-----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, UXiB/1iJZ5IxyA35GYWQcrYCpqXJ8IuygUqUkTPPvt8DtKGEURr45ktEQSVGA8nt Po78uqd6ahiAJ6L/zpBk8g== 0000824590-98-000013.txt : 19981104 0000824590-98-000013.hdr.sgml : 19981104 ACCESSION NUMBER: 0000824590-98-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GETCHELL GOLD CORP CENTRAL INDEX KEY: 0000824590 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 640748908 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11847 FILM NUMBER: 98736792 BUSINESS ADDRESS: STREET 1: 5460 S QUEBEC ST STE 240 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037719000 FORMER COMPANY: FORMER CONFORMED NAME: FIRSTMISS GOLD INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 0-16484 Getchell Gold Corporation (Exact name of Registrant as specified in its charter) Delaware 64-0748908 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5460 South Quebec Street Suite 240 Englewood, Colorado 80111 (Address of principal executive offices) (Zip code) (303) 771-9000 (Registrant's telephone number including area code) Not applicable (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title Outstanding Common Stock, par value $0.0001 30,792,454 on October 30, 1998 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GETCHELL GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 1998 1997 1998 1997 ------- ------- ------- -------- Net sales $14,631 $17,587 $37,242 $ 51,124 Cost of sales 16,106 21,661 45,281 63,198 ------- ------- ------- -------- Gross margin (1,475) (4,074) (8,039) (12,074) General and administrative expenses 1,253 1,292 2,889 5,055 Exploration expenses 296 397 583 1,393 ------- ------- ------- -------- Loss from operations (3,024) (5,763) (11,511) (18,522) Interest expense, net of interest capitalized (159) (204) (522) (646) Interest and other income 634 1,065 2,240 3,203 ------- ------- ------- -------- Net loss $(2,549) $(4,902) $(9,793) $(15,965) ======= ======= ======= ======== Basic loss per common share $ (0.08) $ (0.18) $ (0.33) $ (0.60) ======= ======= ======= ======== Weighted average number of shares outstanding 30,789 26,779 29,837 26,499 ======= ======= ======= ========
The accompanying notes are an integral part of these statements. Page 1 GETCHELL GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)
September 30, December 31, 1998 1997 -------- ------------ ASSETS Current assets: Cash and cash equivalents $ 37,779 $ 34,247 Accounts receivable: Trade 3,774 1,790 Employee 213 182 Other 206 261 -------- -------- Total accounts receivable 4,193 2,233 -------- -------- Inventories: Ore and ore in process 2,300 1,873 Materials and supplies 11,248 10,873 -------- -------- Total inventories 13,548 12,746 -------- -------- Prepaid expenses 1,744 808 -------- -------- Total current assets 57,264 50,034 Property, plant and equipment, net 245,006 188,242 Other 3,525 211 -------- -------- Total assets $305,795 $238,487 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,541 $ 13,506 Accrued expenses 2,780 2,258 Current portion of capital lease obligations 3,464 2,248 Stock appreciation rights 942 1,238 Other 821 198 -------- -------- Total current liabilities 17,548 19,448 Long-term debt, principally ChemFirst Inc. 26,998 27,057 Capital lease obligations, less current portion 11,316 6,685 Deferred income taxes 1,809 1,809 Reclamation liabilities 2,718 2,701 Deferred revenue 3,400 - Other liabilities 2,111 892 -------- -------- Total liabilities 65,900 58,592 -------- -------- Commitments and contingencies - - Stockholders' equity: Preferred stock, par value $0.0001; 10,000,000 shares authorized;none issued - - Common stock, par value $0.0001; 100,000,000 shares authorized; issued and outstanding 30,792,454 at Sept. 30, 1998 and 26,784,351 at Dec. 31, 1997 3 3 Contributed and paid-in capital 290,773 220,979 Accumulated deficit (50,881) (41,087) -------- -------- Total stockholders' equity 239,895 179,895 -------- -------- Total liabilities and stockholders' equity $305,795 $238,487 ======== ========
The accompanying notes are an integral part of these statements. Page 2 GETCHELL GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended September 30, --------------------- Cash flows from operating activities: 1998 1997 -------- --------- Net loss $ (9,793) $(15,965) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 8,632 7,820 Accrued interest converted to loan principal - 772 Unrealized hedging and call option gains/losses, net 288 362 Other 4 - Net change in operating assets and liabilities: Accounts receivable (1,960) (375) Inventories (801) (1,912) Prepaid expenses (936) 305 Accounts payable (430) (885) Accrued expenses 522 280 Stock appreciation rights liability (296) 2,492 Other liabilities 1,571 592 ------- -------- Cash used in operating activities (3,199) (6,514) ------- -------- Cash flows from investing activities: Additions to property, plant and equipment (61,102) (41,070) Other 123 - ------- -------- Cash used in investing activities (60,979) (41,070) -------- -------- Cash flows from financing activities: Net proceeds from issuance of common stock 69,793 47,928 Principal payments under capital lease obligation (2,109) (1,410) Other 26 (202) -------- -------- Cash provided by financing activities 67,710 46,316 -------- -------- Net increase (decrease) in cash and cash equivalents 3,532 (1,268) Cash and cash equivalents at beginning of period 34,247 64,130 -------- -------- Cash and cash equivalents at end of period $ 37,779 $ 62,862 ======== ========
The accompanying notes are an integral part of these statements. Page 3 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) GENERAL The financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments of a normal and recurring nature which are necessary to present fairly the financial position, results of operations and cash flows for the interim periods. These financial statements should be read in conjunction with the Annual Report of Getchell Gold Corporation (the "Company") on Form 10-K for the year ended December 31, 1997. (2) PUBLIC EQUITY OFFERING In March 1998, the Company completed an equity offering of 4,002,000 common shares which resulted in net proceeds to the Company of $69.7 million after offering costs and expenses of $3.3 million. Net proceeds of the offering will be used for the completion of the Company's Turquoise Ridge mine, for an increase in mill capacity, for exploration on its Getchell property and for general corporate purposes. (3) HEDGING AND OTHER PRECIOUS METAL CONTRACT COMMITMENTS Precious metal contracts consist of spot deferred, forward sales, call option and lease rate swap contracts. The Company currently uses spot deferred and forward sales contracts to mitigate the impact on earnings and cash flows of decreases in gold prices. Risk of loss on the spot deferred and forward sales contracts arises from the possible inability of a counterparty to fulfill its obligations under the contracts and from the Company's potential inability to deliver gold, although non-performance by the counterparty to the contracts is not anticipated. At September 30, 1998, the Company's outstanding spot deferred contracts were for 340,000 ounces at a projected average price of $313 per ounce. Of these contracts, 30,000 ounces were for delivery in 1998 at a projected weighted average price of $337 per ounce, 155,000 ounces were for delivery in 1999 at a projected weighted average price of $308 per ounce, 120,000 ounces were for delivery in 2000 at a projected weighted average price of $313 per ounce and 35,000 ounces were for delivery in 2001 at a projected weighted average price of $315 per ounce. Based on the market price of gold at September 30, 1998, the unrealized gains on the spot deferred contracts were $6.0 million. Page 4 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additionally, in November 1997, the Company entered into a forward sales contract covering the sale of 250,000 ounces of gold with an option by the counterparty to purchase up to an additional 225,000 ounces of gold, if the gold price equals or exceeds certain price increments. The agreement calls for the Company to deliver 50,000 ounces of gold on December 31 in each of the years 1998 through 2002 and up to an additional 75,000 ounces of gold in each of the years 2000 to 2002. Deliveries in 1998 and 1999 will be at approximately $355 per ounce of gold, while deliveries in 2000 through 2002 will be at approximately $343 per ounce. These