefits under any severance plan, program or policy of the Company and the affiliated companies, unless otherwise specifically provided therein in a specific reference to this Agreement. 8. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to Section 9 of this Agreement), plus in each case interest at the applicable Federal rate provided for in section 7872(f)(2) of the Internal Revenue Code of 1986, as amended (the "Code''). 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any Payment would be subject to the Excise Tax, then the Executive shall be entitled to receive an additional payment (the "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to the Gross-Up Payment, but that the Parachute Value of all Payments do not exceed 110% of the Safe Harbor Amount, then no Gross-Up Payment shall be made to the Executive and the amounts payable under this Agreement shall be reduced so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 6(d)(i), unless an alternative method of reduction is elected by the Executive, and in any event shall be 15 made in such a manner as to maximize the Value of all Payments actually made to the Executive. For purposes of reducing the Payments to the Safe Harbor Amount, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amount payable under this Agreement would not result in a reduction of the Parachute Value of all Payments to the Safe Harbor Amount, no amounts payable under the Agreement shall be reduced pursuant to this Section 9(a). The Company's obligation to make Gross-Up Payments under this Section 9 shall not be conditioned upon the Executive's termination of employment. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by PricewaterhouseCoopers or such other nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within 5 days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the "Underpayment"), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable, but no later than 10 business days after the Executive is informed in writing of such claim. The Executive shall apprise the Company 16 of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties) imposed with respect to such advance or with respect to any imputed income in connection with such advance; and PROVIDED, FURTHER, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is 17 claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) Notwithstanding any other provision of this Section 9, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or any portion of the Gross-Up Payment, and the Executive hereby consents to such withholding. (f) DEFINITIONS. The following terms shall have the following meanings for purposes of this Section 9. (i) "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax. (ii) The "Net After-Tax Amount" of a Payment shall mean the Value of a Payment net of all taxes imposed on the Executive with respect thereto under Sections 1 and 4999 of the Code and applicable state and local law, determined by applying the highest marginal rates that are expected to apply to the Executive's taxable income for the taxable year in which the Payment is made. (iii) "Parachute Value" of a Payment shall mean the present value as of the date of the change of control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a "parachute payment" under Section 280G(b)(2), as determined by the Accounting Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment. 18 (iv) A "Payment" shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise. (v) The "Safe Harbor Amount" means the maximum Parachute Value of all Payments that the Executive can receive without any Payments being subject to the Excise Tax. (vi) "Value" of a Payment shall mean the economic present value of a Payment as of the date of the change of control for purposes of Section 280G of the Code, as determined by the Accounting Firm using the discount rate required by Section 280G(d)(4) of the Code. 10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Except as provided in Section 11(c), without the prior written consent of the Executive, this Agreement shall not be assignable by the Company. (c) The Company will require any successor (whether director or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or 19 assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt. requested, postage prepaid, addressed as follows: If to the Executive: Arthur Brown Hecla Mining Company 6500 Mineral DriveCoeur d'Alene, Idaho 83815-8788 IF TO THE COMPANY: Hecla Mining Company6500 Mineral DriveCoeur d'Alene, Idaho 83815-8788 Attention: Executive Vice President WITH A COPY TO: Vice President - General Counsel Hecla Mining Company 6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 20 (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's failure to insist upon strict compliance with any provision hereof or the failure to assert any right the Executive may have hereunder, including, without limitation, the right to terminate employment for Good Reason pursuant to Section 5(c)(i) - (v), shall not be deemed to be a waiver of such provision or right or any other provision or right thereof. