-----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, KK1poG1cw4BxzIACjA1Yu9/2A02oD3QRGqmxO2OpnaGIs3uD/NlPTyjMsu+quf3X lb74Tw6pmd9UsXSqt6MCaw== 0001035704-99-000243.txt : 19990518 0001035704-99-000243.hdr.sgml : 19990518 ACCESSION NUMBER: 0001035704-99-000243 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99624706 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 FOR QUARTER ENDED MARCH 31, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- ----------- Commission file number: 0-16484 GETCHELL GOLD CORPORATION (Exact name of Registrant as specified in its charter) Delaware 64-0748908 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5460 South Quebec Street Suite 240 Englewood, Colorado 80111 (Address of principal executive offices) (Zip code) (303) 771-9000 (Registrant's telephone number including area code) Not applicable (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title Outstanding Common Stock, par value $0.0001 30,811,718 on May 12, 1999 Page 1 2 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 March 31, ---------------------- 1999 1998 -------- -------- Net sales $ 14,476 $ 10,803 Cost of sales 20,004 15,033 -------- -------- Gross margin (5,528) (4,230) General and administrative expenses 1,362 921 Exploration expenses 186 98 -------- -------- Loss from operations (7,076) (5,249) Interest expense, net of capitalized interest (693) (192) Interest and other income 105 535 -------- -------- Loss before cumulative effect of a change in accounting principle (7,664) (4,906) Cumulative effect of a change in accounting principle (7,804) -- -------- -------- Net loss $(15,468) $ (4,906) ======== ======== Loss per share before cumulative effect of a change in accounting principle $ (0.25) $ (0.18) Cumulative effect of a change in accounting principle (0.25) -- -------- -------- Loss per share $ (0.50) $ (0.18) ======== ======== Weighted average number of shares outstanding 30,806 27,901 ======== ========
The accompanying notes are an integral part of these statements. Page 2 3 GETCHELL GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)
March 31, December 31, ASSETS 1999 1998 --------- ------------ Current assets: Cash and cash equivalents $ 8,410 $ 18,073 Accounts receivable: Trade 1,780 2,191 Employee 74 1 Other 2,742 926 --------- --------- Total accounts receivable 4,596 3,118 --------- --------- Inventories: Ore and ore in process 3,529 1,565 Materials and supplies 11,561 11,509 --------- --------- Total inventories 15,090 13,074 --------- --------- Other current assets 1,728 1,090 --------- --------- Total current assets 29,824 35,355 Property, plant and equipment, net 260,909 259,815 Other 4,743 7,390 --------- --------- Total assets $ 295,476 $ 302,560 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,878 $ 7,025 Accrued expenses 3,718 3,013 Current portion of capital lease obligations 4,094 3,539 Stock appreciation rights 1,316 1,393 Deferred revenue 4,752 3,617 Income taxes payable to ChemFirst Inc. 666 666 --------- --------- Total current liabilities 22,424 19,253 Long-term debt, principally ChemFirst Inc. 28,737 28,799 Capital lease obligations, less current portion 12,042 10,399 Deferred income taxes 211 211 Reclamation liabilities 2,729 2,793 Deferred revenue 5,060 75 Deferred call option premium -- 2,000 Other liabilities 1,332 736 --------- --------- Total liabilities 72,535 64,266 --------- --------- Commitments and contingencies -- -- Stockholders' equity : Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued -- -- Common stock, $0.0001 par value; 100,000,000 shares authorized; issued and outstanding 30,810,058 at March 31, 1999 and 30,797,536 at December 31, 1998 3 3 Contributed and paid-in capital 290,946 290,830 Accumulated deficit (68,008) (52,539) --------- --------- Total stockholders' equity 222,941 238,294 --------- --------- Total liabilities and stockholders' equity $ 295,476 $ 302,560 ========= =========
The accompanying notes are an integral part of these statements. Page 3 4 GETCHELL GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended March 31, ---------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net loss $(15,468) $ (4,906) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Cumulative effect of a change in accounting principle 7,804 -- Depreciation and depletion 4,297 2,596 Other 537 626 Net change in operating assets and liabilities: Accounts receivable (1,478) (464) Inventories (2,016) 890 Other current assets (638) (44) Accounts payable (1) (3,147) Accrued expenses 705 110 Deferred revenue 6,825 (27) Stock appreciation rights (77) (275) -------- -------- Cash provided by (used in) operating activities 490 (4,641) -------- -------- Cash flows used in investing activities: Additions to property, plant and equipment (9,217) (17,990) Other 9 -- -------- -------- Cash used in investing activities (9,208) (17,990) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 52 69,774 Principal payments under capital lease obligation (939) (516) Other (58) 86 -------- -------- Cash provided by (used in) financing activities (945) 69,344 -------- -------- Net increase (decrease) in cash and cash equivalents (9,663) 46,713 Cash and cash equivalents at beginning of period 18,073 34,247 -------- -------- Cash and cash equivalents at end of period $ 8,410 $ 80,960 ======== ========
The accompanying notes are an integral part of these statements. Page 4 5 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) GENERAL The financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments of a normal and recurring nature which are necessary to present fairly the financial position, results of operations and cash flows for the interim periods. These financial statements should be read in conjunction with the Annual Report of Getchell Gold Corporation (the "Company") on Form 10-K for the year ended December 31, 1998. (2) MERGER WITH PLACER DOME On December 11, 1998, the Company entered into an Agreement and Plan of Merger with Placer Dome Inc., a Canada-based, international gold mining company, and Bullion Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Placer Dome (the "Merger Sub"), pursuant to which the Merger Sub will be merged (the "Merger") with and into the Company, with the Company surviving the Merger and becoming a wholly owned subsidiary of Placer Dome. Under the terms of the Merger Agreement, each issued and outstanding share of the Company's common stock, other than shares owned by Placer Dome or the Company, will be converted into 2.45 shares of Placer Dome's common shares. The Merger is subject to the Company's shareholder approval. The Company expects the Merger to be consummated on or about May 27, 1999. (3) CHANGE IN ACCOUNTING PRINCIPLE In April 1998, the American Institute of Certified Public Accountant's issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") which provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. The Company adopted SOP 98-5 effective January 1, 1999. The change resulted in a $7.8 million charge as the cumulative effect of a change in accounting principle. This charge reflects the unamortized costs, net of revenues, incurred in the production of development ore from the Turquoise Ridge mine in 1998 and from the Getchell Underground mine in 1994 and 1995, both of which had previously been capitalized. Such costs include costs of mining, milling, minesite general and administrative, royalties and depreciation and depletion. Development ore represents ore encountered in the process of development drifting and ramping when building the mine. Page 5 6 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) HEDGING AND OTHER PRECIOUS METAL CONTRACT COMMITMENTS Precious metal contracts consist of spot deferred, forward sales, call option and lease rate swap contracts. The Company currently uses spot deferred and forward sales contracts to mitigate the impact on earnings and cash flows of decreases in gold prices. Risk of loss on the spot deferred and forward sales contracts arises from the possible inability of a counterparty to fulfill its obligations under the contracts and from the Company's potential inability to deliver gold, although non-performance by the counterparty to the contracts is not anticipated. In the first quarter of 1999, the Company closed out all of its spot deferred contracts. The proceeds from the closure of the spot deferred contracts were recorded as deferred revenue and will be recognized in net sales when the originally designated hedged future gold production is sold. Based on the closing price of the contracts, the unrecognized gains on the spot deferred contracts were $9.8 million at March 31, 1999, of which $3.9 million, $2.8 million, $1.9 million, $0.6 million and $0.6 million will be recognized in 1999, 2000, 2001, 2002 and 2003, respectively. Deferred revenue includes premiums received for call options sold. The deferred amounts are recognized in income when the option expires or the related transaction occurs. At March 31, 1999, the Company had no outstanding European call option contracts. Risk of loss on European call option contracts exists if the Company is unable to deliver the required quantity of gold and the market price were to exceed the exercise price of the option on the date designated in the contract. (5) PROPERTY, PLANT AND EQUIPMENT (In thousands)
At At March 31, December 31, 1999 1998 --------- ------------ Land and land improvements $ 19,107 $ 14,241 Buildings and equipment 171,499 132,934 Mine development 160,662 64,122 Construction-in-progress 19,143 154,470 --------- --------- Total property, plant and equipment 370,411 365,767 Accumulated depreciation and depletion (109,502) (105,952) --------- --------- Net property, plant and equipment $ 260,909 $ 259,815 ========= =========
Page 6 7 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Capitalized mine development and construction-in-progress at March 31, 1999 and December 31, 1998 are comprised of the following (in thousands):
At At March 31, December 31, Project 1999 1998 --------- ------------ Mine Development: Getchell Underground mine ... $ 49,993 $ 51,581 Turquoise Ridge mine ........ 110,017 11,889 Other projects .............. 652 652 -------- -------- $160,662 $ 64,122 ======== ======== Construction in Progress: Getchell Underground mine ... $ 699 $ 944 Turquoise Ridge mine ........ 3,331 137,031 Mill improvements ........... 15,024 16,459 Other projects .............. 89 36 -------- -------- $ 19,143 $154,470 ======== ========
Depreciation and depletion expense was $4.3 million and $2.6 million for the three months ended March 31, 1999 and 1998, respectively. Capitalized interest was $0.4 million for the three months ended March 31, 1998. (6) SUPPLEMENTAL CASH FLOW INFORMATION Net cash provided by operating activities includes the following cash payments (in thousands):
Three Months Ended March 31, ------------------ 1999 1998 ------ ----- Interest, net of amounts capitalized $ 294 $(261) Income taxes paid $ -- $ --
Capital lease obligations of $3.1 million and $4.4 million were incurred to acquire equipment during the quarters ended March 31, 1999 and 1998, respectively. Page 7 8 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) COMMITMENTS AND CONTINGENCIES Environmental Obligations The Company's mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. The Company cannot predict such future expenditures. Internal Revenue Service Tax Claim In October 1996, September 1997 and December 1998, the Internal Revenue Service ("IRS") filed notices of deficiencies, stating that the IRS is proceeding against ChemFirst for income taxes associated with ChemFirst's consolidated income tax returns filed in 1989 through 1994, for which the Company is liable for a portion. Subsequent negotiations between the Company and the IRS have resulted in settlement of all issues in the 1989 through 1994 periods. The IRS has also conducted an audit of tax returns filed in 1995 and 1996 up to the Spin-Off and has asserted claims for additional taxes for these two periods. ChemFirst has agreed to settle certain of the claims. The Company believes it has adequately provided for any remaining liabilities that may result from the final settlement of the audit of the returns filed in 1995 and 1996. The liability for the amount of the settlements attributable to the Company, including interest payable, has been reflected on the Company's balance sheet at March 31, 1999 as income taxes payable to ChemFirst Inc. Major Contracts The Company has an agreement with an independent contractor who provides oxygen for the autoclave process in the mill. The agreement requires, among other things, that the Company must pay the independent contractor at a rate (subject to future adjustments for inflation) of approximately $0.2 million a month. The Company is also obligated to a termination fee if the contract is terminated prior to January 2004. The termination fee is $2.0 million in 1999 and decreases each year until reaching $0.4 million in 2004. Royalties The Company is obligated to pay a 2% royalty on net smelter returns of the current mineral production from certain of its mining properties. Royalties, recorded as operating costs, amounted to $0.3 million and $0.2 million for the quarters ended March 31, 1999 and 1998, respectively. Page 8 9 GETCHELL GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Financing Fees on Proposed Merger with Placer Dome The Company has entered into an agreement with its investment bankers relating to the fees associated with the proposed merger with Placer Dome. The agreement requires the Company to pay a financing fee, based on a formula, if the proposed merger is completed. The remaining fees are currently estimated to be approximately $7.3 million. Promissory Note The principal balance of the promissory note between the Company and ChemFirst was $28.7 million at March 31, 1999 and December 31, 1998. The promissory note is due September 22, 2000 or upon a change in control of the Company and may be prepaid without penalty. The interest rate on the loan is the London Interbank Offered Rate for a period selected by the Company, plus an applicable margin. The interest rate was 5 5/8% at March 31, 1999 and December 31, 1998. Since the inception of the promissory note, interest has been converted to note principal at the end of each interest period. The promissory note contains covenants that require minimum net worth, as defined, of $27.0 million and a ratio of indebtedness to tangible net worth, as defined, of no more than 2.0:1.0. Letter of Credit At March 31, 1999, the Company has a $4.5 million secured letter of credit outstanding for bonding of reclamation plans relating to the Getchell Property. (8) SUBSEQUENT EVENT On April 30, 1999, the Company entered into an unsecured $10 million revolving line of credit with Toronto Dominion (Texas), Inc. which terminates upon the Company's merger with Placer Dome. Page 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The information set forth in this discussion and analysis includes both historical information and "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by that section. To the extent that this report contains forward-looking statements regarding our financial condition, operating results, business prospects or any of our other operations, our actual financial condition, operating results and business prospects may differ materially from that projected or estimated by us in forward-looking statements. Factors that realistically could cause results to differ materially from those projected in the forward-looking statements are set forth in "Risk Factors" below. On December 11, 1998, we entered into an Agreement and Plan of Merger with Placer Dome Inc., a Canada-based, international gold mining company, and Bullion Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Placer Dome (the "Merger Sub"), pursuant to which the Merger Sub will be merged (the "Merger") with and into us, with us surviving the Merger and becoming a wholly owned subsidiary of Placer Dome. Under the terms of the Merger Agreement, each issued and outstanding share of our common stock, other than shares owned by Placer Dome or us, will be converted into 2.45 shares of Placer Dome's common shares. The Merger is subject to our shareholders' approval. We expect the Merger to be consummated on or about May 27, 1999. RESULTS OF OPERATIONS We reported a net loss of $15.5 million, or $0.50 per share, after the cumulative effect of a change in accounting principle for the quarter ended March 31, 1999. Before the cumulative effect of a change in accounting principle, the net loss for the quarter ended March 31, 1999 was $7.7 million, or $0.25 per share, compared with a net loss of $4.9 million, or $0.18 per share, for the quarter ended March 31, 1998. The cumulative effect of a change in accounting for start-up costs was $7.8 million, or $0.25 per share. The higher loss in the first quarter of 1999 as compared to the first quarter of 1998 was primarily due to the operations of the Turquoise Ridge mine, which through the first quarter of 1999, was not at full operating production levels. In the 1998 first quarter, the costs, net of revenues, incurred in the production of development ore from the Turquoise Ridge mine were capitalized. In the 1999 first quarter, in accordance with the new accounting principle, such costs were charged to operations. Net sales revenues of $14.5 million in the first quarter of 1999 were up from $10.8 million in the first quarter of 1998. A lower average realized price per ounce of gold sold resulted in $1.3 million of lower sales revenues while a high er number of ounces of gold sold resulted in $5.0 million of higher sales revenue for the first quarter of 1999 compared to the first quarter of 1998. The increase in ounces sold in the 1999 first quarter was due primarily to production from the Turquoise Ridge mine which is included in the 1999 production results but Page 10 11 not in the 1998 production results as previously discussed. We hedged a portion of our production, which resulted in higher realized prices than the average market prices.