forward selling prices assume a constant future gold lease rate of 2%. The actual forward prices under the contract are adjusted up or down based on the actual future gold lease rate. The option feature of the contract is similar to a written call option. The premium related to the option feature is included in the forward sales price of the 250,000 ounces of gold. For accounting purposes, the contract sales price of the 250,000 ounces of gold has been allocated between the forward sales component of the contract and the premium for the embedded option. The revenue associated with the forward sales component of the contract will be recognized when the gold is delivered. The option premium portion of the forward sales price of $3.4 million was recorded as a long-term receivable and deferred revenue and is adjusted for changes in its market value. The deferred option premium will be recognized in earnings when the option expires or is exercised. This transaction is further detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Deferred revenue also includes premiums received for call options sold. The deferred amounts are recognized in income when the option expires or is exercised. At September 30, 1998, the Company had outstanding European call option contracts for 190,000 ounces of gold at a price of $333 per ounce which expire in 1998. Risk of loss on European call option contracts exists if the Company is unable to deliver the required quantity of gold or the market price were to exceed the exercise price of the option on the date designated in the contract. Page 5 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) PROPERTY, PLANT AND EQUIPMENT (in thousands) At At September 30, December 31, 1998 1997 -------- -------- Land and land improvements $ 14,214 $ 14,214 Buildings and equipment 132,382 124,249 Mine development 62,708 54,929 Construction-in-progress 138,316 88,742 -------- -------- Total property, plant and equipment 347,620 282,134 Accumulated depreciation, depletion and amortization (102,614) (93,892) -------- -------- Net property, plant and equipment $245,006 $188,242 ======== ======== Capitalized mine development and construction-in-progress at September 30, 1998 and December 31, 1997 are comprised of the following (in thousands): At At September 30, December 31, Project 1998 1997 --------- ------- Mine Development: Getchell Underground mine.......................... $49,883 $45,043 Turquoise Ridge mine............................... 6,560 4,079 Other projects..................................... 6,265 5,807 ------- ------- $62,708 $54,929 ======= ======= Construction in Progress: Getchell Underground mine.......................... $ 1,192 $ 1,486 Turquoise Ridge mine............................... 123,362 72,075 Mill improvements.................................. 13,723 15,015 Other projects..................................... 39 166 -------- ------- $138,316 $88,742 ======== ========= Depletion of mine development and construction costs related to the Turquoise Ridge mine and other projects will begin once commercial production has been achieved. Depreciation and depletion expense was $3.2 million and $2.8 million for the three months ended September 30, 1998 and 1997, respectively, and $8.6 million and $7.8 million for the nine months ended September 30, 1998 and 1997, respectively. Page 6 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Capitalized interest was $0.6 million and $0.4 million for the three months ended September 30, 1998 and 1997, respectively, and $1.7 million and $1.2 million for the nine months ended September 30, 1998 and 1997, respectively. (5) SUPPLEMENTAL CASH FLOW INFORMATION Net cash provided by operating activities includes the following cash payments (in thousands): Nine Months Ended Septeber 30, --------------------------- 1998 1997 ----------- ----------- Interest, net of amounts capitalized $ (834) $ (588) Income taxes $ - $ - Capital lease obligations of $8.0 million were incurred to acquire equipment during the nine months ended September 30, 1998. (6) COMMITMENTS AND CONTINGENCIES Environmental Obligations The Company's mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. The Company cannot predict such future expenditures. Internal Revenue Service Tax Claim The Internal Revenue Service ("IRS") has filed notices of deficiencies, stating that the IRS is proceeding against ChemFirst Inc. ("ChemFirst"), the Company's former parent, for income taxes associated with ChemFirst's consolidated income tax returns filed for fiscal years 1989, 1990, 1991 and 1992. In addition, ChemFirst has received correspondence from the IRS which assert additional claims for periods subsequent to fiscal year 1992. The Company's share of these asserted deficiencies and additional claims, including interest, totals approximately $5.8 million. In response to the notices of deficiencies, ChemFirst and the Company filed a petition with the United States Tax Court and, subsequently, the Company met with IRS representatives and presented information supporting the Company's position on all matters. The Company believes it has adequately provided for any liabilities that may result from the outcome of these matter. The tax sharing agreement between ChemFirst and the Page 7 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company is further detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Major Contracts The Company has an agreement with an independent contractor which provides oxygen for the autoclave process in the mill. The agreement requires, among other things, that the Company must pay the independent contractor at a rate (subject to future adjustments for inflation) of approximately $0.2 million a month. If the Company no longer has a need for oxygen, it may terminate the contract but is obligated to a termination fee if the contract is terminated prior to January 2004. The termination fee is $2.4 million in 1998 and decreases each year until reaching $0.4 million in 2004. Royalties The Company is obligated to pay to a third party a 2% royalty on net smelter returns of the current mineral production from certain of its mining properties. Royalties are recorded as operating costs, except for royalties on ounces produced in the development phase of the Turquoise Ridge mine, in which case such royalties are offset against the revenue from these ounces. Total royalties amounted to $0.3 million and $0.2 million for the three months ended September 30, 1998 and 1997, respectively, and $0.7 million and $0.8 million for the nine months ended September 30, 1998 and 1997, respectively. Letter of Credit At September 30, 1998, a $4.5 million secured letter of credit was outstanding for bonding of a reclamation plan. Page 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The information set forth in this discussion and analysis includes both historical information and "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by that section. To the extent that this report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other operations of the Company, the Company's actual financial condition, operating results, business prospects and other operations may differ materially from that projected or estimated by the Company in forward-looking statements. Factors that realistically could cause results to differ materially from those projected in the forward-looking statements are set forth in "Risk Factors" below. Results of Operations Results for the quarter ended September 30, 1998 were a net loss of $2.5 million, or $0.08 per share, compared with a net loss of $4.9 million, or $0.18 per share, for the quarter ended September 30, 1997. Results for the nine months ended September 30, 1998 were a loss of $9.8 million, or $0.33 per share, compared with a loss of $16.0 million, or $0.60 per share, in the same period of 1997. Lower operating expenses more than offset lower net sales and interest income for the third quarter and first nine months of 1998 as compared to the same periods of 1997, while the first nine months of 1998 also benefited from lower general and administrative ("G&A") and exploration expenses. Net sales of $14.6 million in the third quarter of 1998 were down from $17.6 million in the third quarter of 1997 and net sales of $37.2 million in the first nine months of 1998 were down from $51.1 million in the same period of 1997. Lower net sales resulted from lower gold prices and fewer ounces sold.