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a), prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunder set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. EXECUTIVE HECLA MINING COMPANY /s/ Arthur Brown By: /s/ Roger A. Kauffman - -------------------------- ------------------------- Arthur Brown Roger A. Kauffman President and CEO Executive Vice President - Chief Operating Officer EX-10.14 3 0003.txt VARIABLE RATE COMMERCIAL REVOLVING LOAN 1 Exhibt 10.14 Borrower Idaho Independent Bank Hecla Mining Company VARIABLE RATE 912 Northwest Boulevard COMMERCIAL Coeur d'Alene, Idaho 83814 Address REVOLVING OR (208) 765-3619 "LENDER" 6500 MINERAL DRIVE DRAW NOTE COEUR D'ALENE, ID 83814 TELEPHONE NO. IDENTIFICATION NO. 208-769-4138 82-0126240 OFFICER INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN INTITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER RBC VARIABLE $2,000,000 10/12/00 01/15/01 01111360 WORKING CAPITAL PROMISE TO PAY For value received, Borrower promises to pay to the order of Lender indicted above the principal amount of TWO MILLION AND NO/100 Dollars ($2,000,000,00) or, if less, the aggregate unpaid principal amount of all loans or advances made by the Lender to the Borrower, plus interest on the unpaid principal balance at the rate and in the manner described below, until all amounts owing under this Note are paid in full. All amounts received by Lender shall be applied first to accrued unpaid interest, then to unpaid principal and then to unpaid late charges and expenses or in any other manner as determined by Lender, in Lender's sole discretion, as permitted by law. REVOLVING OR DRAW FEATURE: X This Note possesses a revolving feature, Upon satisfaction of the conditions set forth in this Note, Borrower shall be entitled to borrow up to the full principal amount of the Note and to repay and reborrow from time to time during the term of this Note. This Note possesses a draw feature. Upon satisfaction of the conditions set forth in this Note, Borrower shall be entitled to make one or more draws under this Note. Any repayment may not be reborrowed. The aggregate amount of such draws shall not exceed the full principal amount of this Note. Information with regard to any loans or advances under this Note shall be recorded and maintained by Lender in its internal records and such records shall be conclusive as to the information set forth therein absent manifest error. The Lender's failure to record the date and amount of any loan or advance shall not limit or otherwise affect the obligations of the Borrower under this Note to repay the principal amount of the loans or advances together with all interest accruing thereon. Lender shall not be obligated to provide Borrower with a copy of the record on a periodic basis. Borrower shall be entitled to inspect or obtain a copy of the record during Lender's business hours. CONDITIONS FOR ADVANCES: If there is no default under this Note, Borrower shall be entitled to borrow monies under this Note (subject to the limitations described above) under the following conditions: DRAWS TO BE MADE UPON WRITTEN REQUEST OF ALAN LANG OR DAVE WOLFE AND DISPURSED VIA A CASHIER'S TO HECLA MINING COMPANY. 2 INTEREST RATE: This Note has a variable rate feature. The interest rate on this Note may change from time to time if the Index Rate identified below changes. Interest shall be computed on the basis of 365 days and the actual number of days per year. Interest on this Note shall be calculated at a variable rate equal to ONE AND N0/1000 percent (1.00%) per annum over the Index Rate. The initial Index Rate is currently NINE AND 500/1000 percent (9.500%) per annum. The initial interest rate over on this Note shall be TEN AND 500/1000 percent (10.500%) per annum. Any change in the interest rate resulting from a change in the Index Rate will be effective on: the date the Index Rate changes INDEX RATE: The Index Rate for this Note shall be: New York consensus prime lending rate as published by the Wall Street Journal MINIMUM/MAXIMUM RATE: The minimum interest rate on this Note shall be NINE AND 500/1000 percent (9.500%) per annum. The maximum interest rate on this Note shall not exceed TWENTY-ONE AND N0/100 PERCENT (21.00%) per annum, or if less, or if a maximum rate is not indicated, the maximum interest rate Lender is permitted to charge by law. DEFAULT RATE: In the event of any default under this Note, the Lender may, in its discretion, determine that all amounts owed to Lender shall bear interest at the lessor of : 21%, or the maximum interest rate Lender is permitted to charge by law. PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to the following schedule: INTEREST ONLY PAYMENTS BEGINNING NOVEMBER 12, 2000 AND CONTINUING AT MONTHLY TIME INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON JANUARY 15, 2001. All payments will be made to Lender at its address described above, or at any other address so designated by Lender, and in lawful currency of the United States of American. RENEWAL: If checked, this Note is a renewal of Loan Number . SECURITY: To secure the payment and performance of obligations incurred under this Note, Borrower grants Lender a security interest in, and pledges and assigns to Lender all of the Borrower's rights, title, and interest, in all monies, instruments, savings, checking and other deposit accounts of Borrower's (excluding IRA, Keogh and trust accounts and deposits subject to tax penalties if so assigned) that are not or in the future in Lender's custody or control. X If checked, the obligations under this Note are also secured by a lien on and/or security interest in the property described in the documents executed in connection with this Note as well as any other property designated as security for this Note now or in the future. PREPAYMENT: This Note may be prepaid in part or in full on or before its maturity date. If this Note is prepaid in full, there will be: No minimum finance charge. X A minimum finance charge of $35.00. LATE PAYMENT CHARGE: If a payment is received more than 15 days late, Borrower will be charged a late payment charge of: % of the unpaid payment amount; X $10.00 or 5.00% of the unpaid payment amount, whichever is X greater less; as permitted by law. - ----------------------------------------------------------------------------- 3 BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE. BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE. NOTE DATE: OCTOBER 12, 