Quarter Ended March 31, ------------------- 1999 1998 ------- ------- Ounces of gold sold 47,153 31,021* Average realized price per ounce $ 307 $ 348 Average market price per ounce $ 286 $ 297
* For the quarter ended March 31, 1998, gold ounces sold does not include 1,551 ounces of gold sold from the development of the Turquoise Ridge mine for which revenues were offset against the mine development costs of the project. Ore mined at the Getchell Underground mine increased in the first quarter of 1999 as compared to the first quarter of 1998 as a result of the increased use long hole stoping, which also reduced the mining costs per ton mined. Following are the operating results from the Getchell Underground mine.
Quarter Ended March 31, ------------------- 1999 1998 ------- ------- Ore mined (dry tons) 111,691 87,607 Ore mined per operating day (dry tons) 1,255 996 Average grade of ore mined (ounces per ton) 0.348 0.372 Contained ounces (before recoveries) 38,845 32,609 Underground mining costs per ton $ 45.43 $ 51.53
Page 11 12 Following are the operating results from the Turquoise Ridge mine, which is expected to reach full operating production of approximately 1,800 tons per day by the end of 1999:
Quarter Ended March 31, 1999 --------- Ore mined (dry tons) 59,054 Ore mined per operating day (dry tons) 644 Average grade of ore mined (ounces per ton) 0.318 Contained ounces (before recoveries) 18,795 Underground mining costs per ton $65.69
Ore milled increased in the first quarter of 1999 as compared to the first quarter of 1998 due to the utilization of two to three autoclaves in the 1999 period as opposed to one autoclave in the 1998 period. During the first quarter of 1999, we experienced operating problems with the ball mill, which has since been temporarily repaired, but resulted in lower average throughput an gold recoveries for the first quarter of 1999 as compared to the same period of 1998. We have filed a business interruption insurance claim for this operating problem, that has resulted in an interim payment in the first quarter of 1999. Mill feed for the first quarter of 1999 and 1998 consisted of approximately 27% and 5%, respectively, of low-grade stockpile ore. Operating results at the mill, including the processing of development ore from the Turquoise Ridge mine during the first quarter of 1999 and 1998, are as follows:
Quarter Ended March 31, ---------------------------- 1999 1998 ----------- ----------- Ore milled (dry tons) 212,489 100,083 Average grade of ore milled (ounces per ton) 0.268 0.352 Average gold recovery 87.6% 90.7%
Cost of sales was $20.0 million in the first quarter of 1999, up from $15.0 million in the first quarter of 1998. Cash costs per ounce were $332 and $400 for the first quarter of 1999 and 1998, respectively. Turquoise Ridge mining, mine site G&A and depreciation and depletion costs were higher in the 1999 quarter as compared to the same period in 1998. Mining, mine site G&A and depreciation and depletion costs increased primarily due to the expensing of costs associated with the Turquoise Ridge mine in the first quarter of 1999. In the 1998 first quarter Page 12 13 the costs, net of revenues, associated with the production of Turquoise Ridge development ore were capitalized to mine development. The increase in corporate G & A in the first quarter of 1999 as compared to the first quarter of 1998 was primarily due to costs associated with the proposed merger with Placer Dome. Net interest expense was higher in the 1999 first quarter due to the 1998 amount reflecting capitalized interest of $0.4 million. With the completion of the Turquoise Ridge mine, interest associated with the Turquoise Ridge mine construction is no longer being capitalized. Interest and other income is lower in the first quarter of 1999 as compared to the first quarter of 1998 due to lower cash balances in the 1999 period. LIQUIDITY AND CAPITAL RESOURCES During the first quarter of 1999, $0.5 million was provided by operations while we expended $9.2 million for capital expenditures. The capital expenditures included $5.7 million on the Turquoise Ridge mine, $0.7 million on the Getchell Underground mine, $2.7 million on the mill and $0.1 million on other items. As of March 31, 1999, cash and cash equivalents were $8.4 million. On April 30, 1999, we entered into an unsecured $10 million revolving line of credit with Toronto Dominion (Texas), Inc., which terminates upon our merger with Placer Dome. We plan on financing our capital projects from the existing cash and cash equivalents and the revolving line of credit. The principal balance of our promissory note with ChemFirst Inc. was $28.7 million at March 31, 1999. The promissory note is due September 22, 2000 or upon a change in control and may be prepaid without penalty. The interest rate on the loan is the London Interbank Offered Rate for a period selected by us, plus an applicable margin based on our leverage ratio. The interest rate was 5-5/8% at March 31, 1999. Since the inception of the promissory note, interest has been capitalized to the note at the end of each interest period. RECENTLY ISSUED ACCOUNTING STANDARDS In April 1998, the American Institute of Certified Public Accountant's issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") which provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. We adopted SOP 98-5 effective January 1, 1999. The change resulted in a $7.8 million charge for the cumulative effect of the change in accounting for start up costs. This charge reflects the unamortized costs, net of revenues, incurred in the production of development ore from the Turquoise Ridge mine in 1998 and from the Getchell Underground mine in 1994 and 1995, both of which had previously been capitalized. Such costs include costs of mining, milling, minesite general and administrative, royalties and depreciation and depletion. Page 13 14 Development ore represents ore encountered in the process of development drifting and ramping when building the mine. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. We have not completed an assessment of the impact of SFAS 133 on our financial statements because of the complex nature of the statement. THE YEAR 2000 ISSUE The Problem The Year 2000 Issue is the result of the potential inability of hardware, software and control systems to correctly identify two-digit references to specific years, beginning with the year 2000. This could result in system failures or miscalculations causing disruptions of our operations and our suppliers. Our State of Readiness We have instituted a Year 2000 project. As a part of the project, we have completed an initial evaluation of our computer systems and significant software programs. This evaluation included our network hardware and operating system, software operating the hoists at Turquoise Ridge, the control system at the mill and accounting and business process software. We currently believe that our network hardware and operating system, software operating the hoists at Turquoise Ridge and accounting and business process software are all Year 2000 compliant. The control system at the mill, and other less critical hardware and software, require further evaluation, which is expected to be completed by the end of the second quarter of 1999. Our less critical software programs are predominantly "off-the-shelf" products with Year 2000 versions now available. Therefore, if the software programs are not Year 2000 compliant, we will replace these software programs by utilizing vendor provided upgrades by the end of the third quarter of 1999. Based on work performed to date, no material issues have been identified with our existing computer systems and significant software programs. However, subsequent work may lead to discovery of material issues. As part of our Year 2000 project, we plan to contact our significant third-party suppliers, such as our refiners and suppliers of power, oxygen and chemicals, to determine the extent to which we are vulnerable to our refiner's or supplier's failure to remediate their Year 2000 issue. We plan to complete the contacts by the end of the second quarter 1999. However, we cannot assure that third party suppliers will adequately address their Year 2000 issues or that failure of the third-party suppliers to address their Year 2000 issues would not have a material adverse effect on us or our operations. Page 14 15 The Costs to Address Our Year 2000 Issues Expenditures through March 31, 1999 have been minimal. Based upon the findings at March 31, 1999, our estimated costs of becoming Year 2000 compliant are less than $0.1 million. The Risks Associated with Our Year 2000 Issues Our failure to resolve Year 2000 issues on or before December 31, 1999 could result in system failures or miscalculation causing disruption in operations and normal business activities as well as a lack of safety for our employees. Additionally, failure to timely remediate Year 2000 issues by third parties upon whom our business relies could result in disruptions in our supply of parts and materials or result in other problems related to the our daily operations. Contingency Plan We are currently working on a contingency plan for all critical aspects of the Year 2000 issues and plan to have such a plan completed by the end of the second quarter of 1999. Page 15 16 RISK FACTORS Readers should carefully consider the risk factors set forth below, as well as all of the other information in this document and our Annual Report on Form 10-K for the year ended December 31, 1998. GOLD PRICE VOLATILITY Changes in the price of gold significantly affect our profitability. Gold prices may fluctuate widely. In August 1998, the market price of gold declined to levels that were the lowest in over eighteen years and has remained below $300 for most of 1998 and 1999. Numerous industry factors affect gold prices, including o industrial and jewelry demand; o central bank lending, sales and purchases of gold; o forward sales of gold by producers and speculators; o production and cost levels in major gold-producing regions; and o rapid short-term changes in supply and demand because of speculative or hedging activities. Gold prices are also affected by macroeconomic factors, including: o confidence in the global monetary system; o expectations of the future rate of inflation; o the strength of, and confidence in, the U.S. dollar (the currency in which the price of gold is generally quoted) and other currencies; o interest rates; and o global or regional political or economic events. The current demand for, and supply of, gold affects gold prices. The supply of gold consists of a combination of new production from mining and mobilization of existing stocks of bullion held by government central banks, public and private financial institutions, industrial organizations and private individuals. As the amounts produced by all producers in any single year constitute a small portion of the total potential supply of gold, normal variations in current production do not usually have a significant impact on the supply of gold or on its price. Mobilization of gold stocks held by central banks through lending and official sales may have a significant adverse impact on the gold price. If revenue from gold sales declines for a substantial period below the cost of production at any or all of our operations, we could be required to reduce our reserves and could determine that it is not economically feasible to continue (1) commercial production at any or all current operations or (2) the development of some or all of our current projects. Page 16 17 The following table of the annual high, low and average London P.M. Fix illustrates the volatility of gold prices:
PRICE PER OUNCE ----------------------- CALENDAR YEAR HIGH LOW AVERAGE - ------------- ---- ---- ------- 1989 .............................. $416 $356 $381 1990 .............................. $424 $346 $383 1991 .............................. $403 $344 $362 1992 .............................. $360 $330 $344 1993 .............................. $406 $326 $360 1994 .............................. $396 $370 $384 1995 .............................. $396 $372 $384 1996 .............................. $415 $367 $388 1997 .............................. $367 $283 $331 1998 .............................. $313 $273 $294 1999 (through May 12, 1999) ....... $294 $278 $285
The London P.M. Fix on May 12, 1999, was $278 per ounce. ORE RESERVE ESTIMATES MAY NOT BE REALIZED We estimate our reserves of gold on the Getchell Property as either "proven reserves" or "probable reserves." We estimate proven reserve quantities through extensive sampling and testing of sites containing gold that allow us to have an established estimate as to the amount of gold we expect to extract from a site. Probable reserves are computed with similar information to that used for proven reserves, but the sites for sampling are less extensive, and the degree of certainty as to the content of a site is less. The figures presented for both proven and probable reserves herein are only estimates. We cannot assure you that we will obtain (1) indicated levels of gold recovery or (2) the prices assumed in determining gold reserves. Estimated reserves may have to be recalculated based on actual production experience. Market price fluctuations of gold, as well as increased production costs or reduced recovery rates, may render the present proven and probable reserves unprofitable to develop at a particular site or sites for certain periods of time. This could cause us to reduce our reserves. PRODUCTION ESTIMATES MAY NOT BE ACHIEVED We prepare estimates of future production for our operations. We develop plans based on, among other things, mining experience, reserve estimates, assumptions regarding ground conditions and physical characteristics of ores (such as hardness and presence or absence of certain metallurgical characteristics) and estimated rates and costs of mining and processing. Our actual production may vary from estimates for a variety of reasons, including: o risks and hazards of the types discussed in this section; Page 17 18 o actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; o the short-term operating factors relating to the ore reserves, such as the need for sequential development of ore bodies and the processing of new or different ore grades; o mine failures, cave-ins or equipment failures; o natural phenomena such as inclement weather conditions, floods, and earthquakes; o unexpected labor shortages or strikes; and o restrictions or regulations imposed by government agencies. Each of these factors also applies to sites not yet in production and to operations that are to be expanded. In these cases, we do not have the benefit of actual experience in our estimates, and there is a greater likelihood that actual results will vary from the estimates. SPECULATIVE NATURE OF GOLD EXPLORATION Gold exploration is highly speculative in nature. Our exploration projects involve many risks and maybe unsuccessful. We cannot assure you that our future gold exploration efforts will be successful. Success in increasing our reserves is the result of a number of factors, including the following: o quality of management; o gold prices; o geological and technical expertise; o quality of land available for exploration; and o capital available for exploration and development. Once we discover a site with gold mineralization, it may take several years from the initial phases of drilling until production is possible. Substantial expenditures are required to establish proven and probable ore reserves and to construct mining and processing facilities. As a result of these uncertainties, we cannot assure you that current and future exploration programs will result in the expansion or replacement of current production with new proven and probable ore reserves. UNCERTAINTY OF DEVELOPMENT PROJECTS From time to time we engage in the development of new ore bodies. Specific risks associated with our development of the Turquoise Ridge mine are discussed below. See "Certain Turquoise Ridge Mine Risks." Our ability to sustain or increase our present level of gold production is dependent in part on the successful development of such new ore bodies and/or Page 18 19 expansion of existing mining operations. The economic feasibility of such development projects is based upon many factors, including: o estimates of reserves; o metallurgical recoveries; o capital and operating costs of such projects; and o future gold prices. Development projects are also subject to the successful completion of feasibility studies, issuance of necessary governmental permits and receipt of adequate financing. Development projects have no operating history upon which to base estimates of future cash flow. Our estimates of proven and probable ore reserves and cash operating costs are, to a large extent, based upon detailed geologic and engineering analysis. We also conduct feasibility studies which derive estimates of capital and operating costs based upon many factors, including: o anticipated tonnage and grades of ore to be mined and processed; o the configuration of the ore body; o ground and mining conditions; o expected recovery rates of the gold from the ore; and o anticipated environmental and regulatory compliance costs. It is possible that actual costs and economic returns may differ materially from our best estimates. It is not unusual in the mining industry for new mining operations to experience unexpected problems during the start-up phase and to require more capital than anticipated. CERTAIN TURQUOISE RIDGE MINE RISKS The Turquoise Ridge mine involves numerous risks. These include the following: Reserves. We cannot assure that we will actually mine and mill the probable reserves set forth in our reserve reports for the Turquoise Ridge mine on an economic basis. These reports are based upon many assumptions, which may not prove to be accurate. The failure of any such assumptions to prove accurate may alter the conclusions of our reserve reports and may have a material adverse affect on us. The reserve estimates were prepared using geological and engineering judgment based on available data. In the absence of underground development, such estimates must be regarded as imprecise and some of the assumptions made may later prove to be incorrect or unreliable. The grade distribution at Turquoise Ridge is generally between 0.2 to 0.75 ounces per ton. Small changes in cutoff grade can cause large shifts in the reserves. If