Quarter Ended Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ------------ ----------- Ounces of gold sold 44,982* 49,280 111,195* 135,271 Average realized price per ounce $325 $357 $335 $378 Average market price per ounce $289 $325 $294 $337
* Does not include 3,931 and 9,310 ounces of gold sold from the development of Turquoise Ridge for the quarter and nine months ended September 30, 1998, respectively, for which the revenues, net of production expenses, were offset against the capital costs of the project. Page 9
Quarter Nine Months Ended Ended Change in net sales (in millions) in 1998 versus 1997 due to: September 30, September 30, ---------------- ---------------- Change in price per ounce of gold sold $ (1.6) $ (5.8) Change in ounces of gold sold (1.4) (8.1) ---------------- ---------------- Total change in net sales $ (3.0) $ (13.9) ================ ================
The Company has hedged a portion of its production, which resulted in higher realized prices than the average market prices. At September 30, 1998, the Company had outstanding spot deferred contracts for 340,000 ounces at a projected average price of $313 per ounce. Of these contracts, 30,000 ounces were for delivery in 1998 at a projected weighted average price of $337 per ounce, 155,000 ounces were for delivery in 1999 at a projected weighted average price of $308 per ounce, 120,000 ounces were for delivery in 2000 at a projected weighted average price of $313 per ounce and 35,000 ounces were for delivery in 2001 at a projected weighted average price of $315 per ounce. Additionally, in November 1997, the Company entered into a forward sales contract covering the sale of 250,000 ounces of gold with an option by the counterparty to purchase up to an additional 225,000 ounces of gold, if the gold price equals or exceeds certain price increments. For accounting purposes, the contract sales price of the 250,000 ounces of gold has been be allocated between the forward sales component of the contract and the premium for the embedded option. The revenue associated with the forward sales component of the contract will be recognized when the gold is delivered. The option premium portion of the forward sales price of $3.4 million was recorded as a long-term receivable and deferred revenue and is adjusted for changes in its market value. The deferred option premium will be recognized in earnings when the option expires or is exercised. This transaction is further detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Following are the operating results from the Getchell Underground mine.
Quarter Ended Nine Months Ended September 30, September 30, ------------------------ -------------------------- 1998 1997 1998 1997 ----------- ---------- ---------- ------------ Ore mined (dry tons) 122,268 122,270 305,732 375,119 Ore mined per operating day (dry tons) 1,359 1,359 1,141 1,400 Average grade of ore mined (ounces per ton) 0.437 0.346 0.405 0.312 Contained ounces (before recoveries) 53,412 42,355 123,829 116,904 Underground mining costs per ton $44.72 $54.74 $47.62 $52.41
Page 10 Cost reductions per ton at the Getchell Underground mine during both the third quarter and first nine months of 1998 compared to the same periods of 1997 were the result of improved mining practices through the use of bulk mining methods and lower maintenance expenses. Underground development of the second Northwest Ore Zone continued during the third quarter, which is being accessed from two working levels. The ground is amenable to long hole stoping, and the fifth long hole stope is currently being excavated. Operating results at the mill, including the processing of development ore from Turquoise Ridge during the third quarter and first nine months of 1998, are as follows:
Quarter Ended Nine Months Ended September 30, September 30, ------------------------ ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- --------- Ore milled (dry tons) 170,515 281,495 394,489 835,177 Average grade of ore milled (ounces per ton) 0.323 0.195 0.340 0.181 Average gold recovery 91.2% 87.8% 90.9% 87.7% Milling costs per ton $40.75 $29.74 $45.11 $30.68
Through April 1998, the Company ran only one autoclave in the mill. In May 1998, production from the Getchell Underground mine and development ores from the Turquoise Ridge mine exceeded the capacity of one autoclave. The decision was then made to bring the second autoclave on line, mixing the higher grade underground ores with 44,845 tons in the third quarter and 66,806 tons in the first nine months of 1998 of low grade stockpile ore. This resulted in the blended milled grades and recoveries listed above for the 1998 periods. As production of ore from underground sources increases, the Company anticipates bringing the third autoclave into service as early as the end of 1998. Cost of sales was $16.1 million in the third quarter of 1998, down from $21.7 million in the third quarter of 1997. For the first nine months of 1998, cost of sales was $45.3 million compared with $63.2 million in the same period of 1997. Cash costs per ounce (including royalties) in the third quarter of 1998 improved to $285 from $383 in the third quarter of 1997 and in the first nine months of 1998 improved to $329 from $408 in the first nine months of 1997. Milling, underground mining costs and mine site G&A were lower in the 1998 periods as compared to the same periods in 1997. Decreases in cost of sales and the total underground mining and milling costs were primarily due to the lower volume of ore processed with the underground mining costs also reflecting improved mining practices and lower maintenance expenses. Mine site G&A costs in the 1998 periods reflected the capitalization of the portion of those costs associated with the development of the Turquoise Ridge mine. Page 11 The decreases in corporate and mine site G&A and exploration costs in the first nine months of 1998 as compared to the same period of 1997 reflected adjustments to reduce non- cash compensation expense recorded in connection with the grant in February 1997 of Stock Appreciation Rights ("SARS") for certain corporate executives and key employees. The SARS are further detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Lower exploration expenses in the third quarter and the first nine months of 1998 as compared to the same periods of 1997 reflected the Company's focus on the delineation and expansion of known ore zones, for which the drilling expenditures are capitalized. Capitalized drilling expenditures were $1.2 million and $2.9 million for the third quarter and first nine months of 1998, respectively. Net interest expense in the 1998 third quarter and first nine months was lower than the same periods of 1997 due to higher capitalized interest associated with the Turquoise Ridge construction project. Interest and other income was lower in the third quarter and first nine months of 1998 compared to the same periods of 1997 due to lower cash and cash equivalent balances throughout the third quarter and first nine months of 1998 as compared to the same periods of 1997. Liquidity and Capital Resources During the first nine months of 1998, the Company used $3.2 million of cash in operations and $61.1 million for capital expenditures. The capital expenditures included $44.6 million on Turquoise Ridge mine development, $5.2 million on the Getchell Underground mine, $6.3 million on the mill, $3.0 million on development drilling and $2.0 million on other items. Total expenditures on the Turquoise Ridge mine construction through September 30, 1998 were $100.7 million with an additional $8.0 million of mobile equipment leased. An estimated $10 million is expected to be spent to complete the construction of the mine, although there can be no assurances that actual expenditures will not differ materially from this amount. In March 1998, the Company completed an equity offering of 4,002,000 common shares at $18.25 per share which resulted in net proceeds to the Company of $69.7 million after offering costs and expenses of $3.3 million. As of September 30, 1998, cash and cash equivalents were $37.8 million. The principal balance of the Company's promissory note with ChemFirst was $26.9 million at September 30, 1998. The promissory note is due September 22, 2000 or upon a change in control of the Company and may be prepaid without penalty. The interest rate on the loan is the London Interbank Offered Rate for a period selected by the Company, plus an applicable margin based on the Company's leverage ratio. The interest rate was 6-11/16% at September 30, 1998. Since the inception of the promissory note, interest has been capitalized to the note at the end of each interest period. Page 12 Approximately $15 million is expected to be spent on capital projects in the last three months of 1998, including the Turquoise Ridge mine, modifications to the mill, Getchell Underground mine development, equipment and development drilling, although there can be no assurance that actual expenditures will not differ materially from this amount. The Company plans on financing these capital development projects and its operations from its existing cash resources. The Company had cash flow from operating activities of $1.7 million in the third quarter of 1998. The Company believes that cash flows from operations and current cash balances will be sufficient to fund operations and capital investments through 1999. However, if there are any shortfalls in funds required to meet these needs, such funds may be supplemented by additional funds raised by issuing debt or equity securities. There can be no assurance that additional funding will be available on favorable terms, if at all. Statement of Financial Accounting Standards No. 133 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The Company has not assessed the impact SFAS 