2000 BORROWER: HECLA MINING COMPANY BORROWER: /s/ Michael B. White - ------------------------------------ ----------------------------- MICHAEL B. WHITE VICE PRESIDENT BORROWER: BORROWER: - ----------------------------------- ----------------------------- BORROWER: BORROWER: - ------------------------------------ ----------------------------- BORROWER: BORROWER: - ------------------------------------ ----------------------------- 4 1. DEFAULT: Borrower will be in default under this Note in the event that Borrower, any guarantor or any other third party pledging collateral to secure this Note: (a) fails to make any payment on this Note or any other indebtedness to Lender when due; (b) fails to perform any obligation or breaches any warranty or covenant to Lender contained in this Note, any security instrument, or any other, present or future written agreement regarding this or any other indebtedness of Borrower to Lender; (c) provides or causes any false or misleading signature or representation to be provided to Lender; (d) allows the collateral securing this Note (if any) to be lost, stolen, destroyed, damaged in any material respect, or subjected to seizure or confiscation; (e) permits the entry or service of any garnishment, judgment, tax levy, attachment or lien against the Borrower, any guarantor, or any of their property; (f) dies, becomes legally incompetent, is dissolved or terminated, ceases to operate its business, becomes insolvent, makes an assignment for the benefit of creditors, fails to pay debts as they become due, or becomes the subject of any bankruptcy, insolvency or debtor rehabilitation proceeding; or (g) causes Lender to deem itself insecure due to a significant decline in the value of any real or personal property securing payment of this Note. 2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender will be entitled to exercised one or more of the following remedies without notice or demand (except as required by law): (a) to cease making additional advances under this Note; (b) to declare the principal amount plus accrued interest under this Note and all other present and future obligations of Borrower immediately due and payable in full; (c) to collect the outstanding obligations of Borrower with or without resorting to judicial process; (d) to take possession of any collateral in any manner permitted by law; (e) to require Borrower to deliver and make available to Lender any collateral at a place reasonably convenience to Borrower and Lender; (f) to sell, lease or otherwise dispose of any collateral and collect any deficiency balance with or without resorting to legal process; (g) to set-off Borrower's obligations against any amounts due to Borrower including, but not limited to monies, instruments, and deposit accounts maintained with Lender; and (h) to exercise all other rights available to Lender under any other written agreement or applicable law. Lender's rights are cumulative and may be exercised together, separately, and in any order. Lender's remedies under this paragraph are in addition to those available at common law, including, but not limited to, the right of set-off. 3. DEMAND FEATURE: If this Note contains a demand feature, Lender's right to demand payment, at any time, and from time to time, shall be in Lender's sole and absolute discretion, whether or not any default has occurred. 5 4. POST-MATURITY ADVANCES AND PAYMENTS: Lender's acceptance of payments of principal, interest or otherwise hereon subsequent to the maturity hereof, or the making of any additional advances hereunder will not effect an extension of the maturity date set forth herein. The making of any advance hereunder subsequent to the maturity hereof shall be solely at the discretion of the Lender and the making of one or more advances shall in no way require Lender to make any further advance or advances. Any advance or advances make by Lender hereunder subsequent to the maturity hereof shall bear interest at the same rate as other indebtedness outstanding hereunder and be payable upon demand. 5. FINANCIAL INFORMATION: Borrower will at all times keep proper books of record and account in which full, true and correct entries shall be made in accordance with generally accepted accounting principles and will deliver to Lender, within ninety (90) days after the end of each fiscal year of Borrower, a copy of the annual financial statements of Borrower relating to such fiscal year, such statements to include (i) the balance sheet of Borrower as at the end of such fiscal year and (ii) the related income statement, statement of retained earnings and statement of changes in the financial position of Borrower for such fiscal year, prepared by such certified public accountants as may be reasonably satisfactory to Lender. Borrower also agrees to deliver to Lender within fifteen (15) days after filing same, a copy of Borrower's income tax returns and also, from time to time, such other financial information with respect to Borrower as Lender may request. 6. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's obligations or Lender's rights under this Note must be contained in a writing signed by Lender. Lender may perform any of Borrower's obligations or delay or fail to exercise any of its rights without causing a waiver of those obligations or rights. A waiver on one occasion will not constitute a waiver on any other occasion. Borrower's obligations under this Note shall not be affected if Lender amends, compromises, exchanges, fails to exercise, impairs or releases any of the obligations belonging to any co-borrower or guarantor or any of its rights against any co-borrower, guarantor or collateral. 