dilution and/or mining costs related to hydrology or poor ground conditions are higher than expected, the reserves could be substantially reduced, resulting in a shortening of mine life and a reduced or negative cash flow. Dilution. Our reserve reports estimated the tonnage and grade of the mill feed by applying dilution factors to certain resource data. The dilution agents are backfill, waste from the back of overcut crosscuts and drifts, and from the walls. If estimated dilution increases, there Page 19 20 will be corresponding negative effects on the tonnage and grade to mill. This risk is related to the irregular configuration of the ore body which, even with the tight cut-and-fill stoping method used, could make achievement of a dilution thickness of one foot impossible to achieve in practice. Mining Cost. As part of the project risk assessment, sensitivities were run on various mining costs. Due to uncertainties about actual ground conditions and productivities, these costs are only predictable within a broad range and the predictions may not be valid. Increased actual mining costs may have a material adverse effect on the viability of the Turquoise Ridge project and on us. Hydrology. Drainage of the ore body and surrounding rock will be critical to the achievement of the mining efficiencies and costs estimated by the study. If the deposit is not drained and water remains in this clay-rich environment, mining conditions could worsen, and ground support costs would increase. If, due to the presence of fine clays, the deposit drains slowly, the start of production may be delayed, and the build-up to full production may be of longer duration. Additionally, depending upon the quantity and quality of water encountered, the water treatment/disposal options presently available to us may be insufficient to meet estimated amounts needed to treat water pumped from Turquoise Ridge during dewatering. Currently, the infiltration basins are accepting and disposing of all water delivered from both the Getchell Underground and the Turquoise Ridge mines. Geotechnical Considerations. The Turquoise Ridge ore zones may contain areas of localized poor ground conditions. As a result, we may be required to make expenditures on additional ground support. DEPENDENCE ON A SINGLE PROPERTY All of our revenues are derived from our mining and milling operations at the Getchell Property. If the operations at the Getchell Underground or Turquoise Ridge mines, or at any of our processing facilities, are reduced, interrupted or curtailed, our ability to generate future revenues and profits could be materially adversely affected. IMPACT OF HEDGING ACTIVITIES AND OTHER PRECIOUS METAL CONTRACT COMMITMENTS Precious metals contracts between us and various counterparties involve the requirement that we deliver gold to the counterparty at agreed-upon prices. If the counterparty is unable to fulfill its purchase obligations, there is no guarantee that we will be able to receive the agreed-upon sales price in the open market. If we are unable to produce sufficient gold to meet our hedging contract obligations, we may be obligated to purchase such gold at the then market price. We cannot assure that we will have the funds necessary to purchase such gold or that we will be able to do so without causing a material adverse effect on us. Our accounting treatment for hedging and other precious metal contract commitments is outlined in Notes 2 and 3 to our consolidated financial statements included in Item 8 "-Financial Page 20 21 Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 1998. DEPENDENCE ON KEY PERSONNEL We are dependent on the services of certain key officers and employees, including our Chief Executive Officer, our Chief Financial Officer, our Chief Operating Officer, our Chief Administrative Officer and our Vice President of Exploration. Competition in the mining industry for qualified individuals is intense, and the loss of any of these key officers or employees, if not replaced, could have a material adverse effect on us. We currently do not have key person insurance. We have entered into Termination Agreements with our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Administrative Officer and Vice President of Exploration which provide for certain payments upon termination or resignation resulting from a change of control (as defined in such agreements). In connection with the development of Turquoise Ridge, we expect that we will require a significant number of additional skilled employees. We face intense competition from other mining companies in connection with the recruitment and retention of such employees. Additionally, although we do not currently have any unionized employees, we cannot assure that unionization will not occur in the future. GOVERNMENT REGULATION Safety. Our mining operations are subject to inspection and regulation by the Mine Safety and Health Administration of the United States Department of Labor ("MSHA") under the provisions of the Mine Safety and Health Act of 1977. The Occupational Safety and Health Administration ("OSHA") also has jurisdiction over safety and health standards not covered by MSHA. It is our policy to comply with applicable directives and regulations of MSHA and OSHA. On February 15, 1999, a mine site accident involving the Turquoise Ridge mine's underground compressed air system resulted in the death of one of our employees. The State of Nevada and Mine Safety and Health Administration of the United States Department of Labor ("MSHA") investigated the accident. Upon conclusion of its investigation, MSHA issued two citations with respect to the incident, which have not yet been assessed. An additional order was issued by MSHA and a notice issued by the State of Nevada to Getchell relating to the compressed air connections in use underground. A hearing was held in front of a Federal Administrative Law Judge at which the judge issued a ruling from the bench that Getchell was not in violation of the MSHA standard. The judge will issue a written ruling, and the agency will have 30 days from issuance to appeal. The State of Nevada refused to extend the time allowed us to correct the alleged problem from March 30, and a temporary restraining order was issued against the State by a state court judge prohibiting Nevada from enforcing the order. The state court judge subsequently denied our motion for a preliminary injunction on May 10. We filed a Motion for Reconsideration and a Motion for Stay Pending Appeal on May 12. We dispute both the MSHA and State claims and intend to vigorously defend ourself in these matters. We do not believe these matters will have a material adverse effect on Getchell. Page 21 22 Current Environmental Laws and Regulations. We must comply with environmental standards, laws and regulations that may result in greater or lesser costs and delays depending on the nature of the regulated activity and how the regulations are implemented by the regulatory authority. The costs and delays associated with compliance with such laws and regulations could stop us from proceeding with the development of a project or the operation or further development of a mine. Laws and regulations involving the protection and remediation of the environment and the governmental policies for implementation of such laws and regulations are constantly changing and are generally becoming more restrictive. We have made, and expect to make in the future, significant expenditures to comply with such laws and regulations. These requirements include regulations under many state and federal laws and regulations, including: o the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") which regulates and establishes liability for the release of hazardous substances; o the Endangered Species Act ("ESA") which identifies endangered species of plants and animals and regulates activities to protect these species and their habitats; o the Clean Water Act; o the Clean Air Act; o the Resource Conservation and Recovery Act for disposal of hazardous waste ("RCRA"); o the Migratory Bird Treaty Act; o the Safe Drinking Water Act; o the Emergency Planning and Community Right-to-Know Act; o the Federal Land Policy and Management Act; o the National Environmental Policy Act; o the National Historic Preservation Act; and o many other state and federal laws and regulations. The United States Environmental Protection Agency ("EPA") continues the development of a solid waste regulatory program specific to mining operations such as ours, whose mineral extraction and beneficiation wastes are not regulated as hazardous wastes under RCRA. Regulations promulgated under Section 313 of the Emergency Planning and Community Right to Know Act have significantly expanded Toxic Release Inventory ("TRI") reporting requirements to include the metal mining industry. We expect to incur additional costs in complying with the new TRI reporting requirements. The public availability of the TRI reports, which must be filed with the EPA by July 1, 1999, could adversely affect us, along with the rest of the metal mining industry. Environmental laws and regulations may also have an indirect impact on us, such as increased cost for electricity due to acid rain provisions of the Clean Air Act Amendments of 1990. Charges by refiners to which we sell our metallic concentrates and products have Page 22 23 substantially increased over the past several years because of requirements that refiners meet revised environmental quality standards. We have no control over the refiners' operations or their compliance with environmental laws and regulations. Potential Legislation. Changes to the current laws and regulations governing the operations and activities of mining companies, including changes in permitting, environmental, title, health and safety, labor and tax laws, are actively considered from time to time. We cannot predict such changes, and such changes could have a material adverse impact on our business. Expenses associated with the compliance with such new laws or regulations could be material. Further, increased expenses could prevent or delay exploration or development projects and could therefore affect future levels of mineral production. ENVIRONMENTAL MATTERS Environmental Liability. We are subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products that could occur as a result of our mineral exploration, development and production. The gold ore located on the Getchell Property and the existing tailings ponds, and the waste rock piles located on the Getchell Property contain relatively high levels of arsenic compounds. The milling of such ore involves the use of other toxic substances, including, but not limited to, sodium cyanide, sodium hydroxide, sulfuric acid and nitric acid. Environmental liability may result from mining activities conducted by others prior to our ownership of a property. Historic mining disturbances, facilities, waste materials and other discrete areas of potential contamination associated with the production of gold, tungsten, and molybdenum between 1937 and 1969 by previous owners and operators are contained within the area of the Getchell Property. Under CERCLA and other federal, state and local environmental laws, ordinances, and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property or other property to which the substances may have migrated. Such laws may impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with our current or prior ownership or operation of property or facilities, we may be potentially liable for any such costs or liabilities. Although we are currently not aware of any material environmental claims pending or threatened against us, we cannot assure that a material environmental claim will not be asserted against us. To the extent we are subject to environmental liabilities, the payment of such liabilities or the costs that we may incur to remedy environmental pollution would reduce funds otherwise available to us and could have a material adverse effect on us. If we are unable to fully remedy an environmental problem, we might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. The potential exposure may be significant and could have a material adverse effect on us. We have not purchased insurance, Page 23 24 including insurance for potential liability for pollution and other hazards as a result of the disposal of waste products occurring from exploration and production for environmental risks, because it is not generally available at a reasonable price. Environmental Permits. All of our exploration, development, production and restoration activities are subject to regulation and permitting under one or more of the various state and federal environmental laws and regulations. Many of the regulations require that we obtain permits for specific activities. We must update and review our permits from time to time, and these permits are normally subject to environmental impact analyses and public review processes prior to approval of the activity. It is possible that future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have a significant impact on some portion of our business, causing those activities to be economically re-evaluated at that time. Restoration. We accrue expenses over the productive life of our mine for anticipated costs associated with restoration of the mine site. Permanent closure of the mining and milling operations and the reclamation of the disturbed land to a productive use may result in restoration costs. This includes restoration of historic and current mining and milling operations and associated land disturbances. Restoration takes place concurrent with and after the productive life of mining operations. Activities which result in restoration costs after permanent closure and reclamation primarily relate to monitoring and other post mining management activities. The uncertainties related to future restoration costs result from unknown future additional regulatory requirements, significant new facilities or surface disturbances, and the potential for recognition in the future of additional activities needed for restoration. In accordance with applicable state and federal laws, we posted a reclamation bond of $4.5 million in 1998 based on previously permitted activities. This bonding amount was under normal periodic review with state and federal agencies and is expected to be revised in 1999. As of March 31, 1999, the total estimated restoration costs for the current disturbances on the Getchell Property were $5.4 million. At March 31, 1999, the total estimated restoration costs at the planned future full level of development were $8.7 million, of which we had accrued $2.7 million at March 31, 1999. The amount of total estimated restoration costs will increase over time as the planned future full level of development is approached. Additional increases may occur as expanded mining and mineral processing activities are proposed and regulatory requirements become more stringent or additional requirements are added. MINING RISK AND INSURANCE The gold mining industry is generally subject to a number of risks and hazards including: o environmental hazards; o industrial accidents; o labor disputes; o the encounter of unusual or unexpected geological conditions; o slope failures; o changes in the regulatory environment; and o natural phenomena such as inclement weather conditions, floods, blizzards and earthquakes. Page 24 25 Such occurrences could result in: o damage to, or destruction of, mineral properties or production facilities; o personal injury or death; o environmental damage; o delays in mining; o monetary losses; and o possible legal liability. We maintain insurance against risks that are typical in the gold mining industry and in amounts that we believe to be reasonable, but which may not provide adequate coverage in certain unforeseen circumstances. However, we have not purchased insurance, including insurance against certain liabilities for environmental pollution or other hazards as a result of exploration and production, against certain risks because such coverage is not generally available at a reasonable price to us or to other companies within the industry. This lack of coverage could result in material economic harm to us. TITLE TO PROPERTIES Certain of our mineral rights consist of "unpatented" mining claims created and maintained in accordance with the General Mining Law. Unpatented mining claims are unique U.S. property interests, and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations under the General Mining Law. Also, unpatented mining claims are always subject to possible challenges of third parties or contests by the federal government. The validity of an unpatented mining claim, in terms of both its location and its maintenance, is dependent on strict compliance with a complex body of federal and state statutory and decisional law. In addition, there are few public records that definitively control the issues of validity and ownership of unpatented mining claims. In recent years, the U.S. Congress has considered a number of proposed amendments to the General Mining Law. Although no such legislation has been adopted to date, we cannot assure you that such legislation will not be adopted in the future. If ever adopted, such legislation could, among other things, impose royalties on gold production from currently unpatented mining claims located on federal lands. If such legislation is ever adopted, it could have an adverse impact on earnings from our operations, it could reduce estimates of our present probable reserves and it could reduce the amount of our future exploration and development activity on federal lands. Page 25 26 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS 10(a) - Loan Agreement dated April 30, 1999, by and between Toronto Dominion (Texas), Inc. and the Company. 27. - Financial Data Schedule. REPORTS ON FORM 8-K No reports on Form 8-K were filed by the registrant in the quarter ended March 31, 1999. Page 26 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Getchell Gold Corporation May 14, 1999 By: /s/ G. W. Thompson Date G. W. Thompson, President, Chief Executive Officer and Director May 14, 1999 By: /s/ Donald S. Robson Date Donald S. Robson, Vice President and Chief Financial Officer (Principal Financial Officer) Page 27 28 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 10(a) - Loan Agreement dated April 30, 1999, by and between Toronto Dominion (Texas), Inc. and the Company. 27. - Financial Data Schedule.