133 may have in the future. Statement of Position 98-5 In April 1998, the American Institute of Certified Public Accountant's issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities ("SOP 98-5") which provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. SOP 98-5 is effective for all fiscal years beginning after December 15, 1998 with initial application reported as the cumulative effect of a change in accounting principle. The Company has not assessed the impact SOP 98-5 may have in the future. The Year 2000 Issue The Problem The Year 2000 Issue is the result of the inability of hardware, software and control systems to correctly identify two-digit references to specific years, beginning with the year 2000. This could result in system failures or miscalculations causing disruptions of operations of the Company and its suppliers. The Company's State of Readiness The Company has instituted a Year 2000 Project ("Project"). As a part of the Project, the Company has completed an initial evaluation of its computer systems and significant software programs. This evaluation included the Company's network hardware and operating system, software operating the hoists at Turquoise Ridge, the control system at the mill and accounting and business process software. It is currently believed that the Company's network hardware and operating system, software operating the hoists at Turquoise Ridge and Page 13 accounting and business process software are all Year 2000 compliant. The control system at the mill, and other less critical hardware and software, require further evaluation, which is expected to be completed by the end of the first quarter of 1999. The Company's less critical software programs are predominantly "off-the-shelf" products with Year 2000 versions now available. Therefore, if the software programs are not Year 2000 compliant, the Company will replace these software programs by utilizing vendor provided upgrades by the end of the third quarter of 1999. Based on work performed to date, no material issues have been identified, however, subsequent work may lead to discovery of material issues. As part of the Company's Year 2000 Project, the Company plans to contact its significant third-party suppliers, such as its refiners and suppliers of power, oxygen and chemicals, to determine the extent to which the Company is vulnerable to its refiner's or supplier's failure to remediate their Year 2000 Issue. The contacts are planned to be completed by the end of the first quarter 1999. However, there can be no assurance that third party suppliers will adequately address their Year 2000 Issue or that failure of the third party suppliers to address their Year 2000 Issue would not have a material adverse effect on the Company or its operations. The Costs to Address the Company's Year 2000 Issues Expenditures through September 30, 1998 have been minimal. Based upon the findings at September 30, 1998, the estimated costs of becoming Year 2000 compliant are less than $0.1 million. The Risks Associated with the Company's Year 2000 Issues The Company's failure to resolve Year 2000 Issues on or before December 31, 1999 could result in system failures or miscalculation causing disruption in operations and normal business activities. Additionally, failure to timely remediate Year 2000 Issues by third parties upon whom the Company's business relies could result in disruptions in the Company's supply of parts and materials or result in other problems related to the Company's daily operations. Page 14 Risk Factors Readers should carefully consider the risk factors set forth below, as well as all of the other information in this document and the Annual Report of the Company on Form 10-K for the year ended December 31, 1997. Gold Price Volatility The Company's profitability is significantly affected by changes in the price of gold. Gold prices may fluctuate widely. In August 1998, the market price of gold declined to levels that were the lowest in over eighteen years and has remained below $300 for most of 1998. Gold prices are affected by numerous industry factors, such as demand for precious metals, forward selling by producers, central bank sales and purchases of gold and production and cost levels in major gold-producing regions. Moreover, gold prices are also affected by macroeconomic factors such as expectations for inflation, interest rates, currency exchange rates and global or regional political and economic situations. The current demand for and supply of gold affects gold prices, but not necessarily in the same manner as current demand and supply affect the prices of other commodities. The potential supply of gold consists of new mine production plus existing stocks of bullion and fabricated gold held by governments, financial institutions, industrial organizations and individuals. Since mine production in any single year constitutes a very small portion of the total potential supply of gold, normal variations in current production do not necessarily have a significant effect on the supply of gold or on its price. If the Company's realized price should decline below the Company's expected cash costs of production and remain at such levels for any sustained period, there could be material delays in the development of new projects, increased net losses, reduced cash flow, reductions in reserves, asset impairments or cessation of production. The volatility of gold prices is illustrated in the following table of the annual high, low and average London P.M. Fix: High Low Average Calendar Year Price Per Ounce 1987........................................... $500 $390 $446 1988........................................... $484 $395 $437 1989........................................... $416 $356 $381 1990........................................... $424 $346 $383 1991........................................... $403 $344 $362 1992........................................... $360 $330 $344 1993........................................... $406 $326 $360 1994........................................... $396 $370 $384 1995........................................... $396 $372 $384 1996........................................... $415 $367 $387 1997........................................... $367 $283 $331 1998 (Through October 30)...................... $296 $273 $294 Page 15 The London P.M. Fix on October 30, 1998, was $292 per ounce. Continuing Losses The Company reported net losses of $2.5 million and $9.8 million for the quarter and nine months ended September 30, 1998, and $19.4 million and $14.0 million for the years ended December 31, 1997 and 1996, respectively, $5.0 million for the six months ended December 31, 1995 and $18.4 million for the fiscal year ended June 30, 1995. The Company expects to continue to experience losses at least until higher grade ore from Turquoise Ridge or other sources is produced, which other sources could include sources presently being explored or developed by the Company. There can be no assurance that sources of higher grade ores will be developed by the Company. Reserves The ore reserves described by the Company are, in large part, estimates made by the Company and confirmed by independent mining consultants known as Mine Development Associates ("MDA") or Mineral Resource Development, Inc. ("MRDI"). The reserves confirmed by MDA or MRDI are subject to certain risks and assumptions, including those discussed in "Certain Turquoise Ridge Mine Risks" below. Additionally, no assurance can be given that the indicated level of recovery of gold will be realized or that the assumed gold price of $350 per ounce will be obtained. Reserve estimates may require revision based on actual production experience. Market price fluctuations of gold, as well as increased production costs or reduced recovery rates, may render ore reserves containing relatively lower grades of mineralization uneconomic and may ultimately result in a restatement of reserves. Moreover, short-term operating factors relating to the ore reserves, such as the need for sequential development of ore bodies and the processing of new or different ore grades, may adversely affect the Company's profitability in any particular period. Declines in the market price of gold may also render ore reserves containing relatively lower grades of gold mineralization uneconomic to exploit. Project Development Risks The Company from time to time engages in the development of new ore bodies. Specific risks associated with the Company's development of the Turquoise Ridge mine are discussed below. The Company's ability to sustain or increase its present level of gold production is dependent in part on the successful development of such new ore bodies and/or expansion of existing mining operations. The economic feasibility of any such development project, and all such projects collectively, is based upon, among other things, estimates of reserves, metallurgic recoveries, capital and operating costs of such projects and future gold prices. Development projects are also subject to the successful completion of feasibility studies, issuance of necessary permits and receipt of adequate financing. Development projects have no operating history upon which to base estimates of future cash operating costs and capital requirements. In particular, estimates of reserves, metal Page 16 recoveries and cash operating costs are to a large extent based upon the interpretation of geologic data obtained from drill holes and other sampling techniques and feasibility studies which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climate conditions and other factors. As a result, it is possible that actual cash operating costs and economic returns of any and all development projects may materially differ from the costs and returns initially estimated. Certain Turquoise Ridge Mine Risks The