7. SEVERABILITY: If any provision of this Note is invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; 8. ASSIGNMENT: Borrower will not be entitled to assign any of its rights, remedies or obligations described in this note without the prior written consent of Lender which may be withheld by Lender in its sole discretion. Lender will be entitled to assign some of all of its rights and remedies described in the Note without notice to or the prior consent of Borrower in any manner. 9. NOTICE: Any notice or other communication to be provided to Borrower or Lender under this Note shall be in writing and sent to the parties at the addresses described in this Note or such other address as the parties may designate in writing from time to time. 10. APPLICABLE LAW: This Note shall be governed by the laws of the state of Idaho. Borrower consents to the jurisdiction and venue of any court located I such state in the event of any legal proceeding pertaining to the negotiation, execution, performance or enforcement of any term or condition contained in this Note or any related loan document and agrees not to commence or seek to remove such legal proceeding in or to a different court. 6 11. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any amounts due or enforcing any right to remedy under this Note, Borrower agrees to pay Lender's reasonable attorney's fees, to the extent permitted by applicable law, and collection costs. 12. INCONSISTENT REPRESENTATIONS: Borrower affirmatively states that no representative of Lender has made any representation which are inconsistent with the terms of this Note and Borrower has not relied on any such promise or representation of any representative of Lender in executing this Note. 13. ACTS OR OMISSIONS OF LENDER: If at any time Borrower discovers or has reason to believe that any act or omission of Lender has caused him any injury or damage, Borrower agrees to provide written notice to Lender within twenty (20)days informing Lender of the act or omission of Lender which Borrower believes has caused Borrower injury or damages. Borrower agrees that the failure of Borrower to provide such notice to Lender shall constitute a waiver of any such claim. 14. LIMITATIONS ON LIABILITY/LIQUIDATED DAMAGES: Lender's responsibility to Borrower under this Note shall be limited to the making of advances to the Borrower as required by the terms of this Note. Borrower and Lender agree that in no event shall Lender be liable to Borrower on any claim whatsoever for consequential damages or for any amount in excess of the unpaid principal amount of the Note plus interest at the Note rate as liquidated damages. 15. MISCELLANEOUS: This Note is being executed for commercial purposes. Borrower and Lender agree that time is of the essence. Borrower waives presentment, demand for payment, notice of dishonor and protest. All references to Borrower in this Note shall include all the parties signing this Note, and this Note shall be binding upon the heirs, successors and assigns of Borrower and Lender. If there is more than one Borrower, they will be obligated jointly and individually. This Note and any related documents represent the complete and integrated understanding between Borrower and Lender pertaining to the terms and conditions of those documents. 16. NOTICE PURSUANT TO I.C. SECTION 9-505(5): Effective July 1, 1993, a promise or commitment to lend money or to grant or extent credit in an original principal amount of fifty thousand dollars ($50,000) or more, made by a person or entity engaged in the business of lending money or extending credit, or some note or memorandum thereof, must be in writing and subscribed by the person or entity making the promise or commitment, or the agent of that person or entity, or the agreement is invalid. 17. JURY TRIAL WAIVER: BORROWER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY CIVIL ACTION ARISING OUT OF, OR BASED UPON, THIS NOTE OR THE COLLATERAL SECURING THIS NOTE. (i) ADDITIONAL TERMS Pursuant to Idaho Code Section 9-505(5), a promise or commitment to lend money or to grant or extend credit in an original principal amount of $50,000 or more must be in a signed writing or the agreement is invalid. EX-12 4 0004.txt FIXED CHARGE COVERAGE RATIO CALCULATION 1 Exhibit 12 HECLA MINING COMPANY FIXED CHARGE COVERAGE RATIO CALCULATION For the Nine Months Ended September 30, 2000 and 1999 (In thousands, except ratios)
Nine Months Nine Months 2000 1999 ----------- ----------- Income (loss) before income taxes, extraordinary item,and cumulative effect of change in accounting principle $ (26,828) $ (31,542) Add: Fixed Charges 12,709 9,469 Less: Capitalized Interest - - (19) --------- --------- Adjusted income (loss) before income taxes, extraordinary item, and cumulative effect of change in accounting principle $ (14,119) $ (22,092) ========= ========= Fixed charges: Preferred stock dividends $ 6,038 $ 6,038 Interest portion of rentals 828 315 Total interest cost 5,843 3,116 --------- --------- Total fixed charges $ 12,709 $ 9,469 ========= ========= Fixed Charge Ratio (a) (a) Inadequate coverage $ 26,828 $ 31,561 ========= ========= Write-downs and other noncash charges: DD&A(b) (mining activity) $ 17,076 $ 17,348 DD&A(b) (corporate) 213 248 Provision for closed operations and environmental matters 4,020 28,533 Reduction in carrying value of mining properties 9,072 4,077 --------- --------- $ 30,381 $ 50,206 ========= ========= (a) Earnings for period inadequate to cover fixed charges. (b) "DD&A" is an abbreviation for "depreciation, depletion and amortization."
EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 SEP-30-2000 4,486 0 26,801 0 17,824 52,640 406,503 (233,475) 244,402 94,555 0 0 575 16,715 81,805 244,402 118,490 122,465 98,967 116,043 24,775 0 5,843 (26,828) 178 (27,006) 0 647 0 (33,691) (0.50) (0.50)
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