EX-10.(A) 2 LOAN AGREEMENT DATED APRIL 30, 1999 1 GETCHELL GOLD CORPORATION, AS BORROWER - AND - TORONTO DOMINION (TEXAS), INC., AS LENDER ---------------------------------------------------------------- LOAN AGREEMENT DATED APRIL 30, 1999 ---------------------------------------------------------------- 2 ii TABLE OF CONTENTS ARTICLE 1. INTERPRETATION.........................................................................................2 1.1. Definitions...........................................................................................2 1.2. Gender and Number.....................................................................................8 1.3. Interest..............................................................................................8 1.4. Invalidity, etc.......................................................................................8 1.5. Headings, etc.........................................................................................8 1.6. Governing Law; Attornment.............................................................................8 1.7. References............................................................................................9 1.8. Currency..............................................................................................9 1.9. This Agreement to Govern..............................................................................9 1.10. Generally Accepted Accounting Principles..............................................................9 1.11. Computation of Time Periods..........................................................................10 1.12. Actions on Days Other Than Banking Days..............................................................10 1.13. Verbal Instructions..................................................................................10 ARTICLE 2. THE LOAN FACILITY.....................................................................................10 2.1. Amount...............................................................................................10 2.2. Advances.............................................................................................10 2.3. Evidence of Indebtedness.............................................................................11 2.4. Term and Repayment...................................................................................11 2.5. Application of Proceeds..............................................................................11 2.6. Payments Generally...................................................................................11 ARTICLE 3. FEES AND EXPENSES.....................................................................................12 3.1. Facility Fee.........................................................................................12 3.2. Payment of Costs and Expenses........................................................................12
3 iii ARTICLE 4. CONDITIONS PRECEDENT..................................................................................12 4.1. Conditions Precedent to Closing......................................................................13 4.2. General Conditions Precedent to Advances.............................................................14 4.3. Conditions Precedent to Initial Advance..............................................................15 ARTICLE 5. ADVANCES..............................................................................................15 5.1. Loans................................................................................................15 5.2. Payment of Interest..................................................................................16 5.3. Request for Advances.................................................................................16 ARTICLE 6. SECURITY..............................................................................................17 ARTICLE 7. REPRESENTATIONS AND WARRANTIES........................................................................17 7.1. Representations and Warranties.......................................................................17 7.2. Survival of Representations and Warranties...........................................................20 ARTICLE 8. COVENANTS.............................................................................................20 8.1. Affirmative Covenants................................................................................20 8.2. Negative Covenants...................................................................................22 ARTICLE 9. EVENTS OF DEFAULT AND REMEDIES........................................................................23 9.1. Events of Default....................................................................................23 9.2. Remedies Upon Default................................................................................25 9.3. Distributions........................................................................................25 ARTICLE 10. ASSIGNMENT...........................................................................................25 10.1. Assignments..........................................................................................25 10.2. Exchange of Information..............................................................................26 ARTICLE 11. GENERAL..............................................................................................26 11.1. Reliance and Non-Merger..............................................................................26 11.2. Amendment and Waiver.................................................................................27
4 iv 11.3. Set-Off or Compensation..............................................................................27 11.4. No Set-Off from Payments.............................................................................27 11.5. Reimbursement........................................................................................27 11.6. Capital Adequacy.....................................................................................28 11.7. Indemnity............................................................................................28 11.8. Notices..............................................................................................29 11.9. Time.................................................................................................31 11.10. Further Assurances...................................................................................31 11.11. Counterparts.........................................................................................31 11.12. Entire Agreement.....................................................................................31
5 Schedule A - Request for Advance Schedule B - Grid Promissory Note Schedule C - Permitted Liens Schedule D - Notice of Continuation/Conversion Schedule E - FMG Guarantee 6 -2- THIS AGREEMENT is made as of April 30, 1999 BETWEEN: GETCHELL GOLD CORPORATION, A DELAWARE CORPORATION (the "Borrower") - and - TORONTO DOMINION (TEXAS), INC. (the "Lender") RECITALS: A. The Borrower has requested the Lender to provide to it certain financing for general corporate purposes (as hereinafter defined); and B. The Lender agreed to do so upon the terms and conditions set out herein. NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows: ARTICLE 1. INTERPRETATION 1.1. DEFINITIONS For the purposes of this Agreement the following terms shall have the following definitions: "ADVANCE" means a borrowing by the Borrower by way of Loans, and any reference relating to the amount of Advances shall mean the sum of all outstanding Advances; "AGREEMENT" means this agreement and all schedules attached to this agreement, in each case as they may be amended or supplemented from time to time; the expressions "HEREOF", "HEREIN", "HERETO", "HEREUNDER", "HEREBY" and similar expressions refer to this Agreement as a whole and not to any particular article, section, schedule or other portion hereof, and the expression "ARTICLE" and "SECTION" followed by a number or by a number and letter, and "SCHEDULE" followed by a letter, mean and refer to the specified article or section of or schedule to this Agreement, except as otherwise specifically provided herein; "APPLICABLE LAW" means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official directives, orders, judgments and decrees of Governmental Bodies; 7 -3- "ATTORNEY COSTS" means and includes all actual and reasonable fees and disbursements of any law firm or other external counsel, the allocated actual and reasonable cost of internal legal services and all reasonable disbursements of internal counsel. "BANKING DAY" shall mean a day on which banks are not authorized or required to be closed and foreign exchange markets are open for the transaction of business required for this Agreement in London, England, Houston, Texas and New York, New York, as relevant to the determination to be made or the action to be taken; "BASE RATE" shall mean, as of any date, a simple interest rate per annum equal to the greater of (a) the Prime Rate, or (b) the sum of (i) the Federal Funds Rate, plus (ii) one-half of one percent (1/2%). The Base Rate shall be adjusted automatically as of the opening of business on the effective date of each change in the Prime Rate or the Federal Funds Rate, as the case may be; "BASE RATE ADVANCE" shall mean the principal portion of the Loans which is made as a Base Rate Advance on the closing date or which the Borrower requests to be made as a Base Rate Advance or to be converted to a Base Rate Advance after the closing date; "BORROWER" means Getchell Gold Corporation, a Delaware corporation, and its successors and assigns; "BORROWER'S COUNSEL" means Latham & Watkins; "BRANCH OF ACCOUNT" means such branch of The Toronto Dominion Bank as the Lender, acting reasonably, may designate in writing to the Borrower; "CHANGE OF CONTROL" shall be deemed to have occurred at such time as (a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than Placer Dome becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of more than fifty percent (50%) of the outstanding shares of each class of common stock of the Borrower, or (b) the current Board of Directors of the Borrower shall cease to constitute a majority of the Board of Directors of the Borrower, other than as pursuant to the Merger or (c) the Borrower fails to own one hundred percent (100%) of the outstanding shares of the common stock of FMG; "CLOSING DATE" means the date on which all conditions precedent set forth in Section 4.1 are satisfied or waived by the Lender (or in the case of subsection 4.1.6., waived by the Person entitled to receive such payment); "COMMITMENT" means the Lender's agreement to make Advances to the Borrower in a total maximum amount outstanding at any time of $10,000,000; "CURRENCY" means U.S. dollars; "DEFAULT" means any event which, with the lapse of time, giving of notice or both, would constitute an Event of Default; 8 -4- "DESIGNATED ACCOUNT" means, in respect of any Advance, the account or accounts maintained by the Borrower at the Branch of Account, or such other account or accounts, that the Borrower designates in its Request for Advance, acting reasonably; "DRAWDOWN DATE" means any Banking Day on which an Advance is made; "DUE DATE" means the earliest to occur of (a) July 20, 1999, (b) three (3) Banking Days after the consummation of the Merger, or (c) such other date as the entire balance of the Loan may become due whether by acceleration or otherwise; "ENVIRONMENTAL LAWS" means all federal, state, municipal or local laws, regulations or rules relating to generation, operation, manufacture, refining, treatment, transportation, storage, handling, disposal, transfer, production or processing of any material or process including, without limiting the generality of the foregoing, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss. 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251, et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601, et seq.; the Clean Air Act, 42 U.S.C. ss. 7401, et seq.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808, et seq.; Nev. Rev. Stat. ch. 459; Nev. Rev. Stat. ch. 444; Nev. Rev. Stat. ch. 445; Nev. Rev. Stat. ch. 590; Nev. Rev. Stat. ss.ss. 618.750-618.850, inclusive; and Nev. Rev. Stat. ss. 477.045; as all of the same may be amended from time to time; "ENVIRONMENTAL PERMITS" means all permits, certificates, approvals, consents, authorizations, registrations and licenses issued by any Governmental Body pursuant to Environmental Laws; "EVENT OF DEFAULT" has the meaning attributed to such term in Section 9.1; "FEDERAL FUNDS RATE" shall mean, as of any date, the weighted average of the rates on overnight federal funds transactions with the members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Banking Day, for the next preceding Banking Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Banking Day, the average of the quotations for such day on such transactions received by the Lender from three federal funds brokers of recognized standing selected by the Lender; "FMG" means FMG Inc., a wholly-owned subsidiary of the Borrower; "FMG GUARANTEE" means a guarantee of the Obligations, in form of Schedule E to this Agreement, by FMG in favor of the Lender; "GOVERNMENTAL BODY" means any government, parliament, legislature, or any regulatory authority, agency, commission or board of any government, parliament or legislature, or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority 9 -5- regulating banks), having or purporting to have jurisdiction in the relevant circumstances, or any Person acting or purporting to act under the authority of any of the foregoing; "GRID PROMISSORY NOTE" means a grid promissory note in the form of Schedule B to this Agreement; "INDEBTEDNESS" means with respect to any Person, all indebtedness, obligations, and liabilities of such Person, including without limitation: (i) all "liabilities" which would be reflected on the balance sheet of such Person, prepared in accordance with United States of America generally accepted accounting principles, (ii) all obligations of such Person in respect of any guarantee, (iii) all obligations of such Person in respect of any capital lease, (iv) all obligations, indebtedness and liabilities secured by any lien or any security interest on any property or assets of such Person, and (v) all redeemable preferred stock of such Person valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; "INTEREST PERIOD" shall mean, (a) in connection with any Base Rate Advance, the period beginning on the date such Advance is made and ending on the last day of the calendar month in which such Advance is made, provided, however, that if a Base Rate Advance is made on the last day of any calendar month, it shall have an Interest Period ending on the last day of the following calendar month; and (b) in connection with any LIBOR Advance, a period of one (1) month, fourteen (14) days, or seven (7) days as selected by the Borrower. Notwithstanding the foregoing, however, (i) any applicable Interest Period which would otherwise end on a day which is not a Banking Day shall be extended to the succeeding Banking Day unless, with respect to LIBOR Advances only, such Banking Day falls in another calendar month, in which case such Interest Period shall end on the preceding Banking Day, (ii) any one (1) month Interest Period, with respect to LIBOR Advances only, with respect to any Interest Period of one (1) month, which begins on a day for which there is no numerically corresponding