Turquoise Ridge mine involves numerous risks. These include the following: Capital Requirements. Expenditures required to advance the Turquoise Ridge mine to the point of commercial production were estimated to be $10 million at September 30, 1998. As of September 30, 1998, the Company's cash and cash equivalents were $37.8 million. The Company intends to finance the completion of the Turquoise Ridge mine with its existing cash resources. There can be no assurance that the cash required to advance the Turquoise Ridge mine to commercial production and to fund the ongoing Turquoise Ridge operations will be available. If there are any shortfalls in funds required to meet these needs, such funds may be supplemented by additional funds raised by issuing debt or equity secruities. There can be no assurance that additional funding will be available on favorable terms, if at all. Reserves. There can be no assurance that the probable reserves set forth in MRDI and MDA's reserve reports for Turquoise Ridge and the Shaft Zone will actually be mined and milled on an economic basis, if at all. The MDA and MRDI reports are based upon many assumptions, some or all of which may not prove to be accurate. The failure of any such assumptions to prove accurate may alter the conclusions of MDA's and/or MRDI's report on reserves and may have a material adverse affect on the Company. The resource and reserve estimates were prepared using geological and engineering judgment based on available data. In the absence of underground development, such estimates must be regarded as imprecise and some of the assumptions made may later prove to be incorrect or unreliable. The grade distribution at Turquoise Ridge is generally between 0.2 to 0.75 ounces per ton. Small changes in cutoff grade can cause large shifts in the reserves. If dilution and/or mining costs related to poor ground conditions are higher than expected, the reserves could be substantially reduced, resulting in a shortening of mine life and a reduced or negative cash flow. Dilution. The tonnage and grade of the mill feed material was estimated by applying dilution factors to certain resource data. The dilution agents are backfill, waste from the back of overcut crosscuts and drifts, and from the walls. In the case of the latter two, MRDI assumed that there would be an average of one foot of back and wall dilution. MDA used approximately 15% dilution and 95% recovery of the minable reserve. If this dilution increases, there will be corresponding negative effects on the tonnage and grade to mill. This risk is related to the irregular configuration of the ore body which, even with the tight Page 17 cut-and-fill stoping method used, could make achievement of a dilution thickness of one foot impossible to achieve in practice. Production Shaft Completion. Completion of the production shaft, which is expected no earlier than the fourth quarter of 1998, is an aggressive schedule. Delay in this construction would necessitate removing ore through the Ventilation Shaft, which is basically designed for waste and the limited ore from early production. Additionally, the availability of the final ventilation circuit required for mining depends upon the completion of the Production Shaft. Mining Cost. As part of the project risk assessment, sensitivities were run on various mining costs. Due to uncertainties about actual ground conditions and productivities, these costs are only predictable within a broad range and the predictions may not be valid. Increased actual mining costs may have a material adverse effect on the viability of the Turquoise Ridge project and on the Company. Hydrology. Drainage of the ore body and surrounding rock will be critical to the achievement of the mining efficiencies and costs estimated by the study. If the deposit is not drained and water remains in this clay-rich environment, mining conditions could worsen, and ground support costs will increase. If, due to the presence of fine clays, the deposit drains slowly, the start of production may be delayed, and the build-up to full production may be of longer duration. Additionally, depending upon the quantity and quality of water encountered, the water treatment/disposal options presently available to the Company may be insufficient to meet estimated amounts needed to treat water pumped from Turquoise Ridge during dewatering. Currently, the infiltration basins are accepting and disposing of all water delivered from both the Getchell Underground and the Turquoise Ridge mines, although there can be no assurance that these conditions will continue. Geotechnical Considerations. The Turquoise Ridge ore zones contain areas of poor ground conditions due to a high percentage of the ground being comprised of low rock mass rating rock and clay. As a result, the Company may be required to make expenditures on additional ground support. Dependence on a Single Property All of the Company's revenues are derived from its mining and milling operations at the Getchell Property. If the operations at the Getchell Underground or Turquoise Ridge mines, or at any of the Company's processing facilities, were to be reduced, interrupted or curtailed, the Company's ability to generate future revenues and profits could be materially adversely affected. Exploration Mineral exploration, particularly for gold, is highly speculative in nature, involves many risks and is frequently unsuccessful. The Company is seeking to expand its reserves only through exploration and development at the Getchell Property. There can be no assurance that Page 18 the Company's exploration efforts will result in the discovery of any additional gold mineralization or that any mineralization discovered will result in an increase of the Company's reserves. If reserves are developed, it may take a number of years and substantial expenditures from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. No assurance can be given that the Company's exploration programs will result in the replacement of current production with new reserves or that the Company's development program will be able to extend the life of the Company's existing mines. Hedging Activities and Other Precious Metal Contract Commitments Precious metals contracts between the Company and various counterparties involve the requirement that the Company deliver gold to the counterparty at agreed-upon prices. Should the counterparty be unable to fulfill its purchase obligations, there is no guarantee that the Company will be able to receive the agreed-upon sales price in the open market. Should Getchell be unable to produce sufficient gold to meet its hedging contract obligations, the Company may be obligated to purchase such gold at the then market price. There can be no assurance that the Company will have the funds necessary to purchase such gold or that it will be able to do so without causing a material adverse effect on the Company. The Company's accounting treatment for hedging and other precious metal contract commitments is outlined in Notes 2 and 3 to the Company's consolidated financial statements included in Item 8 "-Financial Statements and Supplementary Data" of the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Dependence on Key Personnel The Company is dependent on the services of certain key officers and employees, including its Chief Executive Officer, its Chief Financial Officer, its Chief Operating Officer, its Chief Administrative Officer and its Vice President of Exploration. Competition in the mining industry for qualified individuals is intense, and the loss of any of these key officers or employees, if not replaced, could have a material adverse effect on the Company's business and its operations. The Company currently does not have key person insurance. The Company has entered into Termination Agreements with its Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Administrative Officer and Vice President of Exploration which provide for certain payments upon termination or resignation resulting from a change of control (as defined in such agreements). In connection with the development of Turquoise Ridge, the Company expects that it will require a significant number of additional skilled employees. The Company faces intense competition from other mining companies in connection with the recruitment and retention of such employees. Additionally, although the Company does not currently have any unionized employees, there can be no assurance that unionization will not occur in the future. Page 19 Government Regulation Safety. The mining operations of the Company are subject to inspection and regulation by the Mine Safety and Health Administration of the United States Department of Labor ("MSHA") under the provisions of the Mine Safety and Health Act of 1977. The Occupational Safety and Health Administration ("OSHA") also has jurisdiction over safety and health standards not covered by MSHA. It is the Company's policy to comply with applicable directives and regulations of MSHA and OSHA. On January 15, 1997, a mine site accident involving a loader resulted in the death of a Company employee. As required by federal law, MSHA officials investigated the accident. MSHA issued seven enforcement actions, one of which was subsequently vacated. Civil penalties for which the Company has been assessed as the result of such actions were $120,817. A contest of the penalties and underlying violations was filed on March 12, 1998. The case has been forwarded to the Office of Administrative Law Judges of the Federal Mine Safety and Health Review Commission for a hearing. The settlement agreement has been submitted to the Administrative Law Judge for approval. One order was vacated, and a penalty of $85,000 for the remaining alleged violations has been proposed. The Company expects that the settlement will