day in the calendar month during which such Interest Period is to end shall (subject to clause (i) above) end on the last day of such calendar month, and (iii) no Interest Period shall extend beyond the Due Date; "LENDER" means Toronto Dominion (Texas), Inc.; "LENDER'S COUNSEL" means Paul, Hastings, Janofsky & Walker LLP; "LIBOR" shall mean the interest rate per annum (rounded upward to the nearest one sixteenth (1/16th) of one percent) determined by the Lender to be the average of the rates at which deposits in U.S. dollars for the Interest Period selected by the Borrower are offered to the Lender in the LIBOR interbank borrowing market at approximately 11:00 a.m. New York time, two (2) Banking Days before the first day of such Interest Period, in an amount approximately equal to the principal amount of the LIBOR Advance sought by the Borrower; "LIBOR ADVANCE" shall mean the principal portion of the Loans which the Borrower requests to be converted to a LIBOR Advance, and which bears interest at a per annum rate equal to the LIBOR Basis plus one and one half percent (1.50%); 10 -6- "LIBOR Basis" shall mean a simple interest rate per annum (rounded upward to the nearest one-sixteenth (1/16th) of one percent) equal to the quotient of (i) LIBOR divided by (ii) one (1) minus the LIBOR Reserve Percentage, stated as a decimal. The LIBOR Basis shall apply to Interest Periods of one (1) month. The LIBOR Basis shall remain unchanged during the applicable Interest Period, except for changes to reflect adjustments in the LIBOR Reserve Percentage; "LIBOR RESERVE PERCENTAGE" shall mean the percentage which is in effect from time to time under Regulation D of the Board of Governors of the Federal Reserve System, as such regulation may be amended from time to time, as the maximum reserve requirement applicable with respect to Eurocurrency Liabilities (as that term is defined in Regulation D), whether or not the Lender has any such Eurocurrency Liabilities subject to such reserve requirement at that time. The LIBOR Basis for the applicable Interest Period shall be adjusted automatically for any change in the LIBOR Reserve Percentage; "LIEN" means any mortgage, lien, pledge, assignment, charge, security interest, lease intended as security, title retention agreement, rights reserved in any Governmental Body, lease of real property, hypothecation, levy, execution, seizure, attachment, garnishment or other similar encumbrance; "LOAN" means, at any time, the principal amount of all Obligations then outstanding under the Loan Facility; "LOAN DOCUMENTS" means this Agreement, the Grid Promissory Note, the FMG Guarantee, and any other agreement executed by the Borrower or FMG in connection with the transactions contemplated hereby; "LOAN FACILITY" means the loan facility of $10,000,000 in favor of the Borrower which is established by this Agreement; "MATERIAL AUTHORIZATION" means, with respect to any Person, at any point in time any approval, permit, license or similar authorization (including any trademark, trade name or patent) from, and any filing or registration with, any Governmental Body or any other Person required by such Person to own its property and assets or to carry on its business as carried on by it at such time or as contemplated hereunder to be carried on by it at such time in each jurisdiction in which it does so or is contemplated to do so or where the failure to have such approval, permit, license, authorization, filing or registration would have a material adverse effect upon its business, financial condition or prospects or upon its ability to perform its obligations under any Loan Document to which it is a party; "MERGER" means the merger of Bullion Acquisition Corp., a Delaware corporation, with and into the Borrower, making the Borrower a wholly-owned subsidiary of Placer Dome as more fully set forth in that certain Agreement and Plan of Merger dated as of December 11, 1998, as amended, among the Borrower, Bullion Acquisition Corp. and Placer Dome; 11 -7- "NOTICE OF CONTINUATION/CONVERSION" means a Notice of Continuation/Conversion in the form of Schedule D hereto; "OBLIGATIONS" means all indebtedness, liabilities and other obligations of the Borrower to the Lender under or in connection with this Agreement and the other Loan Documents and any other document delivered pursuant hereto, including all Advances, all interest which may accrue after the filing of any case under the United States Bankruptcy Code, whether or not such interest is allowed in such case, and the obligation to pay an amount equal to the amount of any and all damages which the Lender may suffer by reason of a breach by the Borrower or any other obligor of any obligation, covenant, or undertaking with respect to this Agreement or any other Loan Document, whether actual or contingent, direct or indirect, matured or not, now existing or arising hereafter; "OFFICERS' CERTIFICATE" means a certificate signed by the Chief Executive Officer and the Chief Financial Officer of the Borrower or FMG, as the case may be; "PAYMENT DATE" shall mean the last day of the Interest Period for any Advance; "PERMITTED LIENS" has the meaning set out in Schedule C; "PERSON" means any individual, partnership, limited partnership, limited liability company, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative or Governmental Body; "PLACER DOME" means Placer Dome Inc., a corporation amalgamated under the Canada Business Corporations Act; "PRIME RATE" shall mean, at any time, the rate of interest adopted by The Toronto-Dominion Bank, New York Branch, as its reference rate for the determination of interest rates for loans of varying maturities in United States dollars to United States residents of varying degrees of creditworthiness and being quoted at such time by such bank as its "prime rate." The Prime Rate is not necessarily the lowest rate of interest charged to borrowers of The Toronto-Dominion Bank; "REQUEST FOR ADVANCE" means a notice in the form of Schedule A to this Agreement; "SUBSIDIARY" means FMG and any other subsidiary of the Borrower that may exist from time to time; "TAXES" means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any Governmental Body having power to tax, together with penalties, fines, additions to tax and interest thereon; and 12 -8- "U.S. DOLLARS" or "$" means lawful money of the United States of America. 1.2. GENDER AND NUMBER Words importing the singular include the plural and vice versa and words importing gender include all genders. 1.3. INTEREST Where in any Loan Document a rate of interest is to be calculated on the basis of a year of 360 days, the yearly rate of interest to which the 360 day rate is equivalent is such rate multiplied by the number of days in the year for which such calculation is made and divided by 360. 1.4. INVALIDITY, ETC. Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision of this Agreement or of any other Loan Document. Without limiting the generality of the foregoing, if any amounts on account of interest or fees or otherwise payable by the Borrower to the Lender hereunder exceed the maximum amount recoverable under Applicable Law, the amounts so payable hereunder shall be reduced to the maximum amount recoverable under Applicable Law and the Lender, in consultation with the Borrower, will determine the payment or payments that are to be reduced or refunded, as the case may be, to effect such result. 1.5. HEADINGS, ETC. The division of this Agreement into articles, sections and clauses, the inclusion of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.6. GOVERNING LAW; ATTORNMENT THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANY OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK OR, AT THE SOLE OPTION OF 13 -9- THE LENDER, IN ANY OTHER COURT IN WHICH THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND PERSONAL JURISDICTION OVER THE BORROWER. EACH OF THE BORROWER AND THE LENDER WAIVES ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 1.6. THE BORROWER AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF THE BORROWER AND THE LENDER REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 1.7. REFERENCES Except as otherwise specifically provided, reference in this Agreement to any contract, agreement or any other instrument shall be deemed to include references to the same as varied, amended, supplemented or replaced from time to time and reference in this Agreement to any enactment, including without limitation, any statute, law, by-law, regulation, ordinance or order, shall be deemed to include references to such enactment as re-enacted, amended or extended from time to time. 1.8. CURRENCY Except as otherwise specifically provided herein, all monetary amounts in this Agreement are stated in, and all amounts payable hereunder are payable in, U.S. dollars. 1.9. THIS AGREEMENT TO GOVERN If there is any inconsistency between the terms of this Agreement and the terms of any other Loan Document, the provisions hereof shall prevail to the extent of the inconsistency. For greater certainty, notwithstanding that any Loan Document may provide for payment on demand, the Obligations shall only be payable as stipulated herein. 1.10. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Except as otherwise specifically provided herein, all accounting terms shall be applied and construed in accordance with U.S. generally accepted accounting principles consistently applied. 14 -10- 1.11. COMPUTATION OF TIME PERIODS Except as otherwise specifically provided herein, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". 1.12. ACTIONS ON DAYS OTHER THAN BANKING DAYS Except as otherwise specifically provided herein, where any payment is required to be made or any other action is required to be taken on a particular day and such day is not a Banking Day and, as a result, such payment cannot be made or action cannot be taken on such day, then this Agreement shall be deemed to provide that such payment shall be made or such action shall be taken on the first Banking Day after such day; provided that if such deferral would cause such payment to be made or such action to be taken after the first day of the following calendar month, such payment shall be made or such action shall be taken on the next preceding Banking Day and interest and fees shall be calculated accordingly. If the payment of any amount is deferred for any period under this section, then such period shall, unless otherwise provided herein, be included for purposes of the computation of any interest or fees payable hereunder. 1.13. VERBAL INSTRUCTIONS Notwithstanding any other provision herein regarding the delivery of notices by the Borrower, the Lender shall in its sole discretion be entitled to act upon the verbal instructions of the Borrower, or any Person reasonably believed by the Lender to be a Person authorized by the Borrower to give instructions regarding any request. All such verbal instructions shall be at the risk of the Borrower and must be confirmed in writing by the Borrower on the same Banking Day as the verbal instruction is given. The Lender shall not be responsible for any error or omission in such instructions or in the performance thereof except in the case of negligence or wilful misconduct by the Lender as determined by a final order of a court of competent jurisdiction. ARTICLE 2. THE LOAN FACILITY 2.1. AMOUNT Upon and subject to the terms and conditions of this Agreement, the Lender hereby establishes the Loan Facility in favor of the Borrower in the amount of $10,000,000. 2.2. ADVANCES The Borrower shall be entitled to obtain Advances under the Loan Facility, in an amount of $1,000,000 (or an integral multiple of $250,000 in excess of that amount) for each Advance, upon satisfaction of the conditions set out in Article 4. Upon satisfaction of the 15 -11- conditions set out in Article 4, the principal amount of any Loan that is repaid may be reborrowed. 2.3. EVIDENCE OF INDEBTEDNESS The indebtedness of the Borrower resulting from Loans made by the Lender shall be evidenced by the Grid Promissory Note. The Lender shall record on the Grid Promissory Note each Advance and the date thereof and the interest, fees and other charges accrued thereon and applicable thereto from time to time and each payment of principal (including prepayments). The Grid Promissory Note shall constitute, in the absence of manifest error, prima facie evidence of the indebtedness of the Borrower to the Lender. The failure of the Lender to correctly record any amount or date on the Grid Promissory Note shall not adversely affect the obligation of the Borrower to pay amounts due hereunder to the Lender in accordance with this Agreement. At all times and for all purposes, the Grid Promissory Note may be tendered as prima facie evidence, in the absence of manifest error, of the matters recorded therein. 2.4. TERM AND REPAYMENT 2.4.1. Term: Notwithstanding any other provision of this Agreement, Obligations outstanding on the Due Date shall be due and payable, together with all interest accrued and unpaid thereon, on the Due Date. 2.4.2. Prepayment: The principal amount of the Loans may be repaid in full or in part at any time prior to the Due Date upon three (3) Banking Day's prior written notice to the Lender, without penalty or premium; provided that the Borrower shall reimburse the Lender for any loss or reasonable out-of-pocket expense incurred by the Lender in connection with such prepayment, as set forth in Section 11.5 hereof. Each notice of prepayment shall be irrevocable. Prepayments of principal hereunder shall be in integral multiples of $250,000. 2.5. APPLICATION OF PROCEEDS During the existence of an Event of Default, all amounts prepaid and repaid shall be applied firstly in reduction of fees due to the Lender and then in reduction of the accrued and unpaid interest then outstanding and then in reduction of the principal amount of the Loans then outstanding and thereafter in reduction of all other Obligations outstanding. 2.6. PAYMENTS GENERALLY All payments in respect of the Loans (in respect of principal, interest, fees or otherwise) shall be made in U.S. dollars in immediately available funds by the Borrower to the Lender no later than 11:00 a.m. (Houston time) on the due date thereof to the accounts specified therefor by the Lender at its Branch of Account. Any payments received after such time shall be considered for all purposes as having been made on the next following Banking Day unless the Lender otherwise agrees in writing. All payments shall be made by way of immediate transfers from accounts of the Borrower with the Lender or other immediately available funds. 16 -12- ARTICLE 3. FEES AND EXPENSES 3.1. FACILITY FEE The Borrower shall pay to the Lender a facility fee in the amount of one percent (1.0%) per annum of the Commitment, which fee shall be payable commencing on May 1, 1999 and on the first day of each month during the remaining term of the Loan Facility. The facility fee shall be fully earned when due and non-refundable when paid, and calculated based on a year of 360 days. 3.2. PAYMENT OF COSTS AND EXPENSES Whether or not the Borrower obtains any Loans hereunder, the Borrower shall pay to the Lender upon request all reasonable out-of-pocket costs and expenses of the Lender, its agents, officers and employees, any receiver or receiver-manager appointed by it or by a court in connection with this Agreement or the other Loan Documents, including, without limitation: 3.2.1. the preparation, execution, filing and registration of any of the Loan Documents, any actual or proposed amendment or modification hereof or thereof or any waiver hereunder or thereunder and all instruments supplemental or ancillary thereto; 3.2.2. obtaining advice as to the Lender's rights and responsibilities under the Loan Documents; and 3.2.3. the defense, establishment, protection or enforcement of any of the rights or remedies of the Lender under any of the Loan Documents including, without limitation, all costs and expenses of establishing the validity and enforceability of, or of collection of amounts owing under, any of the Loan Documents or of any enforcement of the Loan Documents, and further including, without limitation, all of the fees, expenses and disbursements of the Lender's Counsel, (and, following the occurrence of an Event of Default, such legal counsel as may be retained by the Lender), incurred in connection therewith, and including all sales or value-added taxes payable by the Lender (whether refundable or not) on all such costs and expenses. 