be approved in the near future and the penalty will be required to be paid before year end. MSHA also conducted a special investigation to determine whether knowing and/or willful violations on the part of the Company or any agent, officer or director of the Company occurred. That investigation has been concluded and no further violations were alleged. Current Environmental Laws and Regulations. The Company must comply with environmental standards, laws and regulations which may entail greater or lesser costs and delays depending on the nature of the regulated activity and how stringently the regulations are implemented by the regulatory authority. It is possible that the costs and delays associated with compliance with such laws and regulations could become such that the Company would not proceed with the development of a project or the operation or further development of a mine. Laws and regulations involving the protection and remediation of the environment and the governmental policies for implementation of such laws and regulations are constantly changing and are generally becoming more restrictive. The Company has made, and expects to make in the future, significant expenditures to comply with such laws and regulations. These requirements include regulations under: (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") which regulates and establishes liability for the release of hazardous substances; (ii) the Endangered Species Act ("ESA") which identifies endangered species of plants and animals and regulates activities to protect these species and their habitats; (iii) the Clean Water Act; (iv) the Clean Air Act; (v) the Resource Conservation and Recovery Act for disposal of hazardous waste; (vi) the Migratory Bird Treaty Act; (vii) the Safe Drinking Water Act; (viii) the Federal Land Policy and Management Act; (ix) the National Environmental Policy Act; (x) the National Historic Preservation Act; and (xi) many other state and federal laws and regulations. Page 20 The United States Environmental Protection Agency ("EPA") continues the development of a solid waste regulatory program specific to mining operations such as the Company's, whose mineral extraction and beneficiation wastes are not regulated as hazardous wastes under the Resource Conservation and Recovery Act ("RCRA"). In September 1997, the EPA issued its National Hardrock Mining Framework. The Framework focuses on the EPA's use of its existing authorities other than RCRA to address environmental concerns posed by hardrock mining. The Company does not anticipate that the Framework will have a material adverse effect on the Company. Regulations promulgated under RCRA on May 29,1998, the Phase IV Land Disposal Restrictions, will not materially impact the Company's operations. New regulations promulgated under Section 313 of the Emergency Planning and Community Right to Know Act ("EPCRA") have significantly expanded Toxic Release Inventory ("TRI") reporting requirements to include the metal mining industry. The Company expects to incur additional costs in complying with the new TRI reporting requirements and could be adversely affected, along with the rest of the metal mining industry, by the public availability of the reports. Environmental laws and regulations may also have an indirect impact on the Company, such as increased cost for electricity due to acid rain provisions of the Clean Air Act Amendments of 1990. Charges by refiners to which the Company sells its metallic concentrates and products have substantially increased over the past several years because of requirements that refiners meet revised environmental quality standards. The Company has no control over the refiners' operations or their compliance with environmental laws and regulations. Potential Legislation. Several recent legislative developments have affected or may in the future affect the cost of and the ability of mining claimants to use the Mining Law of 1872, as amended (the "General Mining Law"), to acquire and use federal lands for mining operations. Since October 1994, a moratorium has been imposed on processing new patent applications for mining claims. This moratorium should not affect the status of the patent applications made by the Company under the General Mining Law before the moratorium was imposed. Also, since 1993, a rental or maintenance annual fee of $100 per claim has been imposed by the Federal government on unpatented mining claims in lieu of the prior requirement for annual assessment work. During the last several Congressional sessions, bills have been repeatedly introduced in the U.S. Congress which would supplant or radically alter the General Mining Law. As of October 28, 1998, no such bills have been passed. Such bills have proposed, among other things, to permanently eliminate or greatly limit the right to a mineral patent, impose royalties, and impose new Federal reclamation, environmental control and other restoration requirements. Royalty proposals have ranged from a 2% royalty on "net profits" from mining claims to an 8% royalty on modified gross income/net smelter returns. If enacted, such legislation could substantially impair the ability of companies to economically develop mineral resources on federal lands. The extent of the changes, if any, which may be Page 21 made by Congress to the General Mining Law is not presently known, and the potential impact on the Company as a result of future Congressional action is impossible to predict. Although a majority of the Company's existing mining operations occur on private or patented property, the proposed changes to the General Mining Law could adversely affect the Company's ability to economically develop mineral resources on federal lands. Disposal of overburden and mineral processing wastes by the Company occur on both private and federal lands. Exploration activities also occur on both private and federal lands. BLM is considering revisions to 43 C.F.R. Section 3809 which regulates mining activities on public lands managed by the BLM. BLM anticipates that an environmental impact statement evaluating the potential effects of these regulatory revisions will be issued in 1999. The proposed revisions address reclamation and bonding requirements for the industry. The impact of these potential revisions, when finalized, is not known at this time. Other legislative initiatives relating to environmental laws potentially applicable to mining include proposals to substantially alter CERCLA, the Clean Water Act, Safe Drinking Water Act, and the ESA, bills which introduce additional protection of wetlands and various initiatives to increase the regulatory control over exploration and mining activities. Adverse developments and operating requirements resulting from these initiatives could substantially impair the economic ability of the Company, as well as others, to develop mineral resources. Because none of these bills have passed and because revisions to current versions of these bills could occur prior to passage, the potential impact on the Company of such legislative initiatives is not known at this time. Environmental Matters Environmental Liability. The Company is subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products that could occur as a result of the Company's mineral exploration, development and production. The gold ore located on the Getchell Property and the existing tailings ponds and waste rock piles dumps located on the Getchell Property contain relatively high levels of arsenic, and the milling of such ore involves the use of other toxic substances, including, but not limited to, sodium cyanide, sodium hydroxide, sulfuric acid and nitric acid. Environmental liability also may result from mining activities conducted by others prior to the Company's ownership of a property. Historic mining disturbances, facilities, waste materials and other discrete areas of potential contamination associated with gold, tungsten, and molybdenum production between 1937 and 1969 by previous owners and operators are encompassed within the area of the Company's Getchell Property operations. Under CERCLA and other federal, state and local environmental laws, ordinances, and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property or other property to which such substances may have migrated. Such laws may impose liability Page 22 whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with its current or prior ownership or operation of property or facilities, the Company may be potentially liable for any such costs or liabilities. Although the Company is currently not aware of any material environmental claims pending or threatened against it, no assurance can be given that a material environmental claim will not be asserted against the Company. Restoration of certain areas of historic disturbance and contamination has been undertaken in conjunction with current mining operations and has been incorporated into the Company's state permits in coordination with the federal land management agency. Such restoration will not necessarily result in removal of all hazardous substances located on the Getchell Property nor will it relieve the Company of all potential liability for such substances under CERCLA or similar laws. To the extent the Company is subject to environmental liabilities, the payment of such liabilities or the costs which must be incurred to remedy environmental pollution would reduce funds otherwise available to the Company and could have a material adverse effect on the Company. Should the Company be unable to fully remedy an environmental problem, the Company might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. The potential exposure may be significant and could have a material adverse effect on the Company. Insurance for environmental risks (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) has not been purchased by the Company as it is not generally available at a reasonable price. Environmental Permits. All of the Company's exploration, development and production activities are subject to regulation under one or more of the various state and federal environmental laws and regulations. These laws address emissions to the air, discharges to water, management of wastes, management of hazardous substances, protection of natural resources, protection of antiquities and restoration of lands which are disturbed by mining. Many of the regulations require permits to be obtained for the Company's activities. The Company maintains permits required for its facilities and operations which provide for ongoing compliance and monitoring. Some of the permits include Bureau of Land Management Plan of Operations No. N24-87-003P; EPA Hazardous Waste Facility No. NVD986774735; Nevada water pollution control permits NEV86014 (for mining and mineral processing) and NEV95113 (for excess mine water disposal); Nevada reclamation permit 0105; and Nevada air quality permit AP1041-0292. These permits must be updated and reviewed from time to time, and normally are subject to environmental impact analyses and public review processes prior to approval of the activity. It is possible that future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have a significant impact on some portion of the Company's business, causing those activities to be economically re-evaluated at that time. Page 23 Restoration. The Company accrues expenses over the productive life of its mine for anticipated costs associated with restoration of the mine site. Activities which result in restoration costs include the permanent closure of the mining and mineral processing operations and the reclamation of the disturbed land to a productive use. This includes restoration of historic and current mining and mineral processing operations and associated land disturbances. Restoration takes place concurrent with and after the productive life of mining operations. Activities which result in restoration costs after permanent closure and reclamation primarily relate to monitoring and other post mining management activities. The uncertainties related to future restoration costs result from unknown future additional regulatory requirements, significant new facilities or surface disturbances, and the potential for recognition in the future of additional activities needed for restoration. The technologies for restoration are evolving. Periodic review of the activities and costs for restoration, and consequent adjustments to the ongoing accrual, are conducted. The Company has programs of evaluating various restoration technologies during mining and milling operations. The Company has begun restoration of the Getchell property, conducts concurrent restoration and anticipates an ongoing program of concurrent restoration over the productive life of the mining operations. Restoration activities have included regrading, fertilizing, mulching, seeding, live planting, monitoring and restoration research. In accordance with applicable State and Federal laws, the Company has posted a reclamation bond of $4.5 million to cover the costs for reclamation of the Getchell property. Current submittals to expand the existing tailing facility are expected to increase the bond requirements to approximately $9.0 million. As of September 30, 1998, the total estimated restoration costs for the Getchell Property were $8.7 million, of which the Company had accrued $2.7 million. The amount of total estimated restoration costs has increased over time due to expanded mining activities, requirements for restoring expanded tailing disposal areas, and more stringent regulatory requirements. Additional increases may occur in the future for the same reasons. Mining Risk and Insurance The gold ore located on the Getchell Property and the existing tailings ponds and waste dumps located on the Getchell Property contain relatively high levels of arsenic, and the milling of such ore involves the use of other toxic substances, including sodium cyanide, sodium hydroxide, sulfuric acid and nitric acid. In addition, the business of gold mining is generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, labor disputes, the encounter of unusual or unexpected geological conditions, slope failures, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods, blizzards and earthquakes. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. The Company maintains insurance against risks that are typical in the gold mining industry and in amounts that the Company believes to be reasonable, but which may not provide adequate Page 24 coverage in certain unforeseen circumstances. However, insurance against certain risks (including certain liabilities for environmental pollution or other hazards as a result of exploration and production) has not been purchased by the Company as such coverage is not generally available at a reasonable price to it or to other companies within the industry. Title to Properties Certain of the Company's mineral rights consist of unpatented mining claims. Unpatented mining claims are unique property interests that are generally considered to be subject to greater title risk than other real property interests. The greater title risk results from unpatented mining claims being dependent on strict compliance with a complex body of federal and state statutory and decisional law, much of which compliance involves physical activities on the land, and from the lack of public records which definitively control the issues of validity and ownership. Page 25 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits 10(a)- Form of Termination Agreement between the Company and Sarah Jones Farmar. 27. - Financial Data Schedule. Reports on Form 8-K No reports on Form 8-K were filed by the registrant in the quarter ended September 30, 1998. Page 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Getchell Gold Corporation October 30, 1998 By: /s/ G. W. Thompson Date G. W. Thompson, President, Chief Executive Officer and Director October 30, 1998 By: /s/ Donald S. Robson Date Donald S. Robson, Vice President and Chief Financial Officer (Principal Financial Officer) Page 27 EX-10 2 FORM OF TERMINATION AGREEMENT 1 July 20, 1998 PRIVILEGED AND CONFIDENTIAL Sarah Jones Farmar 16374 Sandstone Drive Morrison, CO 80465 Re: Termination Agreement Dear Sarah: GETCHELL Gold Corporation (the "Company") considers it essential to the best interests of the stockholders of the Company to foster the continuous employment of key management personnel. In this connection, the Board of Directors (the "Board") of the Company recognizes that, as is the case with many publicly held corporations and their subsidiaries and parents, the possibility of a Change in Control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control of the Company. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(ii) hereto, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company is terminated subsequent to a "Change in Control" of the Company (as defined in Section 2 hereof) under the circumstances described below. This agreement, however, does not otherwise change your employment arrangements and except for the conditions pertaining to a Change in Control, your continued employment continues to be subject to the will of the President and Chief Executive Officer of the Company. 1. TERMS OF AGREEMENT This Agreement shall commence on the date hereof and shall continue in effect through June 30, 2000; provided, however, if a Change in Control of the Company shall have occurred during the term of this Agreement, this 2 Agreement shall continue in effect for a period of three (3) years beyond the month in which such Change in Control occurred; provided further, that in no event shall this Agreement extend beyond your normal retirement age unless specifically endorsed to so provide. 2. CHANGE IN CONTROL (i) No benefits shall be payable hereunder unless there shall have been a Change in Control of the Company, as set forth below. For purposes of this Agreement, a "Change in Control" of the Company are deemed to have occurred if: (A) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"], other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly by the stockholders of the Company, in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's outstanding securities; or (B) During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A) or (i) of this Subsection) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the 3 period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) The shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; or (D) There occurs any "Takeover Event," as such term is defined in the Amended and Restated Long-Term Incentive Plan of the Company, as amended November 4, 1992, or a "Change in Control," as such term is defined in the 1996 Long-Term Equity Incentive Plan of the Company. (ii) For purposes of this Agreement, a "potential Change in Control" of the Company shall be deemed to have occurred if: (A) The Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company. (B) Any person (including the Company) publicly announces an intention to take or to consider taking actions which, if 4 consummated, would constitute a Change in Control of the Company. (C) Any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company, in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing nine and a half (9.5%) percent or more of the combined voting power of the Company's then outstanding securities, increases his beneficial ownership of such securities by five percent (5%) or more over the percentage so owned by such person on the date hereof; or (D) The Board adopts a resolution to the effect that, for purposes of this Agreement, a potential Change in Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a potential Change in Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such potential Change in Control, (ii) the termination by you of your employment by reason of Disability, as defined in Subsection 3(i), or (iii) the occurrence of a Change in Control of the Company. 