17 -13- ARTICLE 4. CONDITIONS PRECEDENT 4.1. CONDITIONS PRECEDENT TO CLOSING The obligation of the Lender to close this Agreement is subject to the fulfilment, to the satisfaction of the Lender and Lender's Counsel, of each of the following conditions on or before the Closing Date: 4.1.1. the Lender shall have received a duly executed copy of this Agreement and the FMG Guarantee; 4.1.2. the Borrower shall have delivered to the Lender an opinion of the Borrower's Counsel, as counsel to the Borrower and FMG, addressed to the Lender, in form satisfactory to the Lender, acting reasonably; 4.1.3. the Lender shall have received, in form and substance satisfactory to the Lender acting reasonably, an Officers' Certificate from the Borrower dated as of the Closing Date certifying that attached thereto are true and correct copies of the following documents, and that such documents are in full force and effect, unamended: 4.1.3.1. the certificate of incorporation of the Borrower; 4.1.3.2. the by-laws of the Borrower; 4.1.3.3. good standing certificates for the Borrower issued by the States of Delaware, Colorado, and Nevada; 4.1.3.4. a certificate of incumbency, including sample signatures of officers, of the Borrower; and 4.1.3.5. the resolutions or other documentation evidencing that all necessary action, corporate or otherwise, has been taken by the Borrower to authorize the execution, delivery and performance of the Loan Documents; 4.1.4. the Lender shall have received, in form and substance satisfactory to the Lender acting reasonably, an Officers' Certificate from FMG dated as of the Closing Date certifying that attached thereto are true and correct copies of the following documents, and that such documents are in full force and effect, unamended: 4.1.4.1. the articles of incorporation of FMG; 4.1.4.2. the by-laws of FMG; 4.1.4.3. good standing certificates for FMG issued by the State of Nevada; 4.1.4.4. Intentionally omitted; and 18 -14- 4.1.4.5. the resolutions or other documentation evidencing that all necessary action, corporate or otherwise, has been taken by FMG to authorize the execution, delivery and performance of the Loan Documents to which it is a party; 4.1.5. the Lender shall have received evidence that there are no Liens on any assets of the Borrower other than Permitted Liens and that the Borrower has obtained all consents and authorizations necessary for it to enter into this Agreement (including, without limitation, the consent of Placer Dome); and 4.1.6. the Lender shall have received payment by the Borrower of all accrued and unpaid fees, costs and expenses to the extent then due and payable by the Borrower to the Lender and its affiliates, including TD Securities (USA), Inc., as arranger, on the Closing Date, together with Attorney Costs of the Lender to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute the Lenders' reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Borrower and Lender); including any such costs, fees and expenses arising under or referenced in Article 3; 4.1.7. the representations and warranties set forth in Article 7 are true and accurate in all material respects on the Closing Date; 4.1.8. the Lender shall have received such other approvals, opinions, documents or materials as the Lender may reasonably request; and 4.1.9. the Lender's site visit to the Borrower's mining operations shall have been completed and the results reasonably satisfactory to the Lender. 4.2. GENERAL CONDITIONS PRECEDENT TO ALL ADVANCES The Borrower shall not be entitled to obtain an Advance until satisfaction of and compliance with the following terms and conditions: 4.2.1. the representations and warranties set forth in Article 7 are true and accurate in all material respects on the Closing Date and shall continue to be true and accurate in all material respects on the date of the Advance in question and the Lender shall have received an Officers' Certificate from the Borrower to such effect; 4.2.2. no Default or Event of Default shall have occurred and be continuing and the Lender shall have received an Officers' Certificate from the Borrower to such effect; and 4.2.3. the Lender shall have received a Request for Advance in accordance with Section 5.3. 19 -15- 4.3. CONDITIONS PRECEDENT TO INITIAL ADVANCE In addition to the terms and conditions contained in Sections 4.1 and 4.2, the Borrower shall be entitled to obtain the initial Advance under the Loan Facility upon and only in compliance with the following terms and conditions: 4.3.1. the Lender shall have received an Officers' Certificate, in form satisfactory to the Lender acting reasonably, certifying that all regulatory and other governmental approvals and consents required for the Merger have been obtained, including without limitation, that as of the Closing Date the Securities Exchange Commission has not objected to the treatment of the Merger as a pooling of interests under U.S. generally accepted accounting principles: 4.3.2. since the date of the audited consolidated financial statements of the Borrower dated as of and for the period ending December 31, 1998, there has been no development which has had or will have a material adverse effect upon the business, operation, assets, capitalization, financial condition or prospects of the Borrower or upon the ability of the Borrower to perform its obligations under any of the Loan Documents and the Lender shall have received an Officers' Certificate from the Borrower to such effect; and 4.3.3. the Lender shall have received the duly executed Grid Promissory Note. ARTICLE 5. ADVANCES 5.1. LOANS 5.1.1. Upon the timely fulfilment of all applicable conditions as set forth in this Agreement, the Lender shall make the requested amount of each Advance available to the Borrower on the Drawdown Date by crediting the Designated Account with such amount and making the appropriate notation on the Grid Promissory Note. The Borrower shall designate whether the requested Advance will be a Base Rate Advance or a LIBOR Advance. 5.1.2. So long as there shall not have occurred and be continuing a Default hereunder, upon at least three (3) Banking Days' irrevocable prior written notice from time to time to the Lender pursuant to a Notice of Continuation/Conversion, the Borrower may convert all or a portion of the principal of any Base Rate Advance to one or more LIBOR Advances. Additionally, at least three (3) Banking Days' prior to each Payment Date for a LIBOR Advance, the Borrower shall give the Lender written notice pursuant to a Notice of Continuation/Conversion specifying whether all or a portion of any LIBOR Advance outstanding on the Payment Date (A) is to be rolled over as another LIBOR Advance, or (B) is to be converted to a Base Rate Advance; provided, however, the Borrower shall not have the right to 20 -16- roll over a LIBOR Advance as another LIBOR Advance if any Default then exists, and such LIBOR Advance shall instead be converted to a Base Rate Advance on such Payment Date. LIBOR Advances may be prepaid on or prior to the applicable Payment Date upon at least three (3) Banking Days' prior written notice to the Lender, only in accordance with the terms of Section 11.5 hereof. 5.2. PAYMENT OF INTEREST 5.2.1. Interest on the Loans shall be computed on the basis of a year of 360 days for the actual number of days elapsed and shall be payable in arrears on the applicable Payment Date for the period through the date immediately preceding such Payment Date. Interest on the outstanding Loans shall also be due and payable on the Due Date. Interest shall accrue and be payable on each Base Rate Advance at a per annum interest rate equal to the Base Rate. Interest shall accrue and be payable on each LIBOR Advance at a per annum interest rate equal to (A) the LIBOR Basis applicable to such LIBOR Advance, plus (B) one and one half percent (1.50%). 5.2.2. If an Event of Default shall have occurred and shall be continuing, the Lender shall have the option (but shall not be required to give prior notice thereof to the Borrower, to accelerate the maturity of the Loan, or exercise any other rights or remedies hereunder in connection with this right) to charge interest on the outstanding principal balance of the Loan at a rate which is two percentage points (2.0%) above the rate which would accrue pursuant to Section 5.2.1. above (the "Default Rate") from the date of such Event of Default. Interest at the Default Rate shall be payable on the earlier of DEMAND by the Lender or the Due Date and shall accrue until the earlier of (i) waiver in writing by the Lender of the applicable Event of Default, (ii) agreement by the Lender to rescind the charging of interest at the Default Rate, or (iii) payment in full of the Obligations. In addition, upon the occurrence and during the continuance of an Event of Default, the Lender shall have all the rights and remedies set forth in this Agreement and the other Loan Documents. 5.2.3. In computing interest on any Advance, the date of making the Advance shall be included and the date of payment shall be excluded; provided, however, that if an Advance is repaid on the date that it is made, one (1) day's interest shall be due with respect to such Advance. 5.3. REQUEST FOR ADVANCES Request for Advances or repayment notices, as the case may be, shall be given on the third Banking Day prior to the date of any Advance or payment. A Request for Advance shall be given not later than 11:00 a.m. (Houston time) on the date for notice. If a notice is not given by such time, it shall be deemed to have been given on the next Banking Day, unless the Lender agrees to accept the late notice as being effective on the date it is given. 21 -17- ARTICLE 6. SECURITY INTENTIONALLY OMITTED ARTICLE 7. REPRESENTATIONS AND WARRANTIES 7.1. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lender that: 7.1.1. Incorporation and Status: each of the Borrower and FMG is duly incorporated and validly existing under the laws of Delaware and Nevada, respectively, and has the corporate power and capacity to own its properties and assets and to carry on its business as presently carried on by it or as contemplated hereunder to be carried on by it and holds all Material Authorizations; 7.1.2. Power and Authority: the Borrower has the corporate power and authority to enter into each of the Loan Documents and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it; 7.1.3. Business: neither the Borrower nor FMG is engaged in any business other than as set out in the Borrower's most recent annual report on Form 10-K; 7.1.4. Due Authorization: the Borrower and FMG have each taken all necessary corporate actions to authorize the execution, delivery and performance by it of each of the Loan Documents to which it is a party; 7.1.5. No Contravention: the execution and delivery by the Borrower of the Loan Documents to which it is a party and the performance by the Borrower of its obligations thereunder (i) does not and will not contravene, breach or result in any default under the organizational documents of the Borrower or under any material mortgage, lease, agreement or other legally binding instrument, license, permit, Material Authorization or Applicable Law to which the Borrower is a party or by which the Borrower or any of its properties or assets may be bound, (ii) will not oblige the Borrower to grant any Lien to any Person, (iii) will not result in or permit the acceleration of the maturity of any indebtedness, liability or obligation under any material mortgage, lease, agreement or other legally binding instrument of or affecting the Borrower and (iv) will not violate any judgment, order, injunction, determination or award which is binding on the Borrower; 7.1.6. No Consents Required: no Material Authorization or other material authorization, consent or approval of, or filing with or notice to, any Person (including any Governmental Body) is required which has not been obtained in connection with 22 -18- the execution, delivery or performance by the Borrower of this Agreement or any of the other Loan Documents; 7.1.7. Enforceability: each of the Loan Documents to which the Borrower is a party constitutes, or upon execution and delivery will constitute, a valid and binding obligation of the Borrower enforceable against it in accordance with its terms, subject only to the qualifications set out in the opinion of the Borrower's Counsel; 7.1.8. Title: the Borrower has good and valid title to all of the issued and outstanding capital stock of FMG, free and clear of any Liens and no Person has any claim or rights with respect to such capital stock, and the Borrower has good and valid title to all of its other assets free and clear of Liens other than Permitted Liens; 7.1.9. No Litigation: there is no court, administrative, regulatory or similar proceeding (whether civil or criminal); arbitration or other dispute settlement procedure; investigation or inquiry by any Governmental Body; or any similar matter or proceeding (collectively "proceedings") against or involving the Borrower or FMG, whether in progress or, to its knowledge, threatened, which could reasonably be expected to materially adversely affect its ability to perform any of the provisions of any Loan Document to which it is a party or which purports to affect the legality, validity and enforceability of any such Loan Document; no event has occurred which might reasonably be expected to give rise to any proceedings and there is no judgment, decree, injunction, rule, award or order of any Governmental Body outstanding against the Borrower or FMG which has or could reasonably be expected to have a material adverse effect on the Borrower's ability to perform any of the provisions of any Loan Document; 7.1.10. No Default: neither the Borrower nor FMG is in default or breach under the terms and conditions relating to any Material Authorizations and there exists no state of facts which, after notice or the passage of time or both, would constitute such a default or breach; and there are no proceedings in progress or pending, or to the Borrower's knowledge, threatened, which may result in the revocation, cancellation, suspension or any adverse modification of any Material Authorization; 7.1.11. Financial Statements: the audited consolidated financial statements of the Borrower dated as of and for the period ending December 31, 1998 contained in the annual report on Form 10-K of the Borrower have been prepared in accordance with U.S. generally accepted accounting principles and fairly, completely and accurately present the financial position of the Borrower and the financial information presented therein for the period and as at the date thereof. Since the date of such audited consolidated financial statements, there has been no development which has had or which could reasonably be expected to have a material adverse effect upon the business, property, financial condition or 23 -19- prospects of the Borrower or upon the ability of the Borrower to perform its obligations under any of the Loan Documents; 7.1.12. Other Material Subsidiaries: The Borrower does not have any Subsidiaries other than FMG; 7.1.13. Environmental Compliance: The Borrower and FMG and the business and assets of each of them has been and is being operated in compliance in all material respects with all applicable Environmental Laws and Environmental Permits; 7.1.14. Compliance with Regulations U and X. Neither the Borrower nor any of its Subsidiaries is engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying, and neither the Borrower nor any of its Restricted Subsidiaries owns or presently intends to acquire, any "margin security" or "margin stock" as defined in Regulations U and X of the Board of Governors of the Federal Reserve System (herein called "margin stock"). None of the proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of said Regulations U and X; 7.1.15. Year 2000 Issue. The Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries businesses and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the "Year 2000 Issue" (that is, the risk that computer applications used by the Borrower or any of its Subsidiaries (or suppliers, vendors and customers) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Issue on a timely basis and (iii) to date, implemented that plan in accordance with that timetable ((i), (ii) and (iii), the "Year 2000 Plan"). Based on the foregoing, the Borrower represents and warrants that all computer applications that are material to its or any of its Subsidiaries businesses and operations will be able on a timely basis to perform properly date sensitive functions for all dates before and after December 31, 1999 (that is, be "Year 2000 Compliant"). In addition, neither the cost to the Borrower and its Subsidiaries of implementing the Year 2000 Plan and becoming Year 2000 Compliant nor the affect of the Year 2000 Issue on the Borrower and its Subsidiaries has resulted or is reasonably likely to result in an Event of Default or a Default or in a material adverse change on the business, assets, liabilities, financial condition, prospects or results of operations of the Borrower or its Subsidiaries; and 24 -20- 7.1.16. ChemFirst, Inc. Indebtedness: the Obligations of the Borrower are pari passu with all of the Borrower's Indebtedness to ChemFirst, Inc. 7.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES The Borrower covenants that the representations and warranties made by it in this Article 7 shall be true and correct in all material respects on each day that this Agreement remains in force and effect, and all such representations and warranties shall be deemed to be made on each such day with the same effect as if such representations and warranties had been made and given on and as of such day, notwithstanding any investigation made at any time by the Lender; except that if any such representation and warranty is specifically given in respect of information as of a particular date or particular period of time and relates only to such information, then such representation and warranty shall continue to be given as at such date or for such period of time until the information to which it relates is updated at which point it shall continue to be given as of such updated date or period of time, and so forth from time to time. ARTICLE 8. COVENANTS 8.1. AFFIRMATIVE COVENANTS So long as any Obligations remain outstanding and the Commitment has not been terminated, unless the Lender otherwise consents in writing, the Borrower covenants and agrees that: 8.1.1. Punctual Payment: it shall pay or cause to be paid all Obligations falling due hereunder on the dates and in the manner specified herein; 8.1.2. Conduct of Business: it shall do or cause to be done, and shall cause FMG to do or cause to be done, all things necessary or desirable to maintain its corporate existence in its present jurisdiction of incorporation and to maintain its corporate power and authority to own its properties and assets; 8.1.3. Preservation of Material Authorizations: it shall preserve and maintain all Material Authorizations of the Borrower; 8.1.4. Compliance with Applicable Law and Contracts: it shall comply, and shall cause FMG to comply, with the requirements of all Applicable Laws and all contracts to which it is a party or by which it or its properties are bound, non-compliance with which would, singly or in the aggregate, have a material adverse effect upon the Borrower's ability to perform its obligations under any Loan Document; 8.1.5. Notice of Litigation and Other Matters: as soon as practical after it shall become aware of the same, the Borrower shall give, and shall cause FMG to give, notice to the Lender of the following events: 25 -21- 8.1.5.1. the commencement of any action, proceeding, arbitration or investigation against or in any other way relating adversely to the Borrower or FMG or its properties, assets or businesses which, if adversely determined, could reasonably be expected to singly or when aggregated with all other such actions, proceedings, arbitrations and investigations, have a material adverse effect on the ability of the Borrower to perform its obligations under any Loan Document; 8.1.5.2. any amendment of the organizational documents of the Borrower; 8.1.5.3. any development which has had or could reasonably be expected to have a material adverse effect upon the ability of the Borrower to perform its obligations under any Loan Documents; and 8.1.5.4. any Default or Event of Default giving in each case the details thereof and specifying the action proposed to be taken with respect thereto. 8.1.6. Maintenance of Assets: it shall, and shall cause FMG to, keep all of its equipment in good working order and condition, and protect and maintain the value of all other assets, except where the failure to do so would not have a material adverse effect on the Borrower and FMG, taken as a whole; 8.1.7. Use of Proceeds: it shall use the Advance solely for general working capital purposes of the Borrower; 8.1.8. Compliance Certificate: within two (2) Banking Days following a request therefor from the Lender, the Borrower shall deliver to the Lender an Officers' Certificate certifying that no Default or Event of Default has occurred hereunder or, if any Default or Event of Default has occurred, specifying the relevant particulars and the period of existence thereof and the action taken or proposed to be taken by the Borrower with respect thereto; 8.1.9. Year 2000 Issue: the Borrower and its Subsidiaries shall implement and complete the Year 2000 Plan in accordance with the timetable set out in such Plan. In addition, the Borrower and its Subsidiaries shall provide the Lender, upon request, with their current Year 2000 Plan, periodic updates on the implementation and progress of such Plan and access to their senior management for discussions on the Year 2000 Plan. The Borrower and its Subsidiaries shall ensure that adequate resources are committed to implement and complete the Year 2000 Plan. The Borrower and its Subsidiaries shall be Year 2000 Compliant by December 31, 1999; and 8.1.10. Tax and Accounting Treatment of the Merger: the Borrower shall not take any action and shall not fail to take any action which action or failure to act would 26 -22- prevent, or would be likely to prevent, the Merger from qualifying (a) for pooling of interests accounting treatment under U.S. generally accepted accounting principles or (b) as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. 8.2. NEGATIVE COVENANTS So long as any Obligations remain outstanding and the Commitment has not been terminated, unless the Lender otherwise consents in writing, the Borrower covenants and agrees that: 8.2.1. Encumber Assets: without the prior written approval of the Lender, it shall not and shall not permit FMG to create, grant, assume or suffer to exist any Liens upon its assets, other than Permitted Liens; 8.2.2. Unrelated Business: it shall not engage directly or indirectly in any business activity, or purchase or otherwise acquire any properties or assets, in each case unrelated to or unnecessary for the conduct of its present business in the ordinary course; 8.2.3. Sell Assets: it shall not sell, transfer or otherwise dispose of any of its assets, except that the Borrower may enter into sales transactions in the ordinary course of business and may dispose of worn out, obsolete or replaced assets; 8.2.4. Amalgamations: except for the Merger, it shall not enter into (a) any merger or amalgamation with any other Person, and (b) any other transaction (including by way of merger, reorganization, consolidation, amalgamation, liquidation, transfer, sale or otherwise) whereby all or any material portion of the property and assets of the Borrower would become the property of any other Person; 8.2.5. Limitation on Indebtedness: it shall not, and shall not permit FMG to, incur, create, contract, assume, guarantee or otherwise be or become, directly or indirectly, liable in respect of any Indebtedness, except (i) Indebtedness arising out of this Agreement; (ii) Indebtedness secured by the Permitted Liens, (iii) current liabilities for taxes and assessments incurred in the ordinary course of business, (iv) Indebtedness in respect of current accounts payable accrued and incurred in the ordinary course of business, (v) Indebtedness of the Borrower and FMG as reflected in the audited consolidated financial statements of the Borrower as at December 31, 1998, and (vi) Indebtedness incurred pursuant to the loan agreement between the Borrower and ChemFirst, Inc. dated September 24, 1995 in an aggregate principal amount outstanding not to exceed $29, 600,000; 8.2.6. Distributions and Dividends: neither the Borrower nor FMG shall make any repayment of any Indebtedness (other than the payment of (a) liabilities for taxes and assessments incurred in the ordinary course of business, (b) Indebtedness in respect of current accounts payable accrued and incurred in the ordinary course of 27 -23- business, (c) regularly scheduled payments of interest, and (d) Indebtedness owed to ChemFirst Inc. on September 22, 2000 or upon any "Change of Control" as defined in the Borrower's loan agreement with ChemFirst Inc.), or issue any capital stock or security, or pay or declare any dividends or other forms of cash distributions, except that FMG may pay dividends to the Borrower; 8.2.7. Negative Pledge. it shall not, and shall not permit FMG to, enter into any agreement (other than the Loan Documents or the Merger agreement with Placer Dome) with any Person that prohibits or restricts or limits the ability of the Borrower or FMG to create, incur, pledge or suffer to exist any Lien upon any assets of the Borrower or FMG; and 8.2.8. Subsidiaries: it shall not form or acquire any Subsidiary other than FMG, and it shall not make any loan or advance to, or investment or capital contribution in, or otherwise transfer any assets to FMG other than in the ordinary course of business. ARTICLE 9. EVENTS OF DEFAULT AND REMEDIES 9.1. EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an Event of Default: 9.1.1. the Borrower shall fail to pay any portion of the principal amount of any Loan or interest when due, or the Borrower shall fail to pay any fees or other Obligations within five days of when due and payable; 9.1.2. default in the performance or observance of any covenant, condition or obligation contained in any Loan Document that does not require the payment of money to the Lender and which is not remedied within thirty (30) days of receipt by the Borrower of notice of such default from the Lender provided that, if such default requires more than thirty (30) days to be cured and the Borrower is diligently and actively pursuing the curing of such default, the Borrower shall be afforded such additional time to cure such default as shall be reasonable in the circumstances provided that in any event such default is cured within sixty (60) days of receipt by the Borrower of notice of such default from the Lender; 9.1.3. any representation or warranty made or deemed to have been made by the Borrower herein or in any Loan Document, Officers' Certificate or other document delivered to the Lender pursuant hereto or in connection with any Loan Document is found to be false or incorrect in any way so as to make it materially misleading when made or deemed to have been made; 28 -24- 9.1.4. an event shall occur that causes either the Borrower or FMG to be in default under one or more agreements or instruments under or pursuant to which Indebtedness was incurred or created if the effect of such default or event results in the Indebtedness of the Borrower or FMG in excess of $1,000,000 becoming due prior to its stated maturity; 9.1.5. either the Borrower or FMG admits its inability to pay its debts generally as they become due or otherwise acknowledges its insolvency; 9.1.6. either the Borrower or FMG institutes any proceeding or takes any corporate action or executes any agreement to authorize its participation in or commencement of any proceeding (other than the Merger): 9.1.6.1. seeking to adjudicate it bankrupt or insolvent, or 9.1.6.2. seeking liquidation, dissolution, winding up, reorganization, arrangement, protection, relief or composition of it or any of its property or debt or making a proposal with respect to it under any law relating to bankruptcy, insolvency, reorganization or compromise of debts or other similar laws (including, without limitation, the filing of any petition under the United States Bankruptcy Code or any similar federal or state statute); 9.1.7. any proceeding is commenced against or affecting either the Borrower or FMG: 9.1.7.1. seeking to adjudicate it a bankrupt or insolvent; 9.1.7.2. seeking liquidation, dissolution, winding up, reorganization, arrangement, protection, relief or composition of it or any of its property or debt or making a proposal with respect to it under any law relating to bankruptcy, insolvency, reorganization or compromise of debts or other similar laws (including, without limitation, the filing of any petition under the United States Bankruptcy Code or any similar federal or state statute);or 9.1.7.3. seeking appointment of a receiver, trustee, agent, custodian or other similar official for it or for any substantial part of its properties and assets, or any part thereof, and such proceeding is not being contested in good faith by appropriate proceedings and is not in any event stayed or terminated within forty-five (45) days of its commencement, or, if such proceeding is being contested in good faith, the Borrower should default under Section 9.1.1; 9.1.8. any execution, distress or other enforcement process, whether by court order or otherwise, relating to any entry of final judgment in excess of $1,000,000 29 -25- becomes enforceable against any property of the Borrower or of FMG and the same is not fully covered by insurance; 9.1.9. FMG ceases to be a wholly-owned subsidiary of the Borrower; or 9.1.10. any Change of Control shall occur. 9.2. REMEDIES UPON DEFAULT Upon the occurrence of any Event of Default, the Lender may do any one or more of the following: 9.2.1. declare the unutilized portion (if any) of the Loan Facility to be terminated (whereupon the Lender shall not be required to make any further Advances) and declare all Obligations to be immediately due and payable; 9.2.2. Intentionally Omitted; 9.2.3. take such actions and commence such proceedings as may be permitted by law or in equity (whether or not provided for herein or in the Loan Documents) at such times and in such manner as the Lender in its sole discretion may consider expedient, all without, except as may be required by Applicable Law, any additional notice, presentment, demand, protest, notice of protest, dishonor or any other action. The rights and remedies of the Lender hereunder are cumulative and are in addition to and not in substitution for any other rights or remedies provided by Applicable Law or by the Loan Documents. 