3. TERMINATION FOLLOWING CHANGE IN CONTROL If any of the events described in Subsection 2(i) hereof constituting a Change in Control of the Company have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability as defined in Subsection 3(i), (B) by the Company for Cause, or by you other than for Good Reason, in either of which case you shall be entitled to the benefits provided in Subsection 4(ii). (i) DISABILITY. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from 5 the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability". (ii) CAUSE. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by you for Good Reason as defined in Subsections 3(iv) and 3 (iii), respectively) after a written demand for substantial performance is delivered to you by the Company, which demand specifically identifies the manner in which the Company believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. (iii) GOOD REASON. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change in Control of the Company of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 3(v) and 3(iv), respectively, given in respect thereof: (A) The assignment to you of any duties inconsistent with your status as a senior manager of the Company or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change in Control 6 of the Company; (B) A reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any person or entity which accedes to the business of the Company; (C) The relocation of your principal office to outside the Englewood, Colorado Metropolitan Area, or the Company's requiring you to be based anywhere other than in Englewood, Colorado except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) The failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all senior executives of the Company and all senior executives of any person or entity which accedes to the business of the Company, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (E) The failure by the Company to continue in effect any compensation plan in which you participate immediately prior to the Change in Control of the Company which is material to your total compensation, including but not limited to the Getchell Gold Corporation Long-Term Incentive Plan, as the plan is amended from time to time ("the Long-Term Incentive Plan"), or any substitute plan 7 adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change in Control of the Company; (F) The failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which you were participating at the time of the Change in Control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the Change in Control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the Change in Control of the Company; (G) The failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; (H) Any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iv) below (and, 8 if applicable, the requirements of Subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (iv) Any material breach by the Company of any provision of this Agreement. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness unless such illness constitutes "Disability". Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (v) NOTICE OF TERMINATION. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (vi) DATE OF TERMINATION, ETC. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to Subsection (ii) or (iii) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination is given, or if later, prior to the Date of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination 9 shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY Following a Change in Control as defined by Subsection 2(i), upon termination of your employment or during a period of disability, you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness that does not constitute Disability, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under the Long-Term Incentive Plan or other plan during such period, until this Agreement is terminated pursuant to Section 3(i) hereof. Thereafter, or in the event your employment shall be terminated, or by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs; 10 (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, or for Disability or death, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement; (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause or Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you, a lump sum severance payment (together with the payments provided in Paragraph E below and any payment you may receive pursuant to Paragraph D below, the "Severance Payments") equal to 1.5 times the sum of (i) your annual base salary and (ii) bonuses, averaged over the three (3) years (or such portion of the three (3) years during which you actually were employed by the Company) prior to the occurrence of the circumstances giving rise to the Notice of Termination. (C) Health plan, dental plan, life insurance plan and long-term disability plan coverage in 11 effect on the Date of Termination will continue for a period of twenty four (24) months from the Date of Termination. (D) Except for Incentive Stock Options ("ISO's") which are hereby specifically excluded, in lieu of shares of common stock of the Company ("Company Shares") issuable upon exercise of outstanding options ("Options"), granted to you under the Company's Long-Term Incentive Plan as amended from time to time, or any other plan then in effect (which Options shall be canceled upon the making of the payment referred to below), unless you notify the Company by giving notice in accordance with Section 6 hereof within fifteen (15) days after receipt of Notice of Termination that you do not wish such payment, the Company shall pay to you not later than the fifth day following the Date of Termination, an amount in cash equal to the product of (i) the difference (to the extent that such difference is a positive number) obtained by subtracting the per share exercise price of each Option held by you whether or not then fully exercisable from the higher of (A) the closing price of Company Shares as reported on the American Stock Exchange on the Date of Termination, or (B) the highest per share price for Company Shares actually paid in connection with any Change in Control of the Company, or (C) the highest per share price payable under the terms of the Company's Long-Term Incentive Plans as amended from time to time and (ii) the number of Company Shares covered by each such Option. (E) The Company shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in 12 seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") to any payment or benefit provided hereunder). (F) In the event that you become entitled to the payments (the "Severance Payments") provided under paragraphs (B),(D), and (E) above, or to any other payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company) any person whose actions result in a Change in Control or any person affiliated with the Company or such person (collectively with the Severance Payments, the "Total Payments) if any of the Total Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to you at the time specified in paragraph (G), below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Total Payments and any federal income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Total Payments. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be 13 treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above); and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in 14 Excise Tax and/or a federal income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment, the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (D), and (F) above, shall be made not later than the fifth (5th) day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you payable on the fifth (5th) day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (vi) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other 15 employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. (vii) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under the 401(k) Thrift Plan, and any other plan or agreement relating to retirement benefits. 5. RELATIONSHIP WITH LONG-TERM INCENTIVE PLAN In the event of an inconsistency between the terms of this Agreement and the terms of the Company's Long-Term Incentive Plans, the terms of this Agreement shall control. 6. SUCCESSORS: BINDING AGREEMENT (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume 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. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 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 16 otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. NOTICES For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. MISCELLANEOUS No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. All references to Sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such Sections. Any payments provided for hereunder shall be paid net of any applicable withholding 17 required under federal, state or local law. The obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement. 9. VALIDITY The invalidity or unenforceable ability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. COUNTERPARTS This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely yours, GETCHELL GOLD CORPORATION /s/ G. W. Thompson G. W. (Bill) Thompson President and Chief Executive Officer GWT:mim ACCEPTED AND AGREED to on this 20 day of July, 1998. /s/ Sarah Jones Farmar Sarah Jones Farmar EX-27 3 FDS --
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