9.3. DISTRIBUTIONS All distributions under or in respect of the Loan Documents shall be held by the Lender on account of the Obligations and the Borrower shall remain liable for any deficiency. All such distributions may be applied to such part of the Obligations as the Lender may see fit in its sole discretion, and the Lender may at any time change any appropriation of any such distributions or other moneys received by it and reapply the same against any other part of the Obligations as the Lender may see fit, notwithstanding any previous application, with any remaining amounts following payment of all Obligations, payable to the Borrower. ARTICLE 10. ASSIGNMENT 10.1. ASSIGNMENTS Except as provided in this section, no party may assign its rights or benefits under this Agreement. 30 -26- 10.1.1. The Borrower shall not assign or transfer all or any part of its rights or benefits hereunder without the prior written consent of the Lender. 10.1.2. The Lender may assign all or part of its rights in respect of the Obligations and have its corresponding obligations hereunder assumed by: 10.1.2.1. any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank (no such assignment shall relieve the Lender from its obligations hereunder), or any affiliate of the Lender without the consent of the Borrower, and 10.1.2.2. any other Person with the prior written consent of the Borrower (which consent shall not be unreasonably withheld). Any assignment under Section 10.1.2.1 shall become effective when the Borrower has been notified thereof by the Lender and has received from the assignee an undertaking to be bound by this Agreement and the other Loan Documents and to perform the obligations assumed by it; any assignment under Section 10.1.2.2 shall become effective when the Borrower has provided its written consent to the Lender and has received from the assignee an undertaking to be bound by this Agreement and the other Loan Documents and to perform the obligations assumed by it. Any such assignee shall be treated as a party to this Agreement for all purposes of this Agreement and the other Loan Documents and shall be entitled to the full benefit hereof and thereof and shall be subject to the obligations of the Lender to the same extent as if it were an original party in respect of the rights assigned to it and obligations assumed by it and, except in the case of an assignee referred to in Section 10.1.2.1 the Lender shall be released and discharged accordingly. 10.2. EXCHANGE OF INFORMATION The Lender may provide to any proposed assignee such information concerning the financial position and the operations of the Borrower as, in the opinion of the Lender, may be relevant or useful in connection with the Loan Facility or any portion thereof proposed to be acquired by such assignee, provided that each recipient of such information agrees not to disclose such information to any other Person. ARTICLE 11. GENERAL 11.1. RELIANCE AND NON-MERGER All covenants, agreements, representations and warranties of the Borrower made herein or in any other Loan Document or in any certificate or other document signed by any of its directors or officers and delivered by or on behalf of it pursuant hereto or thereto, shall be 31 -27- deemed to have been relied upon by the Lender notwithstanding any investigation heretofore or hereafter made by the Lender or the Lender's Counsel or any employee or other representative of the Lender and shall survive the execution and delivery of this Agreement and the other Loan Documents until the Borrower shall have satisfied and performed all of the Obligations. 11.2. AMENDMENT AND WAIVER No amendment or waiver of any provision of any Loan Document or consent to any departure by the Borrower from any provision thereof is effective unless it is in writing and signed by the Lender. Such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. 11.3. SET-OFF OR COMPENSATION In addition to and not in limitation of any rights now or hereafter granted under applicable law, if repayment is accelerated pursuant to Section 9.2, the Lender may at any time and from time to time without notice to the Borrower or any other Person, any notice being expressly waived by the Borrower, set-off and compensate and apply any and all deposits, general or special, time or demand, provisional or final, matured or unmatured, and any other indebtedness at any time owing by the Lender to or for the credit of or the account of the Borrower, against and on account of the Obligations notwithstanding that any of them are contingent or unmatured and notwithstanding that any such deposit or indebtedness may or may not be expressed in the same Currency. 11.4. NO SET-OFF FROM PAYMENTS The Borrower agrees to pay principal, interest, fees and all other amounts due hereunder without set-off or counterclaim or any deduction whatsoever. All payments due to the Lender under this Agreement, whether for principal, interest, fees or otherwise, shall be made without set-off or counter-claim, and free and clear and without any deduction or withholding on account of any taxes, all of which shall be for the account of the Borrower and paid by it directly to the relevant taxing or other authority when due. If the Borrower shall be required by law to make any deduction or withholding in respect of taxes from any payment hereunder, the sum payable shall be increased by such amount as will result in the receipt by the Lender, after such deduction or withholding, of the amount that would have been received if such deduction or withholding had not been required. The Borrower shall, at the request of the Lender, furnish to the Lender authenticated copies of receipts evidencing that the Borrower has met its obligations under this section. 11.5. REIMBURSEMENT 11.5.1. Whenever the Lender shall sustain or incur any losses or reasonable out-of-pocket expenses in connection (i) the failure by the Borrower to borrow, prepay or convert any Advance after having given notice of its intention to do so in accordance with Section 2.4 hereof (whether by reason of the Borrower's election not to proceed or the non-fulfilment of any of the conditions set forth in Article 4 32 -28- or otherwise), or (ii) with the prepayment of any LIBOR Advance in whole or in part for any reason, the Borrower agrees to pay to the Lender, upon the earlier of the Lender's demand or the Due Date, an amount sufficient to compensate the Lender for all such losses and reasonable out-of-pocket expenses. The Lender's good faith determination of the amount of such losses or out-of-pocket expenses, as set forth in writing and accompanied by calculations in reasonable detail demonstrating the basis for its demand, shall be conclusive, absent manifest error. 11.5.2. Losses subject to reimbursement hereunder shall include, without limiting the generality of the foregoing, expenses incurred by the Lender or any participant of the Lender in connection with the re-employment of funds prepaid, repaid, not borrowed, or paid, as the case may be, and lost profits. 11.6. CAPITAL ADEQUACY. If, after the date hereof, the adoption of any Applicable Law regarding the capital adequacy of banks or bank holding companies, or any change in Applicable Law (whether adopted before the closing date but not effective until after the closing date or adopted after the closing date), other than in connection with income taxes, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Lender with any directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Lender's capital as a consequence of its obligations hereunder with respect to the Loans to a level below that which it could have achieved but for such adoption, change or compliance (taking into consideration the Lender's policies with respect to capital adequacy immediately before such adoption, change or compliance and assuming that the Lender's capital was fully utilized prior to such adoption, change or compliance) by an amount reasonably deemed by the Lender to be material, then upon the earlier of demand by the Lender or the Due Date, the Borrower shall promptly pay to the Lender such additional amounts as shall be sufficient to compensate the Lender for such reduced return, together with interest on such amount from the fourth (4th) day after the date of demand until payment in full thereof at the Default Rate. A certificate of the Lender setting forth the amount to be paid to the Lender by the Borrower as a result of any event referred to in this paragraph and supporting calculations in reasonable detail demonstrating the basis therefor shall be conclusive, absent manifest error. 11.7. INDEMNITY. The Borrower agrees to indemnify and hold harmless the Lender, and each of its affiliates, employees, representatives, officers, directors and agents (any of the foregoing shall be an "Indemnitee") from and against any and all claims, liabilities, losses, damages, actions, investigations, proceedings, attorneys' fees and expenses (as such fees and expenses are incurred and irrespective of whether suit is brought) and demands by any party, including the costs of investigating and defending such claims, actions, investigations or proceedings, and the costs of answering any discovery served in connection therewith, whether or not the Borrower, any 33 -29- Subsidiary or the Person seeking indemnification is the prevailing party and whether or not the Person seeking indemnification is a party to any such action or proceeding (a) resulting from any breach or alleged breach by the Borrower or any Subsidiary of the Borrower of any representation or warranty made hereunder, or (b) arising out of (i) the Loans or otherwise under this Agreement, including the use of the proceeds of Loan hereunder in any fashion by the Borrower or any of its Subsidiaries or the performance of their respective obligations under the Loan Documents by the Borrower or any of its Subsidiaries, (ii) allegations of any participation by the Lender in the affairs of the Borrower or any of its Subsidiaries, or allegations that the Lender has any joint liability with the Borrower or any of its Subsidiaries for any reason, or (iii) any claims against the Lender by any shareholder or other investor in or lender to the Borrower or any Subsidiary of the Borrower, by any brokers or finders or investment advisers or investment bankers retained by the Borrower or by any other third party, for any reason whatsoever, or (c) in connection with taxes, fees, and other charges payable in connection with the Loan, or the execution, delivery, and enforcement of this Agreement, the other Loan Documents, and any subsequent amendments thereto or waivers of any of the provisions thereof; unless the Person seeking indemnification hereunder is determined in such case to have acted or failed to act with gross negligence or willful misconduct by a non-appealable judicial order. 11.8. NOTICES Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by prepaid first-class mail, by nationally recognized overnight delivery service, by telecopier or other means of electronic communication or by hand-delivery as hereinafter provided. Any such notice, if mailed by prepaid first-class mail at any time other than during or within four Banking Days prior to a general discontinuance of postal service due to strike, lockout or otherwise, shall be deemed to have been received on the fourth Banking Day after the post-marked date thereof, or if sent by overnight delivery or by telecopier or other means of electronic communication, shall be deemed to have been received on the Banking Day following the sending, or if delivered by hand delivery shall be deemed to have been received at the time it is delivered to the applicable address of the addressee. Notice of change of address shall also be governed by this section. In the event of a general discontinuance of postal service due to strike, lock-out or otherwise, notices or other communications shall be delivered by hand or sent by facsimile or other means of electronic communication and shall be deemed to have been received in accordance with this section. Notices and other communications shall be addressed to the addresses of the relevant party hereto as follows: To the Borrower: Getchell Gold Corporation 5460 South Quebec Street Suite 240 Englewood, Colorado 80111 Attention: Chief Financial Officer Telecopier No.: (303) 771-1075 34 -30- with a copy to: Latham & Watkins 505 Montgomery Street Suite 1900 San Francisco, California 94111-2562 U.S.A. Attention: Tad J. Freese Telecopier No.: (415) 395-8095 To the Lender: Toronto Dominion (Texas), Inc. 909 Fannin, Suite 1700 Houston, Texas 77010 Attention: Carol Brandt Telecopier No.: (713) 951-9921 with a copy to: The Toronto Dominion First National Plaza 70 W. Madison, Suite 5430 Chicago, IL 60602 Attention: Mario da Ponte Telecopier No.: (312) 782-6337 and a copy to: Paul Hastings Janofsky & Walker LLP 600 Peachtree Street, N.E. Suite 2400 Atlanta, GA 30308 Attention: Chris D. Molen, Esq. Telecopier No.: (404) 815-2424 Upon the occurrence of any Event of Default, the Borrower shall notify the following persons: Placer Dome Inc. 1600-1055 Dunsmuir Street Vancouver, B.C. V7X 1P1 35 -31- Attention: J.R. Donald Rose Telecopier No.: (604) 661-3703 with a copy to: David S. Stone Seyfarth, Shaw, Fairweather & Geraldson 55 Monroe Street, Suite 4200 Chicago, Illinois 60603 Telecopier No.: (312) 269-8869 11.9. TIME Time is of the essence with respect to the Loan Documents. 11.10. FURTHER ASSURANCES Whether before or after the happening of an Event of Default, the Borrower shall at its own expense do, make, execute or deliver all such further acts, documents and things in connection with the Loan and the Loan Documents as the Lender may reasonably require from time to time for the purpose of giving effect to the Loan Documents including, without limitation, for the purpose of facilitating the enforcement of the Loan Documents, all promptly upon the request of the Lender. 11.11. COUNTERPARTS This Agreement may be signed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute one and the same instrument. 11.12. ENTIRE AGREEMENT The Loan Documents constitute the entire agreement between the parties hereto pertaining to the matters therein set forth and supersede and replace any prior understandings or arrangements pertaining to the subject matter hereof. There are no warranties, representations or agreements between the parties in connection with such matters except as specifically set forth or referred to in the Loan Documents. 36 IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the date first written above. GETCHELL GOLD CORPORATION By: /s/ Donald S. Robson -------------------------------- Title: Vice President and Chief -------------------------------- Financial Officer -------------------------------- TORONTO DOMINION (TEXAS), INC. By: /s/ Carol Brandt -------------------------------- Title: Vice President -------------------------------- EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 8,410 0 4,596 0 15,090 29,824 370,411 109,502 295,476 22,424 0 0 0 3 222,938 295,476 14,476 14,476 20,004 20,004 1,443 0 693 (7,664) 0 (7,664) 0 0 (7,804) (15,468) (0.50) (0.50)
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